REPORT ON

ICT INDUSTRY IN INDIA

SECTION A: ICT SECTOR ANALYSIS PART 1 SECTOR ANALYSIS FOR IT & TELECOM

• 1.1 Introduction • 1.2 Market overview • 1.3 Demand dynamics • 1.4 Range of service offerings • 1.5 Sourcing models • 1.6 The India advantage

• 1.6.1 Vast Access to Skill base: • 1.6.2 Strong quality orientation • 1.6.3 Availability of high quality infrastructure • 1.6.4 Cost advantage • 1.6.5 Enabling policy environment • 1.6.6 Mature industry eco-system • 1.6.7 Availability of private equity • 1.6.8 Commitment of address security concerns • 1.6.8 Prominent IT services & ITES locations within India

• 1.7 The Indian IT services & ITES industry- The road ahead • 1.8 IT for development • 1.9 R&D services & software products • 1.10 Offshore product development • 1.11 Embedded software & systems • 1.12 Offshore product development exports • 1.13 Global product engineering market • 1.14 Telecommunications

• 1.14.1 Background • 1.14.2 Organizational structure in telecommunication

• 1.15 Capacities, capabilities & Trends in the telecommunication sector • 1.15.1 Telecom equipment manufacturing sector • 1.15.2 Switching • 1.15.3 Transmission • 1.15.4 Terminal Equipment • 1.15.5 Research & Development

• 1.16 Noteworthy development in policies & activities in ICT field new telecom policy, 1999

• 1.17 C-Dot Technologies • 1.18 Broadband integrated services digital network switching platform • 1.19 Intelligent network solution • 1.20 Network management system • 1.21 C-Dots billing & operations support system

• 1.22 Rural wireless access & broadband solution • 1.23 Another R&D laboratory by Telecordia technologies • 1.24 Other supporting technologies & R&D • 1.25 Optical communication • 1.26 Electronics material

PART 2 OPPORTUNITIES • 2.1 Opportunities in the Indian IT services & ITES industry

• 2.1.1 IT services • 2.1.2 Opportunity segments within IT services

• 2.2 Customer Interaction Services • 2.3 Transaction Processing • 2.4 Content development • 2.5 Knowledge services • 2.6 Engineering design • 2.7 Key emerging trends impacting the Indian IT services & ITES industry

• 2.7.1 Demand related • 2.7.2 Supply related

• 2.8 Future Opportunities • 2.8.1 Outsourcing or off shoring product development activities • 2.8.2 Embedded software • 2.8.3 Shrink wrapped product development

• 2.9 Some major MNC’s undertaking R&D in India • 2.9.1 Siemens • 2.9.2 SAI • 2.9.3 Schneider • 2.9.4 Texas Instruments • 2.9.5 Sun Microsystems & Cadence design • 2.9.6 Intel • 2.9.7 Samsung • 2.9.8 Motorola • 2.9.9 Philips • 2.9.10 Delphi • 2.9.11 Daimler • 2.9.12 Bosch

• 2.10 Emerging Areas • 2.11 Hardware: Current status & key opportunities • 2.12 Performance in the Xth plan • 2.13 Technology status • 2.14 Future trends • 2.15 Status of investments & investment needed to meet the targets • 2.16 Thrust areas for optical development & opportunities • 2.17 Thrust areas in electronic materials for research & opportunities

• 2.18 Areas of opportunity in the Telecom sector • 2.19 Opportunities for investment in Telecom PART 3 SELECT CASE STUDIES • 3.1 GE • 3.2 American Express • 3.3 Citigroup • 3.4 EDS • 3.5 Cisco • 3.6 Intel • 3.7 Samsung PART 4 OBSTACLES • 4.1 Introduction • 4.2 Types of obstacles

• 4.21 High investment • 4.2.2 Absence of focused product shops in India • 4.2.3 Distance from clients • 4.2.4 Poor past records

PART 5 PARAMETERS OF COMPETITION • 5.1 Leading Indian software product companies • 5.2 Key success factors

• 5.2.1 Skilled manpower • 5.2.2 Research & Development • 5.2.3 Domain Enterprise • 5.2.4 Sales & Marketing • 5.2.5 Business Predictability

• 5.3 Trends PART 6 COMMUNICATION AND PROMOTION PART 7 PENETRATIONS IN THE MARKET • 7.1 A typical sourcing programme- risks,roadmap & timelines • 7.2 Entry strategies for IT & Telecom companies • 7.3 Forms of Enterprise

• 7.3.1 Introduction • 7.4 Major types of corporation

• 7.4.1 Private corporation • 7.4.2 Public corporation • 7.4.3 Foreign corporation

• 7.5 Structures typically used by foreign investors

• 7.5.1 Subsidiary companies • 7.5.2 Branch office • 7.5.3 Liason office • 7.5.4 Project office • 7.5.5 Joint Venture • 7.5.6 Appointing agent or distributor • 7.5.7 Third party arrangement for maintenance & servicing of products • 7.5.8 Franchising • 7.5.9 Direct Selling

• 7.6 Regulations for presence in India for a foreign company PART 8 PRECAUTIONS TO BE TAKEN BY ITALIAN EXPORTERS SECTION B: GENERAL OVERVIEW PART 9 INFORMATION SOURCES PART 10 IMPORT LEGISLATION • 10.1 How to start import • 10.2 Principal law & import export policy • 10.3 Mode of pricing & INCO terms • 10.4 Ex-work • 10.5 Free on rail/Free on truck • 10.6 Free alongside ship • 10.7 Free on board • 10.8 Cost & Freight • 10.9 Cost insurance freight • 10.10 Customs clearance services for import consignments • 10.11 Customs Duty PART 11 BANKING SYSTEM & EXCHANGE POLICIES • 11.1 Reserve Bank of India • 11.2 Types of institutions

• 11.2.1 Public sector banks • 11.2.2 Private sector banks • 11.2.3 Foreign banks • 11.2.4 Recent developments

• 11.3 Currency • 11.4 Foreign exchange controls

• 10.4.1 Current account transactions

• 10.4.2 Capital account transactions

• 11.5 Foreign Exchange Management Act • 11.6 General Permission under FEMA PART 12 METHODS OF PAYMENT • 12.1 Payment against imports • 12.2 LC Vs Bank guarantee • 12.3 LC • 12.4 Parties to a LC

• 12.4.1 Beneficiary • 12.4.2 Issuing bank • 12.4.3 Confirming bank

• 12.5 Mode of payment • 12.6 Postal Imports PART 12 LOCAL JUDICIAL SYSTEM PART 13 NAMES OF EVENTUAL PARTNERS PART 14 RISK ANALYSIS • 14.1 Country • 14.2 Non-collection of goods & Non-payment PART 15 LEGISLATION ON INTELLECTUAL PROPERTY PART 16 LABELLING & PACKAGING RULES PART 17 MAIN EXHIBITIONS PART 18 LOGISTICS • 18.1 Overview • 18.2 Metro • 18.3 Buses • 18.4 Highways • 18.5 Waterways • 18.6 Pipelines • 18.7 Ports & harbours • 18.8 Merchant marine • 18.9 Air travel • 18.10 Airports & seaports • 18.11 Airport

EXECUTIVE SUMMARY

The idea of India is gradually changing as number of countries showing interest to invest in India is increasing. According to an AT Kearney’s FDI Confidence index, India has displaced the US as the second most favored destination in the world after China. India attracted FDI at US$7.96 billion during the first half of FY06, as against US$2.38 billion during the same period in FY05, more than 3 times growth. India’s economy is predicted to be growing over 8% in 2006 and with a billion plus population India has its wings of varied culture and business/industry scenario across the country. At the backdrop of such characteristics prospective investors in any foreign countries will be interested to know ‘Doing business in India in wine industry’. The study aimed at highlighting macro-economic indicators of the country with its risk analysis in terms of currency, non-collection of goods and non-payment. It also discusses obstacles that the prospective investors may face and appropriate marketing strategies that they should adopt to ensure smooth landing in the country which requires a good understanding of its geographies and associated culture and business environment, least but not the last the market dynamics. Approach taken for this study was to collect information/data from various authentic sources like industry associations, trade agencies and respective ministries wherever applicable. As far as policy/regulations are concerned respective ministries’ reports and guidelines have been referred and an attempt has been made to explain them appropriately as relevant they may be. Salient points which are key findings in this report are given below.

Challenges in the market is still to find the right partner, knowledgeable about local market and procedural issues for foreign industries investment in India and can formulate the right strategies with solid foundation for setting up manufacturing base as JVs as the FDI policy may stipulate in respective sectors

Tariffs (although tariff structure has been reduced considerably since economic reforms but issues still remain in some specific sectors) and poor infrastructure still poses a serious challenge to FDI.

In addition, heavily bureaucratic investment processes, poor IPR enforcement,

government inefficiency, and corruption have also discouraged foreign investors.

Winning strategy overcoming the market entry barriers for setting up an establishment- a solid regional plan analyzing the local market demand and economics that work out to be feasible in producing in India and exporting to other countries in the world leveraging conducive economic factors that otherwise become an impediment in future growth.

While marketing products distribution strategy can really make the difference;

however merit has to be given after due diligence is done and a meticulous plan should be in place. Small distributors can really make a drastic improvement in sales growth where flexible marketing strategies play an important role.

A joint venture company is generally formed under the Indian Companies Act of

1956 and is jointly owned by an Indian company and a foreign company. This type of arrangement is quite common because India encourages foreign collaborations to facilitate capital investments, import of capital goods and transfer of technology.

All industrial undertakings are exempt from obtaining an industrial license to

manufacture, except for (i) industries reserved for the Public Sector, (ii) industries retained under compulsory licensing, (iii) items of manufacture reserved for the small scale sector and (iv) if the proposal attracts location restriction.

Being a buyer’s market from seller’s market promotion of products matters much. The key to gaining rural market share is increased brand awareness, complemented by a wide distribution network. Rural markets are best covered by mass media - India’s vast geographical expanse and poor infrastructure pose serious challenge for communication and hence emphasis must be given in communication problems to be really effective in selling to rural market.

India is still not holding its laws high for protecting copyright issues. As a result cases of counterfeiting and violation of copyright act happens and probably judicial system is still not being able to curb the menace. Adjudication of cases is extremely slow.

Logistics play an important role in distributing products to all corners of the country. Due to its vast territory challenges in implementing a smooth supply chain model is really challenging and hence outsourcing to third parties is very common and an useful and effective strategy to reach market place just in time.

SECTION A: ICT SECTOR ANALYSIS

PART 1 SECTOR ANALYSIS FOR IT & TELECOM 1.1 Introduction The country India has a population over one billion and is the second most populated country in the world after China. The population too like the climate condition, is diverse. India is the fifth largest economy in terms of purchase power parity after the US, Japan, China and Germany. With the present growth rate of 8% in GDP the country, it is set to become the 3rd largest economy after the US and China. India has a large middle class population presently estimated to be around 300 million. Since 1991 the Indian government has ushered in an irreversible era of liberalization which will give a big boost to the markets and the economy. 1.2 Market overview Over the past decade, the Information Technology (IT) industry has become one of the fastest growing industries in India, propelled by exports (the industry accounts for more than a quarter of India’s services exports ). The key segments that have contributed significantly (96 percent of total) to the industry’s exports include – Software and services (IT services) and IT-enabled services (ITeS) ie business services. Over a period of time, India has established itself as a preferred global sourcing base in these segments and they are expected to continue to fuel growth in the future.

These segments have been evolving over the years into a sophisticated model of operations. Indian IT and ITES companies have created global delivery models (onsite-near shore-offshore), entered into long term engagements with customers, expanded their portfolio of services offerings, built scale, extended service propositions beyond cost savings to quality and innovation, evolved their pricing models and have tried to find sustainable solutions to various issues such as risk management, human capital attraction and retention and cost management. 1.3 Demand dynamics A key demand driver for the Indian IT services and ITeS industry has been the changing global business landscape which has exerted performance pressures on multinational enterprises.

While companies initially sourced from the Indian IT and ITeS industry for cost, quality and enhanced competitiveness have induced them to continue and expand. Some companies have also viewed sourcing differently (beyond cost and quality) and achieved non-traditional benefits of sourcing from India.

1.4 Range of service offerings The range of services offered by the Indian IT services and ITeS industry to these global corporations range from simple tasks to increasingly complex activities and span across the entire value chain of a typical organisation

Source: News reports, IBEF study of Fortune 500 companies inIndia, IBEF study of successful US and UK companies in India: Illustrative and not exhaustive

1.5 Sourcing models A wide range of sourcing models have evolved for sourcing IT and ITeS services from India based on the required capabilities as well as risk profiles.

There is an increasing trend towards a global delivery model (higher proportion of offshore in the onsite – near shore – offshore mix) as well as a preference for captives and co-sourcing arrangements, though mature captives are gradually tending towards becoming third party service providers.

1.6 The India advantage Various country comparison studies have established the attractiveness of the Indian IT services and ITeS industry.

The key attributes that have enabled India to establish itself as a preferred sourcing base include: 1.6.1 Vast Access to Skill base: • Large pool of resources for IT and ITeS operations - 14 million graduates, 1 million technical resources, one of the largest English speaking manpower in the world. • Availability of quality delivery management talent from international banks and consulting firms. In the future, while the increasing demand for resources may put pressure on the resource base, initiatives are currently underway to enhance the supply of quality human capital in the country.

1.6.2 Strong quality orientation • ISO9001, COPC, 6 sigma are some of the established quality initiatives. • 80 out of the world’s 117 SEI CMM Level 5 companies are from India. 1.6.3 Availability of high quality infrastructure • Concerted efforts to provide dedicated, international quality, cost effective real estate at software parks, Special Economic Zones (SEZ) and knowledge sector industrial estates. • Availability of high quality international and national dedicated telecom infrastructure with high level of redundancies insulating centres from Public Switched Telephone Network (PSTN) quality. • Availability of multiple levels of backups providing insulation from public system issues, if any. 1.6.4 Cost advantage The cost impact of sourcing from the Indian IT and ITeS industry can be significant due to the lower wages and lower cost of living.

While the increasing demand for resources is gradually adding pressure on labour costs, companies within the industry are attempting to sustain cost competitiveness through appropriate location choices and revamped human resource management practices.

1.6.5 Enabling policy environment The Government of India is taking proactive measures to encourage investments in this sector. Significant measures and incentives include a liberalised FDI regime, single-window clearance facility, income tax holiday and customs duty exemptions. State governments too are demonstrating a proactive approach towards attracting and facilitating investments and are providing support for the development of specialised infrastructure, focusing on development of a larger base of cities/towns to meet the needs of the industry and undertaking measures to continually enhance the supply and quality of manpower. 1.6.6 Mature industry eco-system The support infrastructure for the Indian IT and ITeS industry which includes specialised firms for functions such as recruitment, training, property management, security, fleet management, book-keeping and payroll as well as industry associations has evolved over the years. 1.6.7 Availability of private equity Presence of a mature private equity industry to support local entrepreneurs (organisations such as Warburg Pincus, General Atlantic, CDC). 1.6.8 Commitment to address security concerns Indian companies as well as the government have been active in adhering to international security standards such as ISO 17799, BS7799, COBIT and ITSM. The required legal framework has been laid down by the government and a revamp of the country’s Information Technology Act, 2000 is expected in the near future. The revised legal framework is likely to include provisions against a new range of computer crimes to cover areas like privacy, information protection and harming computer systems through viruses.

1.6.9 Prominent IT services and ITeS locations within India A majority of IT / ITeS activity in India is concentrated in seven cities /clusters in India. With concerted development efforts of a wider base of cities / towns, the geographical spread of IT / ITeS activity is gradually expanding to cover cities such as Ahmedabad, Jaipur, Coimbatore, Kochi, Trivandrum, Chandigarh, Mysore, Mangalore, Madurai and Bhubhaneswar.

Various companies have chosen to locate their operations in one or more of these seven clusters based on parameters such as: • Leveraging local experience and assets • Spreading to reach right skills at right costs • Business continuity requirements.

1.7 The Indian IT services and ITeS Industry – The road ahead The Indian IT services and ITeS industry is poised for rapid growth over the next few years by offering a wider services portfolio, catering to a larger set of industry verticals and evolving / adapting to suit the service delivery preferences of global customers. Key challenges that the industry faces include the need to sustain competitiveness in the face of alternative emerging locations and enhancing supply of quality human capital to cater to increasing demand. Efforts in this direction are already underway and continuous emphasis on the same is imperative to ensure that the industry’s future growth is undeterred.

1.8 IT for development The contribution of IT in the development of the rural areas is critical and efforts are underway to enhance the awareness and penetration of IT in rural areas. Attempts to increase the depth of IT services in rural areas range from small initiatives like single computer information kiosks to the “Wired Village Project” where dozens of villages are provided high speed internet connectivity. The government as well as the private sector has been actively involved in the dispersion of IT and IT based services to rural India. Some models include: • ITC Limited has set up an initiative called “e-chaupal” which aims at facilitating productivity enhancement by offering services and information on subjects like weather, market prices, scientific farm practices etc. The venture has proved to be successful and the number of e-chaupals have risen to 2,700 which cover a population of 1.2 million in five states. ITC plans to expand to 20,000 e-chaupals in the next few years. • TARAhaat Information and Marketing Services Development Alternatives (Technology Action for Rural Advancements), a wellknown Indian NGO, is focused on using technology for providing sustainable livelihood in villages. The strategy deployed is to evolve a commercially viable IT-based enterprise and to deliver public benefits by satisfying private needs. The services provided are education, egovernance, insurance, mini-credit financing, rolling out development packages made by NGOs and e-communications. • A private Indian IT company, Aksh Broadband, has executed the Gramdoot programme in Jaipur district (in the state of Rajasthan) in western India. The model is based on fibre optic technology laid through the district to carry voice, data and graphics. The optic fibre cable runs for 3000 kms and benefits a population of 6 million people. All government records are online - from land records to revenue collected – and health and education services are provided real time in Jaipur district. It is in fact the first time anywhere in the world that land deeds are offered to the villager in real time. To help sustain this model commercially, a small charge is administered for the services provided. The model is cost effective, has rapid deployability, and has demonstrated ease of operation and maintenance. • The “Param” project by Ogilvy and Mather aims to improve rural connectivity in backward areas. • “Drishtee” has focussed on provision of e-governance facilities and information services to the rural community. • Attempts to impart IT education to students from rural areas are pursued by Microsoft and the Azim Premji foundation. Some players in the Indian IT and ITeS industry have also included rural India in their capability sourcing models. Select examples include:

• Lason India, an end to end outsourcing company is promoting village BPO’s where functions like data entry and data processing are carried out from rural areas. • Datamation group is a Public Private Partnership where NGO’s train individuals from under-privileged sections of the society and employ them in BPO’s owned and run by them. Source: The source of this report is IBEF and NASSCOM 1.9 R&D services and software products Indian R&D services and software product exports, though at a nascent stage, is expected to grow rapidly (growth forecasts are US$ 8-11 bn by 2008-10: Source – NASSCOM). The key opportunity areas within R&D services and software products include embedded software and systems and offshore product development. A number of large multinational corporations source a part of their embedded system requirements from India either through captive design centres or through vendors. Some of these companies include Samsung, Texas Instruments, Delphi, STMicroelectronics, Motorola, Intel, Analog Devices and National Semiconductor (Illustrative and not exhaustive; Source- NASSCOM). Apart from multinational corporations sourcing requirements from India, there are over a 100 Indian companies operating in the embedded software solutions domain. Also, in addition to the export of products developed by the offshore units on behalf of MNCs, a few Indian vendors (e.g. Infosys, I-Flex Solutions) have successfully expanded their revenue streams to include their own software products. 1.10 Offshore Product Development India is one of the key centres for outsourcing IT services for global IT vendors. Some Indian companies have leveraged the India advantage and gone a step further to set up centres for product development and R&D services. These centres perform product development activities for ISVs. ISVs have the following benefits in outsourcing product development functions to India: • Match lower return activities with lower cost resources • Refocus the in-house team on more higher value-adding activities • Rapidly enhance the product's relevance in a wider market. For Instance, Wipro partners with Ericsson for product development. According to the deal signed in 2002, Wipro will take over the product development life cycle activities performed at three Ericsson centres in India. The deal will involve Wipro taking up assets, including personnel, at Ericsson’s R&D centres in Bangalore, Hyderabad and New Delhi.

Indian companies outsourcing product development activities include large players such as Wipro, TCS, Infosys, etc., and small niche players with domain expertise in particular verticals, such as Sasken (telecom domain), Mindtree (IP creation), etc. The major clients for this industry have changed over the last couple of years. In 2001, Nortel, Lucent and Cisco were the largest clients for Indian companies. While, the main clients in 2002 were Cisco and HP. Intel, Alcatel, Texas Instruments and Sony could potentially increase outsourcing to India. Apart from Indian companies, many global ISVs are also eyeing India as a location for establishing a captive centre for their R&D activities. Since the beginning of 2001, about 230 multinationals have opened offices in India. The market for outsourced R&D activities in India amounted to about US$ 800 million to US$1 billion a year in 2003, and is expected to reach US$11 billion by 2008 . Examples of major global players setting up captive centres in India include Microsoft, Oracle, IBM, Texas Instruments, Adobe, Novell, SAP, Intel, Cisco, etc. 1.2.3 Software Products (Shrink-wrapped and enterprise products) Developing software products and selling them to a mass clientele is one of the most difficult tasks in the software industry. Only a few companies in the world have succeeded in reaching a mass clientele for their products. An indicator of this is that only a dozen or more companies have succeeded in crossing the critical US$ 1 billion mark in turnover (in 2000). Pure product play requires proximity to the client in order to understand its needs, deep domain knowledge and skill-set to make specific products, and a product mind and focus on R&D activities. In context of the challenge, the disadvantages India faces in the global market are: • Distance from most key markets and customers • Lack of critical mass in necessary skill sets Some Indian companies that have achieved significant success despite these disadvantages are i-flex, Talisma, TCS, Infosys, Ramco Systems, Polaris, Nucleus Pramati Technologies, and smaller players such as Eastern Software, who have made a mark in the domestic market. 1.11 Embedded Software and Systems

The worldwide market for embedded software and systems is currently valued at USD 25 billion, and is estimated to be growing at an annual rate of 16 percent. Rapidly increasing global demand has helped Indian exports of embedded systems and software to reach USD 1.58 billion in FY 2003-04 – a growth of 44 percent over the previous fiscal. The high levels of growth in segment revenues is expected to continue as increasing levels of convergence and digitization and declining costs increase the global adoption of

electronic devices – and manufacturers are forced to seek technically superior / low cost sourcing destinations to remain competitive. Over 60 percent of the worlds leading companies, including Samsung, Texas Instruments, Delphi and Honeywell Industrial Controls, etc, source a part of their embedded system requirements from India. Further a number of large MNCs such as Texas Instruments, STMicroelectronics, Motorola, Intel, Cadence Design Synopsys, Analog Devices and National Semiconductor have set up their captive design centres in the country.

Apart from many MNCs doing R&D in India, there are over a 100 Indian companies operating in the embedded software solutions domain.

1.12 Offshore Product Development Exports

The value of offshore product development exports (includes the export of software products made by Indian companies) sourced from India is estimated to have increased from USD 560 million in FY 2002-03 to USD 710 million in FY 2003-04. Many global ISVs are eyeing India as a location for establishing captive centres for R&D activities. Since the beginning of 2001, approximately 230 multinationals have opened offices in India. The market for outsourced R&D activities in India reached USD 800 million to USD 1 billion in 2003, and is expected to reach USD 11 billion by 2008.

Offshore product development is not a new phenomenon in global IT services trade. A number of MNC product based companies have been sourcing a part of their product development activities from Indian vendors and their own India based development centres for several years. However, in most cases, the key driver for these companies was often the significant cost arbitrage opportunity offered by the India based vendors. As a result most of the work offshored to India was restricted to the lower-end activities of coding and testing. Over time, the demonstrated success of India-based development centres in delivering not only on cost, but also on quality and technological superiority has attracted an increasing level of interest in offshore product development to India.

Unlike large IT services organizations, product-centric firms are often small set-ups typically funded through the venture capital route. As a result the pressure to deliver on financial profitability metrics is very high. Offshore product development has proven to be an effective means of extracting more value out of every dollar of funding raised.

Analysts believe that, as in services, global sourcing of product development will become an integral part of most product-centric strategies over the next few years. The key drivers fuelling the growth in offshore product development include: Increasing pressures on product companies for faster time-to-market, coupled with the need to introduce new products and new technologies to expand geographic reach Economics of open source software is forcing companies to pare down development costs to remain profitable

US-based venture capitalist firms are encouraging their clients to use/investigate offshore facilities in India, and other countries such as China. India's lower costs (it generally costs around USD 2 million to develop a modest software product in India, as against USD 5 million in the US), means that venture capitalists are not risking as much money on a given start-up India’s emphasis on improving information security and IP protection In addition to the export of products developed by the offshore units (captive and third-party-service-providers (3PSPs)) on behalf of the MNCs, a few Indian vendors have successfully expanded their revenue streams beyond service revenues to include earnings from exporting their own software products. The following table provides the key details about the key software products being exported by Indian companies. Source: NASSCOM’s Strategic Review 2005 1.13 Global Product Engineering market Global Product Engineering market (USD bn) Product engineering Worldwide IT-ITES 2004 22.1 1,384.2 2005 27.3 1,479.3 2006 32.8 1,585.9 2007 38.8 1,696.8 2008 45.4 1,822.3 2009 53.0 1,963.7 Source: IDC From being a cost reduction centre, India is slowly but steadily proving its mettle as a thriving market for innovative ideas and new product development

1.14 TELECOMMUNICATIONS 1.14.1 Background The Communications sector covers the areas of Network Infrastructure, Services, Technology and Equipment production and thrust was on improving accessibility, reliability and provision of basic and value added services to address the growing needs of the urban and rural areas alike. With the deregulation and privatization of basic telephone and value added services the growth of both mobile communication and broadband services touched unprecedented levels. The FDI in the telecom services sector was increased to 74% from the earlier limit of 49% and up to 100% in telecom manufacturing sector. The policies in telecom have brought significant net gains to the country. These have led to drastic reduction in tariffs. New and innovative services with

better quality and reliability are now available to every user. Foreign Direct Investment in this sector has been significant and encouraging with more than US $ 2 billion already invested in the sector. It has led to increased user access and the country is now fully geared to deploy more affordable universal access. The country today has an independent, strong and effective telecom regulator with the relevant Act passed by Indian Parliament. A separate dispute settlement mechanism in the form of an Appellate Tribunal is also in place. India today ranks amongst the top 10 telecom networks in the world and the second largest in Asia. It has more than 150 million telephone network with a tele-density of around 13.09. Telecom sector has been declared as one of the key infrastructure sectors for the country and this will lead to rapid growth of Indian economy. The current installed base of communication network in India comprises of about 47.5 million wire line phones, 106 million cellular phones, 7.5 million Internet subscribers, 110 million TV households, 18.0 million PCs, 500,000 route kms of optical fiber network and 25,000 VSATs.

1.14.2 Organizational Structure in Telecommunication Telecommunications is now accepted as a basic infrastructure along with power and transportation for growth of the national economy. Telecommunications is also recognized as the means of accelerating the distribution of the fruits of economic growth to all regions, including remote and inaccessible areas in the country. Telecom in the modern world is expected to usher in a concept of a global economy and a single world marketplace. The Indian Telecom network must therefore become part of the modern global network providing access to anyone in the country for transporting information in the form of voice, data, or video to anywhere in the world. India's 47million fixed line telephone network is among the top ten largest networks in the world and second largest among the emerging economies after China with a growth rate of an average 20 percent for the last four years. The total number of lines added to the network over the last five years is 1.5 times the total number of lines added over the preceding five decades. The Department of Telecom (DoT) and Bharat Sanchar Nigam Limited (BSNL) are Government of India Departments under the aegis of the Ministry of Communications. The Department of Telecom (DoT) has its role in policy making, licensing, and coordination matters relating to telegraphs, telephones, wireless, data, facsimile, telematic services, and other like forms of communications. In addition, DoT is responsible for frequency management in the field of radio communication in close coordination with international bodies. It also enforces wireless regulatory measures for wireless transmission by users in the country. Bharat Sanchar Nigam Limited (BSNL) is the premier telecom service provider of

India. BSNL has a presence throughout the length and breadth of India. The main functions of BSNL include planning, engineering, installation, maintenance, management, and operation of voice and non-voice telecommunications services all over the country. MTNL is the other public sector telecom service provider in the country.

1.15 Capacities, Capabilities and Trends in the Telecommunications Sector

1.15.1 Telecom Equipment Manufacturing Sector

The Indian telecom equipment manufacturing industry manufactures a complete range of telecom equipment using state-of-the-art technologies designed specially to match the diverse terrain and climatic conditions.

Details of production and export of telecom equipment during X th Plan are as follows:-

Production Export

Rs. in crore US $ In million Rs. in crore US $ In million

2002-03 14,400 3,200 402 89.3

2003-04 14,000 3,111 250 55.5

2004-05 16,090* 3,575 400 88.8

2005-06 17,833* 3,963 1,500** 333

2006-07

(estmates)

20,000 4,444 1,800 400

* include Rs. 2,800 crore (2004-05) and 3000 (2005-06) crores for turnkey services

** include Rs. 950 (2005-06) crore for turnkey services

Imports, on the other hand had steep rise during the last 5 years, as per estimates shown

below:-

Year Import of Telecom Equipment (In Rs. Crore) US $ In million

2001-02 1, 672 372

2002-03 7,694 1,710

2003-04 20,000 4,444

2004-05 20,560 4,569

2005-06 26,166 5815

The targets for Telecom Sector will be a bench mark for the potential investors in telecom equipment manufacturing.

March 2007 In millions

March 2012 in millions

Net Addition in 11th Plan

Telephone connections Wire line 41 66 25 Mobile 154 584 430 Total 195 650 455 Broadband connections Wire line 10 50 40 Wire less 0 100 100 Total 10 135 140

Year 1 Mn

Year 2 Mn

Year 3 Mn

Year 4 Mn

Year 5 Mn

Total Mn

Wire line Telephone

3 4 5 6 7 25

Mobile Telephone 70 80 90 95 95 430 Wire line Broadband

7 7 8 9 9 40

Wire less Broadband

10 15 20 25 30 100

Demand for telecom equipment: It is expected that there will be requirement of telecom equipment worth US $ 73 billion during the 11th Plan in India.

Domestic Requirement of Telecom Products:

Year 1 Mn US$

Year 2 Mn US$

Year 3 Mn US$

Year 4 Mn US$

Year 5 Mn US$

Total Mn US$

Wire line Telephone CPE 30 40 50 60 70 250 Active Infrastructure 300 400 500 600 700 2500 Mobile Telephone Handset (New Connection)

2800 3200 3600 3800 3800 17200

Handset (Replacement) 2000 2800 3600 4800 6000 7200

Active Infrastructure 2250 2550 2850 3000 3000 13650 Wire line Broadband CPE (Modems) 2100 2100 2400 2700 2700 12000 Active Infrastructure 1400 1400 1600 1800 1800 8000 PC Card 300 450 600 750 900 3000

Active Infrastructure 500 750 1000 1250 1500 5000

Optical Fiber Cable 120 140 160 180 200 800

E-Governance initiatives

Defense - Telecom 400 400 600 800 1000 3200

Total Requirement 12200 14300 16960 19740 21670 72800

Export Targets : The Asia Pacific region offers a huge export opportunity since it is one of the fastest growing regions for telecom services. The following targets for exports of telecom equipments may be kept:

The present production level of telecom equipment is around US$ 2.8 Bn with a value addition of about US$ 0.3 Bn . India has to position itself as a 'Regional Hub' for telecom equipment manufacturing as domestic and export volumes offers a tremendous potential. Considering 75% of the Indian demand of telecom equipment & handsets worth US $ 73 billion to be met through indigenous manufacturing and an export potential of US $ 12 billion, the total telecom equipment production target could be US$ 67 billion for 11th five year plan and 40% value addition in the high value telecom equipment to be achieved at the end of 11th five year plan.

Important factors for growth of indigenous manufacturing of telecom equipments in India

1. Potential 650Mn telecom subscriber base in India by March 2012. 2. Encouraging Government policies. 3. Competent & Experienced management workforce with experience in

production management, supply chain management, working capital management, Flexible Manufacturing systems, etc., available in the country.

Year 1 Mn US$

Year 2 Mn US$

Year 3 Mn US$

Year 4 Mn US$

Year 5 Mn US$

Total Mn US$

400 1000 2000 3600 5000 12000

4. Strong auxiliary component manufacturing base like cables, electronic

packaging like cabinets, shelves, power electronics, tooling, bare PCBs up to 8 layers, etc.

5. Skilled & trained shop floor workforce for electronics circuit assembly, testing and integration from widely available resources from Industrial Training Institutes and Polytechnics.

6. Competitiveness in labour costs. 7. MNCs willingness to invest in India driven by demand of regional SAARC

countries as well as moderately developed ASEAN countries like Indonesia, Philippines, etc.

8. Indian Telecom Operators market base with huge investment plans. 9. Lower Manufacturing plant establishment cost in India. 10. Current major drivers of National Economy – ITeS and BPO – totally rely on

Telecom Infrastructure.

Under the New Telecom Policy, 1999, with the provision of affordable and effective communication as its core vision and goal, the telecommunication sector in India has achie-ved a lot in recent years. With rapid growth, tele-density levels have surpassed the targets set. The total number of telephones (basic and mobile) rose from 22.8 million in 1999 to more than 150 million at the end of September 2006. While 21.83 million telephones were added during 12 months of 2004-05, the first nine months of 2005-06 saw an addition of 27.47 million phones. Overall, tele-density has risen from a mere 2.32 in 1999 to 13.09 in September 2006. Table 9.9 : Growth of

telephonesover the years

SI. No.

Year Fixed in million Per cent of PSUs

Mobile (including WLL), in million

Per cent of PSUs

PSUs Pvt. Total PSUs Pvt. Total 1. 2001-02 37.90 0.52 38.42 98.65 0.26 6.28 6.54 3.98 2. 2002-03 40.53 1.10 41.63 97.36 2.64 10.35 12.99 20.32 3. 2003-04 40.49 2.36 42.85 94.49 5.99 27.70 33.69 17.78

4. 2004-05 41.11 5.09 46.20 88.98 10.97 41.20 52.17 21.03

5. 2005-06 (first 9 months)

40.70 7.01 47.71 85.31 16.48 61.60 78.08 21.11

Although India's 150 million strong telephone network, including mobile phones, is one of the largest in the world, the telephone penetration rate continues to be low at about 13.09 phones per hundred population. The country offers vast avenues for growth, and by the end of 2007 the total number of phones are targeted to reach 250 million.

The drivers of telecom growth have undergone a significant change in terms of mobile versus fixed phones, as well as public versus private service providers. During 1999, both mobile phones and the private sector separately accounted for only 5 per cent of the total number of phones. However, in December 2005, the shares of mobile phones and the private sector in total phones were 61.97 per cent and 54.45 per cent, respectively. Mobile phones are increasingly being regarded as an effective tool of empowerment of the common man. It is no longer considered a luxury item and, in recent years, with lower capital expenses of mobile technology, it has become the technology of choice for low-priced telephony. The two PSUs in the telecom sector Bharat Sanchar Nigam Limited (BSNL) and MahanagarTelephone Nigam Ltd. (MTNL) have been losing their market shares in fixed telephony. From 98.65 percent in 2001- 02, their combined share declined to 85.31 per cent in December 2005 (Table 9.9). In the past two years, PSUs have actually seen a decline in the number of fixed lines, while such lines have grown in the private sector. However, they have improved their share in mobile telephony from 3.98 per cent to 21.11 per cent of the market.

1.15.2 Switching

Digital switching system technologies of foreign companies (Alcatel, Siemens, Fujitsu, AT&T, GPT, Ericsson, and NEC) have been validated and approved by DoT for introduction in the Indian network. Manufacturing facilities based on these technologies (except GPT) have been set up, and a vast capacity based on foreign and indigenous technologies now exists in the country.

1.15.3 Transmission

With the introduction of value-added services, demand for a radio transmission system has undergone a major change. A large number of public and private sector manufacturers, in collaboration with telecom giants such as Lucent, Fujitsu, and Siemens, have set up manufacturing facilities in India for digital transmission equipment. Digital microwave radio equipment has the potential for large investments and high returns since most of the radio equipment frequency spectrum in microwave is still available for deployment. 1.15.4 Terminal Equipment

With rapid growth in basic and value-added services, the need for a wide variety of terminal equipment, including telephone instruments ranging from normal pushbutton to multi-line feature phones, is bound to grow. Production of telephone answering machines, key telephone systems, cordless telephones, pagers, cellular phones, handsets for radio trunk services, pay phones, fax machines, ISDN terminals, line jack units, data terminals, and modem, and so on provides excellent opportunities to prospective investors.

1.15.5 Research and Development

Research and development activities are being carried out at various manufacturing units of India-based MNCs, and notable R&D is also being carried out at C-DoT, whose rural exchanges are very successful in the world market, apart from IIT Chennai, who have developed COREDECT technology. Application-oriented R&D is also being carried out at ITI Bangalore, IIT Chennai, BEL, Bangalore, Shyam, and HFCL at New Delhi. DoT currently has a number of training centers all over India apart from IITs and other technical institutes all over India. Apart from this, Indian companies engaged in the telecom sector are also venturing into telecommunication training to fulfill the ever growing need for expert professionals in this sector.

1.15.6 The Telecom Equipment - Manufacturing Sector – 10th Plan

The main objective of the 10th five-year plan is to make available reliable telecom services on demand even in rural areas at reasonable prices and to improve the teledensity in tune with NTP-99. NTP-99 emphasizes the importance of convergence and the desirability of encouraging all technologies to achieve these objectives. A substantial part of the telecom equipment deployed in the network is still imported. The post-liberalization scenario posed many challenges to the telecom R&D and manufacturing sectors.

1.16 Noteworthy Developments in Policies and Activities in the Electronics and Telecommunications Field - New Telecom Policy, 1999

The New Telecom Policy (NTP), 1999 was introduced to:

• Create a modern and efficient telecommunication infrastructure by bringing about a greater competitive environment

• Protect the defense and security interests of the country • Strengthen R&D efforts in the telecom sector and enable Indian companies to

become global players • Achieve efficiency and transparency in spectrum management • Convert PCOs into public teleinfo centers • Encourage development of telecommunication in rural areas by making it more

affordable

The new policy framework is meant to put a special emphasis on creating an environment that enables continued attraction of investment in the sector to create the required infrastructure by leveraging technological development.

Other significant developments in the area of telecom are under:

• The Telecom Regulatory Authority of India (TRAI) was set up as per the TRAI Act 1997 as an independent and autonomous regulator of telecom services in the country and matters connected thereto.

• There has been rapid progress in telecom services, particularly in the area of value-added services through private participation.

Furthermore, the entry of private operators in the VSAT arena in 1994 has encouraged corporate users to start relying on this technology. This has emerged as a potent weapon for diverse applications such as data access, voice, and multimedia connectivity even in remote locations. There are about 25,000 VSATs in the country. The Ku-band has been opened up for the existing VSAT licensees. In this area, higher bandwidth support will be a crucial development. Source: Global Communications Newsletter 1.17 C-DOT TECHNOLOGIES C-DOT was established in 1984 by the Government of India as a national centre of excellence in telecom technology research. It was vested with full authority and total flexibility to develop state-of-the art telecommunication technologies to meet the needs of the Indian telecommunications network. It is headquartered in New Delhi. Recently, in March 2005, C-Dot signed and MoU with Alcatel for research, development and marketing of wireless technologies for Indian and global markets. The scope includes setting up a global research centre for wireless technologies with its first project based on WIMAX technologies. C-Dot and Vanu Inc, the leader developer of software radio solutions have signed an MoU to trial the Vanu Anywave TM Software Radio GSM Base Station technology as an integral component in wireless access and broadband solutions for the Indian rural communications market. C-Dot has signed and MoU with Communication Research Centre, Canada for joint development of fixed wireless broadband access systems. C-Dot and XALTED Information Systems Pvt. Ltd. have joined hands for the development of GPON based solution for delivery of broadband services over fibre.

1.18 Broadband Integrated Services Digital Network Switching Platform C-Dot has built over the years a broadband integrated services digital network switching platform. The series covers a wide range of products for small wide area networks to large public networks carrying integrated voice, video, data and multimedia traffic. Products in the series range from multi-service access network units, through network multiplexers to carrier class core switches for establishing wide area backbone networks. C-Dot has thus brought out new state-of-the-art versions of rural as well as urban digital switches of variable capacities from over 200 subscribers to 100,000 subscribers both in stand-alone versions and multiple-module versions respectively. 1.19 Intelligent Network Solution C-Dot has also developed a scalable, cost-effective and versatile integrated Intelligent Network Solution comprising SP, IP, SCP and SMP. It can be used for quick deployment of feature-rich-value-added telecommunication services for the fixed and mobile network and the Internet. Each node is individually scalable to meet the growing demand for services in a cost-effective manner. The solution is compliant to ITU-t, ETSI and IETF standards and is ready for multi-vender multi-service networks. C-Dot’s Fixed Line SMS Technology brings all the benefits of messaging services, hitherto available to cellular mobile users only, to the fixed line users. Fixed line subscribers can send-receive short messages to/from POTS, CDMA, WLL and GSM and CDMA cellular mobile subscribers. While the fixed line services providers can use the FSMS for adding value to their service offerings, this technology opens up a plethora of opportunities for third-party content providers and marketers. It is also a very powerful tool for government sector initiatives such as e-governance. 1.20 Network Management System The C-Dot Network Management System (CNMS) is part of the range from network management solutions from C-Dot. The CNMS provides a scalable software solution to manage, monitor, control and maintain the performance of any network element online in real time from one or more network control centres. Each network control centre can monitor and control a group of network elements to it. 1.21 C-Dot’s Billing and Operations Support System C-Dot has developed this system as a convergent, customer care, billing and accounting platform for a competitive multi-service, multi-technology and multi-vendor telecommunications network It is a one-stop solution for managing a wide range of basic and value added services over a fixed line (PSTN, ISDN, Leased lines), mobile (WLL, 2G, GPRS and 3G), ATM and internet protocol networks.

In optical areas, C-Dot is able to offer compact and cost effective STM-1 system of the SDH hierarchy and optical booster amplifier for long range broad band optical fibre backbone networks. The development of dense and coarse wavelength multiplexing systems is in an advanced state of completion. 1.22 Rural Wireless Access and Broadband Solution This system provides value-added features for support of integrated voice, multimedia and broadband services. It also enables faster rollout of services. The solution is based on a combination of cost-effective WIMAX and WIFI technologies for providing services in scattered, low population density areas. 1.23 Another R&D Laboratory by Telecordia Technologies

Telcordia Technologies Inc, a $1 billion US-based provider of telecom software solutions, has established a research and development lab in Chennai, its first such facility outside the US. located in Tidel Park.

The company also established its India entity, Telcordia Technologies India Pvt Ltd, to provide dedicated resources for mobile, fixed line and cable operators throughout the country. The new entity will be headquartered in Gurgaon with programme delivery in Hyderabad.

The lab in Chennai would work on telecom solutions relevant to India and for the company's global operations. The company has been in India for the last few years working through partners and reported a turnover of $ 30 million (Rs 135 crore) last year.

Its clients included Tata Teleservices, Idea, Reliance Infocomm, Telecom Regulatory Authority of India and Department of Telecommunication.

Telcordia is looking at implementing the wireless number portability in India, and is in talks with various government authorities on this, according to Mr Naveen Suri, Vice-President, Telcordia Global Services. Once there is a Government regulation, service providers would form a consortium to introduce the service, which the company facilitates in eight countries, including the US, he said.

1.24 OTHER SUPPORTING TECHNOLOGIES & R&D

Indian Scenario

Recognising the importance of Nanotechnology, DIT initiated the Nanotechnology

Development Programme in the year 2004 with the objective of creating infrastructure

for research in Nanoelectronics and nanometrology at the national level and also to fund

small & medium level research projects in specific areas such as, nanomaterials,

nanodevices, carbon nano tubes (CNT), nanosystems etc.

Ten projects with a total budget outlay of over Rs. 126 crore have been initiated. These include two major research infrastructure projects at the national level : (i) Nanoelectronics Centres – a joint project of IISc Bangalore & IIT Bombay with an outlay of Rs.99.80 crore for a duration of 5 years; and (ii) the Nanometrology Centre at NPL, New Delhi with an outlay of Rs.11.308 crore for a duration of 4 years. The Nanoelectronics Centres at IIT Bombay & IISc Bangalore are a unique experience of two leading academic institutions involving 55 multidisciplinary faculty working together on different components of the project. The project also includes teaching and research at PhD, M.Tech and B.Tech level. The Nanometrology Centre at NPL, New Delhi will provide calibration & traceability for line width, step height, surface texture measurement; and calibration of low voltage (nV), low current (pA) and electric charge(fC). The centre will participate in international inter-comparisons and round-robin tests. The facilities available at these Centres would also be available to other researchers, institutions and industry

1.25 Optical Communication 1. To sustain the growth of I.T. in the country it is now well recognized that the

provision of sufficient bandwidth is essential. These bandwidth requirements can only be met through Fiber Optic communication. With the opening up of the country, fiber has been laid across the country by public and private companies. The capacity requirements for the connectivity visualized have been possible and can be substantially increased only through innovative use of optical communication technologies supported by Wavelength Division Multiplexing, Optical Amplification etc.

2. Recognizing the need for bandwidth many companies are putting up High

bandwidth networks, however there is not much clarity on the essential needs and on the methodology for this. Each of this is a vendor driven activity and each vendor tries to ensure his own systems and related (proprietary) components are used so that the service provider is bound to the vendor. This also leads to a

difficulty of the different Optical systems “Talking to each other”. At times this can only be overcome at the Electronic interfaces.

3. Today there is considerable fibre laid in the backbone network and optical

technology such as WDM and Optical Amplification have led to large bandwidth availability. The picture is not as good in the access and the access network (The part of the network closest to the individual user) is acting as a bottleneck for real growth of high data connectivity. Penetration can only increase through increased bandwidth for access and low access charges. Supply of large bandwidth up to each computer will need to precede demand.

4. With this large growth of bandwidth and the plans for deployment of new

network to satisfy this need the demand for optical fibre and Photonic-based systems will be very large. A major part of the expenditure by the service providers goes into the Photonics systems, which in turn consist of the sub systems, components and technology. Except for some of the fibres the other equipment, sub systems components are being imported.

5. It is important that a thrust should be provided in the Eleventh Plan to use this

opportunity so that India has a presence as an Optical Communication Technology Developer rather than just a Market.

1.26 Electronics Materials In today's highly competitive electronic & IT industry, manufacturers are constantly challenged to find ways to cost-effectively make faster and smaller electronic devices. One of the most important aspect of achieving these challenges is dependent on the development of advanced materials and technology. Nowhere is the ability to produce new materials more crucial than in the electronics & IT industry. Electronic and IT materials are the key elements of continued scientific and technological advances in the 21st century. Electronics Materials are the core for the components production. It constitutes approximately 50% of the total components cost. The electronic and IT materials include;

• Semiconductors • Superconductors • Ferroelectrics • Liquid crystals • Conducting polymers • Organic and superconductors • Conductors • Nonlinear optical and opto-electronic materials • Electro-chromic materials • Laser materials • Photoconductors • Photovoltaic

• Electro-luminescent materials • Dielectric materials • Nano-structured materials • Silicon and glasses, • Photosynthetic and respiratory proteins

Some of these materials have already been used and will be the most important components of the semiconductors and photonics industries, computers, internet, information processing and storage, telecommunications, satellite communications, integrated circuits, photocopiers, solar cells, batteries, light-emitting diodes, liquid crystal displays, magneto-optic memories, audio and video systems, recordable compact discs, video cameras, colour imaging, printing, flat-panel displays, optical waveguides, cable televisions, computer chips, molecular-sized transistors and switches, as well as other emerging cutting edge technologies. Electronics and photonics materials are expected to grow to a trillion-dollar industry in the new millennium and will be the most dominating forces in the emerging new technologies in the fields of science and engineering. The rapid progress in the area of development of materials has entered an era of designed materials. The combination of sophisticated and accurate processing equipment and fundamental understanding of materials enable synthesis of materials especially created to have properties required by the design engineer. Moreover, recent developments in materials science and engineering have not only made it evident that the traditional division to metals, ceramics, polymers etc. is becoming obsolete, but also that the ties of physics, chemistry and process engineering are becoming stronger than ever. The development of multi-functional and adaptable material’s new technologies is finding ways to reduce energy, and material inputs. Effective advanced semiconductor and printing circuit board manufacturing requires a long list of specialized and high purity materials. New materials such as superconducting ceramics and diamond films are likely to shape the electronics industry in the coming decade. As these improved materials are synthesized atom by atom, there will be multiple combinations of atomic assemblies. This will create the possibility of achieving several new structures and properties, enabling new electronic applications. Nanostructures based on inorganic and organic semiconductors, coupled with other complex materials such as polymers, will form the building blocks for many future devices and systems. Researchers are working on a wide range of technologies and sorting out difficulties, which will have a positive impact on the industry. These include elaboration and characterization of very thin dielectrics for gate control, reliance on fewer electron memories, lithographic techniques, and the possibility of optical interconnects. New developments such as holographic data storage and doped conjugated polymers are poised to revolutionize the industry.

PART 2 OPPORTUNITIES 2.1 Opportunities in the Indian IT services and ITeS industry The opportunities in the Indian IT services and ITeS industry can be classified along the following broad categories:

2.1.1 IT services The range and depth of capabilities have enabled the Indian IT services industry to gain a respectable position in the global IT services market (Indian industry expected to achieve market share of almost 30 percent by 2008 in key segments such as application development and application outsourcing as per NASSCOM-McKinsey estimates). The key factors that have enabled the industry’s success are end-to-end solutions capability, focus on stringent processes and quality of execution, global delivery model (combination of onshore and offshore with an increasing offshore component), high-end, mission critical service capabilities and strong project management methodologies and expertise. 2.1.2 Opportunity segments within IT services

Some multinational corporations who have leveraged the India advantage for IT services (either through a captive unit or through outsourcing include Siemens, Citigroup, Microsoft, Cisco, Hewlett Packard, Nortel, Boeing, Airbus. (Illustrative and not exhaustive; Source-News reports)

2.2 Customer interaction services Customer interaction services is one of the largest segments within the Indian ITeS industry. The predominance of customer interaction services is gradually decreasing due to pricing pressures as well as increasing depth of sourcing relationships which have include a new range of service offerings. However, while the share in the total pie may be decreasing, the outlook for this segment is still favourable due to strong demand from customers who have not sourced customer interaction services in the past as well as expansion of the customer care service offering to include more complex activities such as higher-end technical support. Select multinational corporations who have leveraged the Indian advantage for business process outsourcing services include Citigroup, American Express, General Electric and Hewlett Packard. (Illustrative and not exhaustive; Source-News reports). 2.3 Transaction processing Cost advantage, access to an abundant skill pool and commitment to quality of delivery have enabled the rapid growth of this segment. The range of capabilities sourced from India in business process outsourcing has been illustrated below:

Select multinational corporations who have leveraged the Indian advantage for business process outsourcing services include General Electric, Citigroup, Standard Chartered Bank, ABN Amro, Bank of America, American Express, British Airways and IBM (Illustrative and not exhaustive; Source-News reports).

2.4 Content development The Indian ITeS industry offers a range of services to various multinational organisations catering to their digital content development needs of website management, production and delivery of multimedia over new media, including CDs, DVDs and Internet TVs, movie production and gaming. Key players offering / sourcing content development services from India include Walt Disney, Laserwords and Techbooks (Illustrative and not exhaustive; Source-News reports). 2.5 Knowledge services (non-IT) Recent years have witnessed a spurt in sourcing of knowledge based services as the industry has moved up the value-chain and built high-end capabilities. While this trend is particularly evident in financial services, sourcing of knowledge services has also gained ground in industries such as pharmaceuticals and biotechnology, entertainment and aerospace. The key opportunity areas and their market potential have been illustrated below:

Select multinational corporations who have leveraged the India advantage for knowledge services include General Electric, J P Morgan, Citigroup, American Express, McKinsey, Pfizer, and A C Nielson. (Illustrative and not exhaustive; Source-News reports).

2.6 Engineering design A significant emerging opportunity for the Indian ITeS industry is in the realm of engineering design which is expected to grow to US$ 4 bn by 2010 (Source: Evalueserve). While the scope of engineering design covers a broad spectrum of complexity levels, different players have emerged across the spectrum by building the requisite capabilities.

Key players offering / sourcing engineering design services from India include Bechtel, Ford Motor Company, General Electric, General Motors and Datamatics (Illustrative and not exhaustive; Source-News reports) 2.7 Key emerging trends impacting the Indian IT services and ITeS industry While the Indian IT services and ITeS industry is poised for rapid growth over the next few years, there are emerging trends which are likely to impact their operating models and the industry players would have to appropriately adjust their operations to capitalise upon / manage these trends. Some key emerging trends include: 2.7.1 Demand related • Offshoring is now mainstream and increasingly an integrated approach is being adopted across service types. Also, with more experience with the concept, offshoring projects are

moving beyond pilots and there is better and coordinated planning, execution and monitoring of offshoring projects. • Transaction processing is growing faster than customer interaction services and is likely to dominate future growth. Key segments which have contributed to this growth include finance and HR processing. • Demand for offshoring has extended beyond the banking and financial services industry and other key verticals that are likely to be demand drivers in the future include telecom, healthcare and entertainment / media. • While a range of sourcing models exist and continue to evolve, the preferred models are captives and hybrid options. • There is likely to be greater focus on risk, compliance and information security issues and therefore risk management is likely to be the dominant theme (both offshore and on-shore). 2.7.2 Supply related • Evolving market structure with consolidations, IPOs and other transactions. • Emergence of other competing countries and need to appropriately manage people, telecommunications and infrastructure costs to ward of competition from the same as cost arbitrage is still a significant driver for offshoring. • Possible demand-supply gap for trained manpower in the medium to long term and therefore need to invest in enhancing supply of trained manpower. • Development of a larger base of locations for IT and ITeS with supporting ecosystems. 2.8 Future Opportunities 2.8.1 Outsourcing or offshoring product development activities: Globally companies are attempting to enhance and maintain legacy products, while keeping costs low. This presents the following opportunities for Indian firms:

o Provide functions such as legacy product maintenance, development of patches and upgradation of core product, and support of multiple platform versions of core products.

o Form partnerships with global ISVs and develop new products in close

conjunction with them. The Indian team can perform functions such as development of specific modules, and testing and integration of modules with the larger product.

2.8.2 Embedded software: India has a pool of professionals skilled enough to work in

this domain. The market for embedded software products is expected to increase as OEMs and suppliers, especially in "smoke stack" industries, are struggling to build software competencies. This has created a void, which can be filled by Indian companies.

2.8.3 Shrink- Wrapped product development: Only a few Indian companies such as

i-Flex have succeeded in developing shrink-wrapped products for mass markets. This market is accessible only to companies who can compete at par with the global ISVs. Indian companies can take advantage of cost benefits and highly skilled manpower available in India, to develop software products. However, they lack experience in identifying product opportunities, and do not focus on the branding and sales strategies required to succeed in the product arena.

2.9 Some Major MNCs Undertaking R&D in India 2.9.1 The Corporate Technology Department of Siemens has set up a research centre in

Bangalore, which will focus on high-end R&D in software engineering technologies for multi-site global product line developments, client-server technologies for next-generation medical imaging solutions, and embedded software for security and automotive applications.

2.9.2 Snecma Aerospace India (SAI), the R&D centre of Snecma in India is involved in

the development of components of aero-engines and aircraft equipment, and embedded software to cater to its worldwide operations.

2.9.3 Schneider in partnership with Tata Elxsi: The global R&D centre of Schneider

Electric in Bangalore and the Indian product design company Tata Elxsi have announced the creation of a dedicated software competency centre that will be involved in the development and testing of embedded software applications offered by Schneider Electric.

2.9.4 Texas Instruments: Develops embedded software for Broadband, DSP, Wireless

terminal and OMAP applications, Device drivers and operating systems, Multimedia CODECS, Integrated software development environment

2.9.5 Sun Microsytems and Cadence Design have teamed up with Veda Institute of

Information Technology, Hyderabad to start India’s first nodal centre of competency for R&D in VLSI engineering, design automation and embedded system engineering.

2.9.6 Intel: In October 2004, Intel opened its first test lab- Enterprise Platform Group

(EPG) – thereby having end-to-end product development capability - for generating innovative, cost-effective debug and test solutions for all products coming out of India.

2.9.7 Samsung: The company has about 850 engineers in India at its two R&D centres -

Bangalore and Noida (UP) – that work on cutting edge technologies like embedded software, home network, IPV6, etc.

2.9.8 Motorola: Over 900 engineers work at Motorola’s Global Software Group (GSG)

at Bangalore and Hyderabad centres for creating cutting edge technological solutions for wireless products and infrastructure, providing embedded solutions and services for 3G Phones, UMTS and Cable Modem systems.

2.9.9 Philips: The company’s R&D centre in Bangalore - Philips Innovation Campus -

supports its global research on medical systems, semiconductors and mobile phone operating systems. The centre currently employs around 1,500 engineers and the number is expected to reach 3,000 in the next two years.

2.9.10 Delphi: Delphi’s Technical Centre India in Bangalore, meets the global needs for

vehicle software engineering, math based applications and product development particularly in software development, engineering analysis and CAD. The centre employs over 350 engineers working to develop embedded software technologies. The centre is also slated to become a centre of expertise for development of web based tools to automated engineering, modelling and business processes at Delphi electronics and safety division.

2.9.11 Daimler: The company through its Research and Tech group in Bangalore runs

alliances with 10 IT majors in the country. Besides the 100 seater centre in Bangalore also carries out dedicated research for DaimlerChrysler's global operations.

2.9.12 Bosch: The software division develops software solutions for Bosch units in many

countries including USA, Europe and Asia-Pacific. It is developing embedded software for control units, tools and diagnostics, besides mechanical design services and shared service centre accounting for Bosch operations worldwide.

2.10 EMERGING AREAS Software products can be classified in many ways and all of them offer opportunities for Indian offshore product development companies There is the consumer software product, which includes products like MS Word, software games and software for personal financial planning. Then there are the enterprise software products which include products like enterprise planning (SAP, PeopleSoft), financial management ( Tally, I-flex), supply chain ( 12, Manugistics) CAD/CAM ( Autodesk, Primavera). Yet another category is the embedded software products- software used in hardware devices such as medical devices and consumer electronics Nasscom’s Market Intelligence Service has identified certain mainly U.S. based companies with offices in India as key players in Offshore Product Development. Aditi Technologies has developed turnkey solutions for start-ups, designed a Tornado solution to augment products that are on the high growth stage and a legacy solution designed for “sunset” products that are on their way to retirement.

Aztec Software is another company that offers a gamut of services for application development, testing and QA, maintenance and support and migration and porting across application servers, databases and platforms. Ness Technolgies (India) is an offshore-centric technology solution group with five solution centres in Bangalore and Mumbai. Ness India has developed specific solution methodologies to enable independent software vendors to set up R&D transformation labs offshore for significant value and time-to-market advantages. Persistent Systems, with an office in Pune, India has over the past 13 years successfully executed over 700 release cycles, and software developed by Persistent’s team is an integral part of over 200 industry leading commercial software applications. Another company, Symphony Services, with an office in Bangalore, India specializes in product development. It helps clients to achieve effective and efficient management of the entire product lifecycle. Its product extension solutions include porting and integration.

2.11 Hardware: Current Status and Key Opportunities The global electronics (CE) industry clocked USD 1.27 trillion in CY 2005. The computer industry accounted for USD 218 billion registering an annual growth of 9%. A total of 218 million computers were shipped worldwide registering a growth of 15%. China accounted for 19.3 million units of the PC consumption in 2005 registering a growth of 29%. As manufacturers seek to reduce costs, there has been a marked shift in electronics output worldwide, including that of computers and peripherals, from high-cost to low-cost locations. Although Asia/Pacific—in particular, China—has been the main beneficiary, Central and Eastern Europe, Mexico and Brazil have also benefited from significant inward investment. In the longer term, many of today's low-cost locations will also offer significant market opportunities, creating the need for further investment in local manufacturing. The opportunity is knocking at India’s door as well. The size of the computers and peripherals market in India in 2005-06 (including printers, UPS and networking products) was around USD 5 billion (Rs. 22,000 Crores). The consumption of computers was 5.13 million units with a growth of 32% over the previous fiscal. Desktops accounted for 4.6 million units growing 28%, while notebooks accounted for 0.5 million units growing 144%. In value terms, the computers and notebooks market was USD 2.5 billion (Rs. 11,000 Crores) registering a growth of 28% over FY 2004-05, the growth in desktops being 18% and in notebooks 107%.

Computers & Peripherals Market: 2004-05 & 2005-06

Total Market Total Revenue (in Rs Crores)

Product 2005-06 2004-05 % Growth 2005-06 2004-05 % Growth

Computers Desktop PCs

4,614,724 3,632,619 27% 8,884 7,520 18%

Notebooks 431,834 177,105 144% 2,027 978 107% Servers 89,161 49,165 81% 1,545 916 69% Printers Dot matrix 472,074 399,580 18% 430 379 13% Inkjet 717,001 636,619 13% 241 223 8% Laser 325,109 142,555 128% 554 286 94% Line 4,914 4,675 5% 122 116 5% Other Peripherals

Key boards 4,639,156 3,669,441 33% * * *

Monitors 4,637,787 3,642,204 34% 2,301 1,903 21%

UPS systems

1,208,413 954,260 27% * * *

Networking Products

NICs 3,646,145 1,801,854 117% * * *

Hubs 144,117 113,894 27% * * * (Source: Manufacturers’ Association for Information Technology) * wide variations in price in product categories IT Products being manufactured in the country include personal computers, servers, workstations, supercomputers, data processing equipment, Dot-matrix printers, digitizers, networking products such as modems, hubs, etc. and add-on cards. The production in the PC segment is dominated by P-4 Processors. Other processors are gradually entering the market reflecting, perhaps, the need for low-cost computing solutions.

The IT products manufacturing industry in India is essentially an import intensive one. While the market size for IT products is estimated at USD 5 billion (Rs. 22,000 Crores), the production in the IT manufacturing industry (excluding PC assembly) is only USD 1.3 billion ((Rs. 5,700 Crores). The industry has been essentially assembly oriented one with very low value addition. The impact of infrastructural related disabilities is significantly pronounced in the component and the sub-assembly and component manufacturing industry, as a result of which the component base in India is practically non-existent. Of the total Desktops market in the country, almost eighty five percent are assembled locally. All leading global brands including HP, Lenovo, ACER etc. have an assembly unit in India, Dell being an exception, but it is expected to start its assembly unit soon. Multinational brands account for 35% of the PC market in India. Indian PC brands such as HCL, Zenith, Wipro, PCS etc account for 35% of the market. The reduction in customs and excise tariff over the years has had an adverse impact on the grey market, the proportion of which has steadily come down. The grey market accounted for over 60% of the market in 2003-04 and has been reduced to 37% in 2005-06. In the peripherals industry, a very high degree of value addition (to the tune of 65%) has been achieved in the manufacturing of the Dot-matrix printers. TVS electronics and WeP peripherals, the top two leaders in Dot-matrix printers manufacturing in India account for close to seventy percent of the Dot-matrix market. There is no indigenous manufacturing of laser or inkjet printers in the country. In case of the UPS industry estimated to be Rs. 1,000 Crores, 60% of the production by value is of large UPS (>300 VA) and the rest by small UPS. The large UPS have a very high indigenous content, at time as high as 100%; while the small UPS manufacturing is import oriented with little or no local value-addition. The focus of the computers and the peripherals industry in India has been on the domestic market. The rapid growth in the domestic market has been the prime reason for this; however, it is not that the industry did not attempt exporting. In late eighties and mid-nineties, the industry had developed exports competence; however, with Indian infrastructure not keeping pace with the requirements of a quick turnaround as needed to be globally competitive, the industry gradually lost out on the exports front. Only a countable few in the IT manufacturing have been successful in exports. These include APC in UPS manufacturing, Moser Baer in computer media and Celetronix in components of hard disk drives and other components. The exports turnover of the IT manufacturing industry in 2005-06 was an estimated USD 1.25 billion.

2.12 Performance in the Xth Plan: The Xth five-year plan from 2002 onwards witnessed a significant growth in the computer consumption in the country, which grew from 1.76 million units in March 2002 to 5.13 million units in March 2006. Computer consumption is expected to exceed 6.5 million units by the end of the Xth plan in March 2007. This reflects a cumulative average growth (CAGR) of 30%.

Consumption of Computers in units: 2001-07

(Source: Manufacturers’ Association for Information Technology) The computer penetration in the country has also witnessed rapid growth:

2001-02 2002-03 2003-04 2004-05 2005-06

Computer penetration per 1,000 people

6.3 9 11 14 18

(Source: Manufacturers’ Association for Information Technology)

1,766,500

2,401,161

3,177,752

3,858,889

5,135,719

6,500,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07*

2.13 Technology Status The Indian IT industry does not lag in technology in comparison to its global counterparts. Most products are launched simultaneously across the globe and so in the Indian market. However very few companies spend resources in designing products for the Indian market, while those who did take up the challenge have not been successful due to their inherent disabilities of scaling up and other deficiencies in the eco-system. The Governments in India both at the centre and state levels have made several efforts to reach the benefits of IT to the Indian populace beyond the urban areas by launching several projects in regional language computing, however, very few have been successful. All this is in direct contrast to the fact that several MNC have set up their product design centres and technology labs in India to harness the inexpensive Indian engineering talent. Further several Indian entrepreneurs as also Indian companies are engaged in product and technology development meant for exports purposes only. The linkages between the Industry and the academia in India are poor and there is no movement of personnel between the two thus limiting innovation and cross pollination of ideas. Lastly all nations with advancement in IT have scaled heights owing to the contribution of their Governments in R&D and technology development. Unfortunately Government of India’s spend in R&D in IT is very insignificant and not readily extended to the private sector.

2.14 Future Trends The character of the IT industry is global and the industry in India also follows the global trends. With convergence of technologies, the distinction between technologies – IT, Consumer electronics and telecom is fast diminishing. Globally the consumption of mobile PCs (notebooks) exceeds that desktops, however in India the proportion of the notebooks is a little over 10% of the desktops, however, with over 100% growth in the notebooks, the proportion is fast expected to change to about 25-30% in the next three to four years. Further, with mobile industry readying itself to roll out 3G, the mobile phone will become the access as well as the computing device. This will lead to a significant increase in population with internet access and with a critical mass of net users being available; several services could be rolled out increasing the value proposition of IT. The traditional definition of computing will thus under go a change.

India will be the youngest nation in the world by 2025. A large population of people under thirty will drive the consumption of IT products, the Indian market is therefore going to expand rapidly, the challenge will be how to tap our own ready market for purposes of manufacturing in India rather than creating jobs in other economies by meeting the demand through imports. Further, the import bill to meet the demand may well surpass the earnings through software exports. Should measures be adopted to convert the opportunity into domestic IT manufacturing, India may well emerge as a strong manufacturing country.

2.15 Status of investments and investment needed to meet the targets A poor investment climate, and a policy structure non-conducive to manufacturing, failed to attract any significant investments in IT manufacturing. However, with rapid growth in consumption in the domestic market in the last few years, especially that of the mobile phones, seven of the top ten EMS players have set up their operations in India. These include Flextronics, Honhai/Foxconn, Celestica, Jabil Circuits, Solectron Centum, etc. The core competence of EMS players is manufacturing and their investments in manufacturing will not remain relegated to mobile products alone. They are actively looking at diversifying their product profile as several of their international customers such as HP, Dell etc. have a strong market presence in India. With recent changes in the excise duty structure of the PC, and also with the rapid growth in the PC market, HCL has set up a new assembly plat at Uttaranchal. Companies such as HP, Dell, ACER and Lenovo are expanding their existing capacities and/or setting up new plants as well. Peripherals manufacturers such as TVS electronics, WeP Peripherals, Emerson have set up fresh manufacturing facilities at Himachal Pradesh. Tamil Nadu is also fast emerging as an attractive destination for hardware manufacturing; most of the fresh investments by the EMS players have been in Chennai. SEZs are emerging as the most preferred vehicles for driving manufacturing investments. Going forward, semiconductor manufacturing is an area that needs focussed attention from the Government. SemInida, a consortium of companies form the US and June Min, a Korean entrepreneur, have announced setting up of semiconductor manufacturing plants in Hyderabad, however, a policy for attracting high capital IT manufacturing such as ICs, LCDS, OLEDs, solar panels, storage devices etc. is crucial for taking Indian to the next level of IT manufacturing. Comparing the efforts of India with the developed countries as brought out above, and also considering the multidisciplinary nature of the field involving all branches of Science, Engineering and Mathematics, it is obvious that India has made only a beginning. By and large, nanotechnology is evolving mainly on three axes converging at nanoscale : (a) Progress in Physio-Technical methods have been principal drivers in creating smaller structures in microelectronics – enabling the IT revolution; (b) Progress in Chemistry has led to various compounds with potential for applications in catalysis,

membrane technology, sensing technology and thin film technology; and (c) The understanding of Biological processes of cellular and molecular levels such as information flow from gene to protein, self organization of molecules & photosynthesis is providing new goals to be achieved by technological means. The challenge is in applying methods and insights of one discipline usefully to others.

The Nanotechnology value chain can be profiled as : (i) Nanomaterials, i.e. nanoscale structures in unprocessed form such as nanoparticles, nanotubes, quantum dots, fullerenes, dendrimers, nanoporous materials, speciality polymers etc., (ii) Nanointermediates, i.e. intermediate products with nanoscale features such as memory and logic chips, coatings, fabrics, contrast media, optical components, orthopedic materials, etc.; and (iii) Nano-enabled products i.e. finished goods incorporating nanotechnology such as computers, consumer electronics devices, cars, clothing, airplanes, pharmaceuticals, processed food, plastic containers, appliances etc.. To work on the value chain we need Nanotools i.e. capital equipment and software used to visualize, manipulate, and model matter at the nanoscale such as atomic force microscopes, scanning tunneling microscopes, nanoimprint lithography equipment, molecular modeling software etc.

In view of the above, it is necessary to set up many more networked multidisciplinary centres of excellence at leading academic institutions for conducting research and developing trained manpower at all levels. Further it is proposed to continue funding small and medium level research projects in specific areas such as nanoelectromechanical systems, thin films, nanosensors, nanodevices, spintronics, nanocomputing, nanophotonics, etc. In addition to creating infrastructure, the best young scientist and engineers also need to be attracted towards higher education and research by way of offering long-term research career and competitive salaries.

Outcome: The programme would enable India to launch major initiatives at the global scale in selected areas of this technology which would impact everything man made. 2.16 Thrust Areas for Optical Development and Opportunities 1. Development of 40/100 Gbps systems for Datacom.

2. WDM & DWDM Network and its Protection Aspects as well as the various

technological routes for OADM (Optical Add Drop Multiplexing). This is an area which is upcoming and has very huge future potential.

3. FLL (Fiber in the Local Loop) 4. Fibre For Cable TV/ ISP On Cable TV 5. Material Growth Technology: The Technology Base for Receiver material, LED material, laser material, Tunable sources as well as pumps, SOA, High power pumps for Raman etc is III-V Semiconductor technology.

Other Materials required include Dielectric materials, Lithium Niobate, Glass, silica on silicone Raw Material for Optical Fibre and Cables.

Besides, this Novel Materials, Organic and Polymeric material for Optoelectronics could

be the workhorse for innovative devices in the long term and justify exploratory work immediately. 6. New Fiber designs : Newer Designs in the conventional type fibers and in the Emerging Area of PCF (Photonic Crystal Fibers-Earlier called Holey Fibres),LEAF fiber, fibers for LASERS, special purpose fibers for amplification, sensing, Polarization maintaining. 2.17 Thrust Areas in Electronic Materials for Research and Opportunities

1. OLEDs, high density Optical Storage Discs, high density hard disc materials, photo-resistant materials and photoimagable and photodefinable.

2. Research in futuristic materials areas leading to innovation and technology up-

gradation such as;

• Semiconductor packaging materials • Materials for CRT’s and various displays • Advanced ceramic materials • Holographic data storage materials and devices • Superconducting ceramics • Nano-structured materials and devices

• Nonlinear optical and opto-electronic materials • Electro-chromic materials. • Ferroelectric Materials. • Specialized polymers

2.18 AREAS OF OPPORTUNITY IN THE TELECOM SECTOR Communication products manufactured presently include telephone instruments, teleprinters, facsimile, electronic/digital switching equipment, electronic PAXs, RAXs and PABXs, electronics telex exchanges, transmission equipment such as open wire systems, coaxial systems, optical fibre cables and optical fibre communication equipment, microwave systems, troposcatter equipment, PCM multiplexing equipment, two-way radio communication equipment in HF, VHF, UHF and microwave ranges, power line carrier communication equipment, radio paging equipment and data communication equipment,. The production of communication equipment, as well as the basic telephone services which were reserved for the public sector, have been opened to private sector as per the New Telecom Policy and have created many areas of

opportunity. A number of multinational companies have joined hands with Indian partners to cater to Indian needs in the field of basic telephone services, radio paging, and cellular mobile phones. The boom in the cellular services market is all too visible with about 5 million mobiles being added every month. Consequently, the subscriber base reached 90 million by end of March 2006. The annual growth (April 2005 to March 2006) for this segment was of the order of 73%. Convergence of various communication equipments and technologies is the hallmark of present information age. The convergence of Computer, Communication, Consumer electronics, Broadcasting and Contents; Voice, data, video and computing, fixed and mobile telephony and telecom and IT networks is creating new businesses giving flexibility in doing business and taking collaborative processes to a new level. It makes it possible to communicate almost anything to anyone at any time. The growing communication needs and business processes demand for faster Internet access and innovative interactive content have ushered in the broadband. At the same time, globally efforts are to ensure that the benefits of ICT reach the largest section of the population. R&D is the driving force in harnessing the technologies and facilitating cost effective deployment of ICTE for the benefit of economy and society. 2.19 OPPORTUNITIES FOR INVESTMENT IN TELECOM One of the important sources of the substantial financial investment required for the growth of tele-density in India has been FDI. In pursuance of the Government's commitmen to liberalise, the FDI ceiling in telecom sector was enhanced from 49 per cent to 74 per cent in certain areas (such as basic, cellular, unified access services, national/international long distance, Very Small Aperture Terminal (VSAT), Public Mobile Radio Trunk Services (PMRTS). Global Mobile Personal Communication Services (GMPCS) and other value added services). The total 74 per cent FDI ceiling includes direct and indirect foreign holding in the licensee company. The formal guidelines enhancing the ceiling was issued by Department of Industrial Policy and Promotion on November 3, 2005. FDI up to 74 per cent, subject to licensing and security requirements, is also allowed in the areas of internet services with Gateways, Infrastructure providers (Category II) and Radio Paging Services. 100 per cent FDI is allowed in respect of Internet services without Gateways, Infrastructure Providers (Category I), Electronic Mail and Voice Mail services subject to condition that companies providing such services would divest 26 per cent of the equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. 100 per cent FDI is also permitted in the area of telecom equipment manufacturing and provision of IT enabled services. Total FDI approved for the telecom sector up to September, 2005 was Rs. 41,551 crore. Hutchison, Singtel, AT&T and Distacom are the major investors in the telecom services sector. Telecom major Vodaphone has announced its entry into the sector with acquisition of 10 per cent shares in Bharti Televentures for a consideration of Rs. 6,700 crore. The agenda for having world renowned Telecom and IT companies set up their R&D/manufacturing base in India has been aggressively pursued to ensure timely delivery, high quality, cost effective supplies and very good after sale services.

PART 3 SELECT CASE STUDIES 3.1 General Electric (GE) GE was among the first global companies to choose India as a sourcing hub and the company has been very successful in sourcing products, services and intellectual talent from India for a wide cross section of its global businesses • GE pioneered the concept of software sourcing from India through Offshore Development Centres across the country • The JFWTC is India’s first and largest multi-disciplinary research centre, which provides critical technology, research and development for GE’s diverse global businesses • Medical Systems, Appliances, Aircraft Engines, Industrial Systems, Power Systems and Transportation Systems develop and provide design and engineering services and analysis for GE global businesses • GE Capital Services (GECIS, now renamed GENPACT) which has been a large part of GE in India till now has catered to the diverse needs of a global business through its outsourcing services which include transaction processing, finance and accounting services, call centre services, customer fulfillment activities and processes, data modeling and analytics support, managed IT services, software solutions and e-learning. Extract from “GE India: US Companies in India – Success Stories” – IBEF 3.2 American Express American Express Global Service Centre provides voice and data based processing to support a variety of the company’s card, financial services and travel-related businesses in the US and other countries. It provides fraud and risk modeling and financial processing to American Express customers worldwide. These operations also involve partnerships with outsourcing vendors and are an important part of the company’s efforts to expand its global infrastructure base. Global Service Centre’s Asia operations commenced in January 2001 and it is headquartered in India representing the company’s continued focus on India as a primary location for developing additional servicing capacity to support global businesses. Extract from “American Express: US Companies in India – Success Stories” – IBEF 3.3 Citigroup Software development for global operations – Citigroup has made India its global software development, software maintenance and BPO hub. Polaris Software Lab, an India-based leading global provider of financial technology solutions and offshore IT services, has developed, deployed and supported solutions for over 10 million Citibank

customers in 70 countries across the world. Back office operations for global operations - Citigroup has established e-Serve International Ltd. (formerly known as Citicorp Securities & Investments Ltd.) in India, for its BPO activities. E-Serve focuses on providing IT-enabled solutions to the financial services industry, supported by latest technology and robust infrastructure for volume-intensive processing and the customer care needs of its customers located in over 25 countries across North America, Europe, Africa, South Asia and Middle East. E-Serve handles all the cash management and trade finance transaction processing for Citibank India, Sri Lanka and Bangladesh; credit card services for Eastern Europe, Middle East and Africa and bank back-office processing work for Citibank in Europe. Extract from “Citigroup: Fortune 500 Companies in India – Success Stories”– IBEF 3.4 EDS India as a global sourcing base – EDS is one of the largest players in the BPO industry. The company had set up its India operations to service several Fortune 500 clients. It has development centres in Mumbai, Pune, Gurgaon and Chennai, which operate mainly on its product life cycle management practice. The company set up a centre in Mumbai in 2003 to handle services like voice and data communication, data entry, financial process management, among others. India as a software development and maintenance hub – EDS India has established its software development operations which provide services to global customers. EDS – India leverages the local pool of high-quality information technology professionals and the availability of high speed data communication links to services the global requirements of the organisation Extract from “EDS Electronic Data Systems (India) Pvt. Ltd.: US Companies in India – Success Stories” – IBEF 3.5 Cisco India as a R&D hub – Recognising India’s wealth of software talent, Cisco established GDC in Bangalore in 1999. It is the largest outside the US. The centre plays a strategic role in Cisco’s global operations in deploying the solutions and products in the Internet economy. R&D work in India focuses on certain core technologies. Several products in Cisco’s stable have been developed entirely in India. Cisco’s Bangalore GDC has 2000 plus engineers and is presently working with HCL Technologies, Wipro Technologies, Infosys, TCS, Satyam Computers, Hughes Software and Zensar. Extract from “Cisco Systems: US Companies in India – Success Stories” –IBEF 3.6 Intel Intel set up its first R&D centre (Intel India Development Centre – IIDC) in Bangalore in 1999. Intel is using this facility to work in e-Business applications, networking and communications, microprocessor and chipset design, manufacturing automation and systems software. Key programs at the centre include: • Design of the next generation microprocessors for server architecture. • Next generation mobile chipsets for the Intel CentrinoTM Mobile Technology.

• BIOS Display, now installed in over 100 million PCs was developed in India. • Next generation switching silicon and router products. Extract from “Intel Technology India Private Limited: US Companies in India – Success Stories” – IBEF 3.7 Samsung Samsung has set up two R&D centres in India, at Bangalore and Noida. Both the R&D centres are involved in cutting edge research and development. • The Noida centre is involved in the business of developing embedded software for Samsung Electronics Corporation in a variety of areas related to Digital TV and Multimedia technologies. The centre has successfully completed more than a hundred projects in collation with Samsung Headquarters Visual Display and Digital Media divisions. Its engineers continuously strive to improve performance and introduce innovate features to make the end products more efficient and user friendly. It designs and implements some of the critical software components for products such as next generation CRT and Projection TVs, Plasma and LCD TVs, DLP TVs, Digital TV Set Top Boxes, DVD Players, MP3 players, PDAs, 2D/3D Graphics Engines, Video editing and playback, Multimedia applications etc. The Bangalore operation is involved in the business of developing software for Samsung Electronics Corporation technology solutions in a variety of different areas. It is known for the expertise that it possesses in certain key technology domains. Its contributions have been in very key knowledge based areas of new and evolving technologies like 3G, UMTS, CDMA2000, Multimedia, Home Networking, Digital Media, System LSI, Network Protocols, Wireless Terminals to mention some. The centre boasts of a highly talented and motivated workforce who have been constantly enriching their knowledge and skills Extract from “Samsung India Electronics Limited: Fortune 500 Companies in India – Success Stories” – IBEF

PART 4 OBSTACLES 4.1 In the ICT sector some of the obstacles faced by companies are foreign ownership caps on knowledge based industries and licensing requirements. There are sometimes restrictions placed on licensees’ business practices and IPR problems could arise. Obstacles could arise from lack of enforcement in IPR and cyber security. Policies sometimes are not transparent and are not technology neutral and duties on imported goods may be unfavourable. While the big manufacturers in the ICT sector have in the past viewed India as a low cost engineering resource to be developed to serve global markets, today small and medium-sized companies are building linkages into the bigger supply chain. It is these small and medium sized companies that face many difficulties with the system, both financial and legal. Foreign companies have to be careful in selecting a partner. Many small and medium-sized Indian firms finance themselves through funds from a founder’s family, friends, trade credit and loans from financial institutions. When foreign companies enter into partnerships, after careful screening of partners, informal governance mechanisms based on trust, reputation and relationships are much more important than legal remedies in resolving disputes and enforcing contracts. In fact, today the majority of Indian entrepreneurs resolve disputes outside courts. Another problem may be ambiguity about taxation provisions. Since India and Italy have a Double Taxation Avoidance Agreement, it would be good for Italian companies entering India to be conversant with this agreement. Italian companies should also be conversant with FDI norms for the country and the ICT sector. In fact, the regulations for buyout of secondary shares can sometimes be a problem for foreign investors as the rules in India may need to be more in line with international norms. 4.2 Types of Obstacles 4.2.1 High investment costs and associated risks: Launching software products will be a

major diversification for most Indian companies. Software product development requires significant investments and still carries great risks. Since the services business is running profitably for most companies, venturing into software products will be an even greater risk.

4.2.2 Absence of focused product shops in India: Focused product shops that specialize

in offshore product development do not yet exist in large numbers in India. However, several players and new entrants are realizing the futility of performing all functions in the value chain and are going on to set up focused product shops.

4.2.3 Distance from clients: Only a few Indian companies have a global presence.

Understanding the needs of the client requires a presence in the market in which the client operates, and regular communication between the company and the client. Foreign companies are not clear as to how the dual shore model will function, given the need for tight communication and coordination.

4.2.4 Poor past record: The past performance of some Indian companies has not been

world class. It has disappointed some of the clients, and they are generally reluctant to work with Indian companies again.

PART 5 PARAMETERS OF COMPETITION 5.1 Leading Indian Software Product Companies PLAYER MAJOR

PRODUCTS

KEY CLIENTS

REVENUE FROM SALES

FY 2002-03 (RS

CRORES)

SALES AS % OF TOTAL

REVENUE (FY

2002-03)

DOMESTIC SALES AS % OF TOTAL

SALES (FY 2002-03)

i-Flex FLEXCUBE- caters to both corporate and retail banking

Citigroup accounted for 38 % of the aggregate revenue in 2002. Other clients – North Carolina Department of State Treasurer, Bharat Overseas Bank, IMF

360 64 5

Infosys FINACLE Core Banking, FINACLE eChannels FINACLE CRM FINACLE eCorporate FINACLE Treasury

ABN AMRO Bank Singapore, ICICI Bank, IDBI Bank, Cosmos Bank, UTI Bank, Punjab National Bank,

181 5 47

Tally Business accounting software – TALLY ees 6.3

Used by all types of businesses in over 88 countries in Europe, South East Asia, the Middle East and Africa, such as HDFC Bank, Great Eastern

NA 100 94

PLAYER MAJOR

PRODUCTS

KEY CLIENTS

REVENUE FROM SALES

FY 2002-03 (RS

CRORES)

SALES AS % OF TOTAL

REVENUE (FY

2002-03)

DOMESTIC SALES AS % OF TOTAL

SALES (FY 2002-03)

Shipping Co. Ltd.

TCS Products for financial banking, manufacturing and health sectors

NA 66 7 NA

Polaris (Erstwhile Orbitech)

BANKWARE, ORBI suite of financial products

ABN AMRO Bank, Deutsche Leasing Group, Shinsei Bank, Kuwait Commercial Bank, UBS Warburg, NEC, Sanmina Corporation, Commerz Bank, AIG Group, Snecma Moteurs

60 16.4 90

Newgen OminFlow, OmniDocs, OmniExtract, OmniCapture, OmniReports

BNP Paribas, Citibank N.A, Ford Motors, Global Trust Bank Limited, ICICI Bank, Patni Computer System Ltd., RPG cellular services

24.5 76 47

Kale Cargo Solutions, Business Intelligence Software, Passenger Solutions

Clients include airlines such as Continental Airlines, Freight companies such as Kenya Airfreight

8.5 NA 30

PLAYER MAJOR

PRODUCTS

KEY CLIENTS

REVENUE FROM SALES

FY 2002-03 (RS

CRORES)

SALES AS % OF TOTAL

REVENUE (FY

2002-03)

DOMESTIC SALES AS % OF TOTAL

SALES (FY 2002-03)

Handling Limited, etc.

ESS Makess ERP, ebizframe

Glaxo Smithkline Pharmaceuticals Ltd., Oscar Equipment Pvt. Ltd., West Kenya Sugar Co. Ltd., Graphic Systems Uganda Ltd., Suguna Motors & Pumps Neco Schubert & Salzer Ltd

7 NA NA

Ramco Ramco e-applications, Ramco VirtualWorks

USA – BemisCurwood, Columbia Helicopters, Hoosier Energy, Sunkist Growers, Toyal Engineering Europe – ETS, Migros, Swatch, Unisource Asia – Intel, Faber Medi Serve, Singapore Sports Council, Addision tools, ANZ Grindlays, Bharat Earth Movers Limited, ICI

>50 67 NA

PLAYER MAJOR

PRODUCTS

KEY CLIENTS

REVENUE FROM SALES

FY 2002-03 (RS

CRORES)

SALES AS % OF TOTAL

REVENUE (FY

2002-03)

DOMESTIC SALES AS % OF TOTAL

SALES (FY 2002-03)

Ltd, Indian Airlines

Aditi Technologies

Talisma –eCRM product

Microsoft, SmartContractor, Zendit, Siemens, CitiCorp, Bowstreet, Intershop, Sony, Times of India, Rediff.com, Its integration partners are Vignette, i2, CommerceOne, Siebel, and Ariba.

>50 NA NA

Subex Telecom sector – RevMax

CYTA, AmericaTel, GlobalCrossing, Sprint, Bharti Mobiles, Escotel, Birla AT&T Tata, Sonatel, Econet Wireless

25.5 36 8-10

Companies like Kale, i-Flex and Infosys operate a combined services and product model, while others such as Tally, Newgen, Subex, Ramco, etc., have focused on packaged software products. Tally is a home-grown company, entirely focussed on the domestic market. Its major product, TALLY ees 6.0, is targeted at the SME segment. The product has grown beyond its intended market, as 30 percent of the company’s total revenues in fiscal 2002-03 came from large corporate clients.

Subex is a Bangalore-based company focusing on software for telecom products. The company handles most of the big cellular carriers in India such as BPL Mobile, Bharti Cellular, Escotel, Hutch and Idea Cellular. Subex’s clients have a subscriber base of 6-7 million. However, it derives a large proportion of its revenues from exports. i-Flex and Infosys offer products for the Banking and Financial Services Industry (BFSI) sector. Aditi Technologies focuses on the e-CRM market and Ramco Systems have e-Application products as their core business. 5.2 KEY SUCCESS FACTORS 5.2.1 Skilled Manpower: The development of software products requires a product mindset and specialized skills. It involves many stages and requires highly skilled manpower. The skill requirement in the initial stages such as requirement specification and designing, is high, while in the later stages, testing and maintenance, skill requirements are relatively low. Indian companies are currently operating in the lower end of the segment. They are, however, moving up the value chain by doing more knowledge-based development work. 5.2.2 R&D: Large investments in R&D activities are required to develop software products. 5.2.3 Domain Expertise: Industry domain knowledge is critical for the development of a product. The role of a business analyst is to guide software programmers regarding development directions. 5.2.4 Sales and marketing: Selling products to mass customers requires a brand image and presence in customer markets. Therefore, it is important for a product company to invest in sales and marketing strategies. 5.2.5 Business predictability: Technology is evolving fast, and hence business predictability for a software product is a challenge. If the business opportunity for a product is high, then the number of competitors will be large, and that will make the situation highly competitive. Therefore, product companies need to develop a risk management strategy to discover the salability of their product.

5.3 TRENDS 1. Major Indian software vendors have focused on offshoring software development

services and have ignored the product opportunity to some extent. As a result, revenue from the export of software services has increased over the years, while that from product development services has decreased.

2. The Indian software product segment is highly consolidated. Only a few Indian companies have established their presence in the software product domain. The top three players (iFlex, Infosys and Tally) account for 63 percent of the total revenue from the product sales of Indian companies.

3. There is a growing consciousness among global IT companies regarding Intellectual Property Rights (IPR) issues. This trend has yet to emerge in the Indian /IT industry.

4. The use of open-source platforms and products is increasing. This will increase competition for legacy product players such as Microsoft, since an alternate free platform will be available for its clients.

5. Many global IT and technology players have set up product development and R&D centres in India. The following are some examples:

o Texas Instruments (TI): TI was the first MNC to move to India. Since then it has designed sophisticated chips for global markets and claims to have some 200 patents.

o Adobe: The Palm Pilot version of Adobe acrobat was developed and delivered in Adobe's development centre in India.

o Intel: Intel's R&D centre in India has produced about 62 patents primarily in semiconductors, telecom switching, equipment and routers in three years of its existence in India.

o Novell: Novell India has some 17 patents to its credit and has also developed and released Border Manager version 3.8, Novell's fourth largest selling product.

o Cisco: Cisco India filed 9 patents in just one year of R&D operations in India.

PART 6 COMMUNICATION AND PROMOTION According to the Advertising and Marketing (A&M) magazine, a leading trade journal, advertising is a US$3 billion industry in India today. The Indian industry grew 11.5% in 2004-05. Media accessibility has increased exponentially, competition is unlimited, budgets are large and expectations of advertising are high. Practically every aspect of media is available for advertising, from print to outdoor advertising to satellite channels to movie theatres. Italian companies have a choice of many advertising and trade promotion channels in India. The print media, almost completely controlled by the private sector, is well developed and advertising and promotional opportunities are available in a large number of newspapers including daily, weekly or monthly business publications, news magazines and industry-specific magazines.

• The Times of India and the Hindustan Times are the largest selling English-language newspapers, with a readership base across India.

• Leading business newspapers include the Business Standard and the Economic Times.

• Leading magazines include India Today, Business India, Business Today, Business World and the Outlook.

Advertising opportunities are also available on satellite and cable television channels. Doordarshan, the government-owned television network, can reach almost 90% of the population. In addition, more than 80 satellite and cable television channels, including many U.S. and international channels such as STAR TV, CNN, NBC, Discovery, National Geographic and BBC, are available for advertising.

Satellite TV has grown explosively from 134m viewers in an average week in 2002 to as many as 190m viewers in 2005. Another advertising media is the radio, by which the government-owned All India Radio (AIR) reaches over 90% of the population. Private radio channels are restricted to the FM music channels and are currently available only in a few cities. Radio improved its performance in urban India (23% listen to the medium, up from 20% three years ago) mainly due to FM. Another widely accessed medium is the Internet. Today, net access is estimated by over 20m people. Internet advertising is expected to grow exponentially over the next several years. All the above media are available in English, Hindi, and a variety of regional languages. Italian companies interested in advertising in any of the above media can work through the many advertising agencies in India. Many large and reputable U.S. and other international advertising agencies are present in India in collaboration with local advertising agencies. The advertising sector in India is technologically advanced.

In addition to advertising, established public relation firms are also available to Italian companies that require such services. In public relations too, a few Italian and other international companies are present in collaboration with local partners. In India, advertising is no different from other businesses - local advertising companies that need to have access to the best global technologies and practices in their industry have global collaborations. Mumbai remains the centre of the advertising industry in India. Italian companies can select from a number of quality international trade fairs, both industry-specific and horizontal, to display and promote their products and services.

Communication and Promotion – ICT Trade Shows

• Through trade shows exporters can create awareness among the end-user

clients. • Costs Involved : Average costs borne by foreign exhibitor

Cost Head Cost Type of stall Two Side Open: 15 % Extra, Three Side

Open: 25 % Extra Logistics (personnel and exhibited items)

Variable

Power Connection US$450 per KVA Compressor US$450 per Connection Service Tax 12.24% Total costs excluding logistics

Two Side Open: US$1162 Three Side Open: US$1263

Source: Cygnus Research

PART 7 PENETRATION IN THE MARKET 7.1 A typical sourcing programme – Risks, roadmap and timelines There are several potential risks that are typically associated with offshore sourcing. While some risks affect any outsourcing initiative, others become relevant in cross border sourcing programmes.

Companies in this industry have tried to manage these risks by adopting a structured and planned approach to the sourcing programme which identifies and highlights key risks. Upon evolving a robust risk framework, companies have attempted to mitigate / manage these risks by building strong governance structures, appropriate contractual provisions, relevant management and operations delivery practices. The schematic below illustrates a structured approach and roadmap to a typical sourcing programme.

The elapsed timelines for operationalising a sourcing programme varies based on the level of complexity of service offerings, experience of the potential ‘sourcer’ with offshoring as well as the extent of pressure associated with business drivers that have led the ‘sourcer’ to consider offshoring. However, while these considerations impact timelines upto the point of business case establishment, subsequent operationalisation (across models – greenfield captive, outsourcing, hybrid) i.e. ‘go-live’, could be achieved in approximately 6-9 months. For example, in a greenfield venture, key activities would include regulatory and tax clearances, physical infrastructure set-up and fit out, IT and telecom infrastructure set-up, administration related agreements set-up, business continuity planning, management and operations staff recruitment which could be completed over a period of 6-9 months.

7.2 ENTRY STRATEGIES FOR IT AND TELECOM COMPANIES Foreign companies entering India must have firstly a vision, mission and goals. In order to enter the Indian market they should first undertake an industry analysis, i.e., they must understand the business structure, corporate structure, culture of India and must then undertake strategy formulation using multiple techniques. Italian companies wanting to enter the Indian market must also find out ways in which they could profitably get market access to consumers in India and in the case of companies setting up ventures, ways to access funds and investments. They will have to focus on strategic issues and collect forward looking information and have faster learning curves so that they reduce the response time and can deploy solutions faster. They will have to formulate a business plan for 3 to 5 years and road map objectives. In the IT and Telecom sectors, one proven way of entering the market is by entering into strategic alliances with leading Indian IT & Telecom companies. There are several entry channels. Some of them are offshoring/outsourcing, establishing procurement and supply chains. Joint ventures are an effective way of entering India and introducing products in the Indian market. Foreign companies could acquire shares in a local company. Italian companies should also preface their efforts by conducting feasibility studies and finding out how feasible sales would be in the market and which channels most effective for market penetration. They will then, if necessary in collaboration with local partners have to draw up a sales and marketing strategy. They will have to benchmark their products in comparison to those of competitors. The Italian companies will have to tap local resources in terms of people, whether it be a distributor or a representative and establish proper reporting lines, customise their services and build relationships with local vendors to get a grip on the market. They will also have to adopt formal and informal procedures to keep the flow of information. The need for local contacts and representatives cannot be underestimated since they know the local laws and culture and are able to smooth out market entry and market penetration. Mr. Ganesh Natarajan from Zensar Technologies, a leading IT company says ICT companies can look at core infrastructure provision for the software sector as well as the user industry – broadband, local and wide area networking and security systems are three hot areas. The best strategy is to partner with established Indian players though large companies may prefer a 100 per cent Direct Investment Route. Though there are few official

bottlenecks, it would be useful to have a local partner to help navigate through the inevitable bureaucratic red tape. Foreign companies can complement local firms if they bring world class technologies and approach India through a partnering rather than combative approach.

7.3 FORMS OF ENTERPRISE

7.3.1 Companies

The principal forms of business organization in India are: Corporations, Partnerships and Sole Proprietorships. Corporations incorporated in India and foreign corporations having a presence in India are regulated by the provisions of the Companies Act 1956, which draws heavily from the Companies Act of the UK. The Registrar of Companies and the Company Law Board (CLB), both working under the Ministry of Company Affairs, have been entrusted with the responsibility of ensuring compliance with the provisions of the Companies Act, 1956.

7.4 Major Types of Corporation

7.4.1 Private Corporations

These corporations have restrictions on the right to transfer shares, and can make no offer to the public to subscribe to its shares and debentures, and cannot invite acceptance of deposits from persons other than members, directors or relatives. The maximum number of shareholders is limited to 50. It is required to have a minimum paid-up capital of Rs. 0.1 million ( U.S. $ 2,170).

7.4.2 Public Corporations

A public corporation is required to have a minimum paid-up capital of U.S. $ 11,100 (equivalent of Rs 0.5 million).

7.4.3 Foreign Corporations

Foreign Corporations that are incorporated outside India but have a presence in India in the form of liaison offices, project offices, branch offices etc, are also governed by the Companies Act 1956, which contains special provisions for regulating such entities.

7.5 Structures Typically Used by Foreign Investors

7.5.1 Subsidiary Companies

Foreign corporations can set up their subsidiary companies in the form of private companies in India. It is treated as a domestic company for tax purposes. In comparison

with branch and liaision offices, a subsidiary company provides maximum flexibility for conducting business in India. However, the exit procedure norms for such companies are more cumbersome. Funding could be via equity, debt and internal accruals and no approval is required for repatriation of dividends. Indian transfer pricing regulations apply.

7.5.2 Branch Office

Foreign corporations need RBI approval to start a branch in India. A foreign corporation cannot undertake any activity in India not specifically permitted by the RBI and is required to register itself with the Registrar of Companies. A branch office is permitted to export/import goods, render professional or consultancy services, carry out research work in which the parent company is engaged, promote technical or financial collaboration, represent the parent company for buying/selling, render services in IT and software development, render technical support to the products supplied by the parent group, undertake activities of foreign airline/shipping companies and manufacture by a branch located in a Special Economic Zone.

A branch office provides ease of operation and uncomplicated closure but its operations are strictly regulated by foreign exchange control guidelines.

7.5.3 Liaison Office

Foreign Corporation are permitted by RBI to open Liaison Offices in India, subject to approval for undertaking liaison activities and acting as a communication channel between the foreign corporations and Indian customers. The Liaison office is permitted to represent the Indian company, promote import/export to India, promote technical and financial collaborations and act as a communication channel with the parent company.

7.5.4 Project Office

A foreign corporation which has secured a contract from and Indian company to execute a project in India may establish a project office in India without obtaining prior permission from the RBI. However, the exchange control norms prescribe certain requirements.

Like a branch office, a project office is also treated as an extension of the foreign corporation in India and taxed at the rate applicable to foreign corporations.

7.5.5 Joint Ventures

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.

Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resources of the Indian partners

Established contacts of the Indian partners which help smoothen the process of setting up of operations.

7.5.6 Appointing an Agent or Distributor

A company interested in only a distribution arrangement with a suitable Indian company can appoint an Agent or a Distributor. The arrangements with the Agent/Distributor can vary depending upon the product/service. For example, payment terms can be negotiated between the parties. However, one of the major issues relates to sending back products that are not sold. This, under the current system, is not easy.

7.5.7 Third party arrangement for maintenance and servicing of products

Some companies that sell high value items often find it useful to appoint an Indian party who would be responsible for service and maintenance of their products sold into India. An example is when IBM decided to move out of India in 1977 rather than dilute their holdings in the Indian company (as was required by the then Indian Government), they tied up with Indian companies to maintain the IBM equipment already installed in the country. Similarly, Omega watches set up operations for servicing of their products in Delhi through a third party.

In all these cases, the technical personnel of the company are trained by the parent company to service and maintain their products. One problem that existed in the past in such arrangement was the import of spares. However, it has now become relatively easier.

7.5.8 Franchising Franchising has been operating in India for several decades. One well-known example of this is the Bata shoe Chain, started in the 1960s. New franchise business concepts include as diverse sectors as healthcare, pharmaceuticals, specialised food services, garments and apparel, education, entertainment, fitness and personal grooming clinics and courier services, to name a few. India does not have any specific law on franchising. Franchising is covered within the broad definition of transfer of technology contained in domestic legislations. A legal framework for new franchisers interested in setting up master franchises in India however exists, in terms of brand protection and rules regarding payment of franchise fees. Some of the features of the Indian franchising industry are as follows:

• Wide spread sectors (from education to hospitality) • Over 40,000 franchisees currently

• Annual turnover from franchising – approximately $2.2 billion • Total investments made by franchisees – approximately $1.1 billion • Over 300,000 people directly employed by franchised businesses • Variety of hybrid formats in practice • Numerous international franchises already existing and rapidly expanding

While franchising has mushroomed in India, the concept has initially functioned mainly on an agent basis. It is still evolving and being refined and will take a couple of years for franchising to become more organised in India. Franchising in India is often perceived as a tool to cover the high cost of real estate that a company interested in retailing would have to bear. As a result, if business projections are not met, franchisees can and sometimes do shift to other franchises. With minor variations, in a typical franchise operation, a company approaches an owner of prime commercial space to provide the real estate, to invest in interiors and inventories to run a franchise business, and to hire staff for the operation. Franchisees prefer to recruit staff directly, but most franchisers insist on training the staff themselves, particularly in educational and computer training academies. Usually, the two parties work out an arrangement by which the franchisee agrees to sell the company’s products on an exclusive basis. Typically, the company’s investment is reduced by about 15% if the same operation is run by a franchisee. Also, the company has no worries about hiring and dealing with staff or worker unions. The franchise agreement is a comprehensive document that specifies everything from the franchise location to the finer details of operating the franchise. There are no standard franchise agreements because every franchiser and every business is different. Many details in the agreement are settled by bargaining, but the normal clauses that should be on the checklist of every franchiser includes use of brand name, protection of intellectual property, conflict of interest, indemnity, business promotion, definition of territory, period of validity, and termination. By the same token, the franchisee will seek to ensure that the agreement maintains his/her intellectual property rights; covers training, consultation and equipment and includes a suitable indemnity clause. Franchise fee payments in hard currency are allowed. A potential franchisee must submit a proposal for a franchise operation to the government ministry that regulates the particular industry sector. Among other details, the proposal must contain the amount of franchise fee that will be paid to the franchiser. The proposal moves from the relevant ministry to the Ministry of Industry and the Foreign Investment Promotion Board. Reserve Bank of India’s approval of the franchise fee is automatic when the Ministry of Industry clears the proposal. There are value or percentage limits on approvals of franchise fees, with franchise involving advanced or high-technology, receiving the highest limits. Royalty payments ranging from 3-8% are allowed in hard currency, in addition to the franchise fee, although the norm is closer to 5%. The royalty is calculated on total turnover for the year for the franchise operation.

7.5.9 Direct Selling Direct selling is one of the fastest growing industries in India and is an unusually good income generator for entrepreneurs from all walks of life. In addition, direct selling offers consumers a convenient and more informed way to buy, along with money-back guarantees and refund policies. According to the Indian Direct Selling Association, the direct selling industry reported a total turnover of $545m (Rs24bn) during fiscal year 2004-05. In India, direct selling traditionally meant contracting of outside agencies by manufacturers to move surplus or promotional products or small manufacturers resorting to door-to-door selling because of their inability to compete in the retail market. It has also meant deploying direct sales employees to demonstrate products with the objective of making a spot sale. The traditional view of direct selling is changing. One of the first Indian companies to practice direct selling in India was Eureka Forbes, which sells a range of household appliances through direct selling. Though some form of direct selling had been in practice in India, a new wave of interest to sell in the Indian market through the modern concept of direct selling has begun only during the last decade.

At present, the direct selling industry employs more than 1.3m people, an increase of 100,000 from 2003-04 to 2004-05. There are about 750,000 active direct sales executives (including men, women and couples working as a team) who buy or sell products at least once every two months. The total number of product offerings increased to 380 with 2,100 variants and product categories ranging from cosmetics to kitchenware, education, home care and natural products. According to industry estimates, there are roughly 20 direct selling companies in India with nation-wide coverage and approximately 100 smaller companies with localised city-specific presence. Many Indian and multinational companies like Amway, Aero Pharma, Avon, Herbalife, Sunrider, Tupperware, Lotus Learning, Oriflame, AMC Cookware, and Time Life Asia have started operations in India through joint ventures or wholly-owned subsidiaries. Amway, with more than 200,000 distributors spread across 26 cities servicing more than 306 locations, is perhaps the largest direct selling company in India today. Tupperware entered India in 1996 and currently has more than 40,000 dealers in 40 Indian cities. Established retail companies in India have also started direct selling operations, the most prominent being Hindustan Lever Limited of the Unilever group.

Since their launch, many direct selling companies have had to rework their strategies with emphasis on the three critical Ps of marketing - product, pricing, and packaging. Once considered as the medium for sales of premium products, direct selling in India today is moving towards lower priced products to meet the demands of the price sensitive Indian consumer. Package sizes are being reduced to bring down the psychological price barrier and make the products sold through the direct selling channel more affordable. Some multinational direct selling companies have also customised products to meet the needs

of Indian consumers. Major foreign direct selling companies have also established manufacturing facilities in India. Direct selling companies follow different plans of compensation for their sales force. Some follow the single level plan under which sales people earn commission on sales made by them alone, and do not earn anything on sales made by people they have introduced in the business. They may earn a one-time reward for people they help recruit. There are still some others who also compensate a sales person for the sales made by persons recruited by the first sales person, and from the sales of the group or network recruited by the first sales person’s personal recruits.

7.6 REGULATIONS FOR PRESENCE IN INDIA FOR A FOREIGN COMPANY

A foreign company may wish to set up a business presence in India. It can do so by setting up any one of the following:

• Liaison Office; • Branch Office; or • Company (either a joint-venture or a subsidiary)

Different regulations apply to each of the above three forms. The following summary table highlights key differences between them.

Liaison Office (LO)

Branch Office (BO)

Joint-Venture or Subsidiary Company

PERMISSIBLE ACTIVITIES

Product/Corporate Promotion YES YES YES

Business Development YES YES YES

Technical Support YES YES YES

Purchase/Sales co-ordination on behalf of the overseas parent (e.g. Italian) company

YES YES YES

Earning Income NO YES YES

Buying Products NO YES YES

Selling Products NO YES YES

Export NO YES YES

Import NO YES YES

Manufacturing NO NO YES

LEGAL, FINANCIAL & TAX

ISSUES

Opening A Bank Account YES YES YES

Recruiting People YES YES YES

Owning Premises NO YES YES

Income-Tax Rate Applicable On Profit

N.A. 41.82% 33.66%

Can It Repatriate Profit N.A. YES YES

Can It Repatriate Capital N.A. N.A. YES

Minimum Authorised Capital Legally Required Minimum Paid-up Capital Legally Required

NIL NIL

INR.100,000 for a private limited company INR.500,000 for a public limited companyINR.100,000 for both.

Maximum shareholding that a foreign company can have

N.A. N.A. 100% (Subject to applicable regulations)

REGULATORY PERMISSIONS/ REGISTRATIONS

Permissions/Registrations Required From

Reserve Bank of

India

Reserve Bank of

India

Registrar of Companies;

Reserve Bank of India; Foreign Investment Promotion Board (in some cases).

PART 8 PRECAUTIONS TO BE TAKEN BY ITALIAN EXPORTERS Amongst the precautions to be taken by Italian Exporters to India, according to Mr. Ashish Gupta, Representative of BPVN Group in India are the following:- With new customers, Italian exporters should always insist on an irrevocable L/C or any other form of a bank guarantee. In cases where the Indian customer is unwilling to open an L/C due to cost issues or lack of limits with his bank, the Italian exporter should insist on cash against documents system ( documents to be delivered against payment by the bank). Documents should always be routed through the Indian Bank with clear disposal instructions In cases of large value transactions involving export of machinery confirmation of Letter of Credit from an Italian Bank should be sought. An opinion report on a new customer from the Bank of the Indian importer should be sought which would give an indication of the company’s dealings ( whether satisfactory or not in their opinion). In case of non-payment, the importers bank in India should be requested to protest the acceptance of the drafts at the earliest. Where the amounts involved are significant, assistance of a law firm with expertise in the field should be sought.

SECTION B: GENERAL OVERVIEW

INDIA- ECONOMIC OVERVIEW

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8 per cent annual growth, rising foreign exchange reserves of close to US$ 166 billion, a booming capital market with the popular "Sensex" index topping the majestic 13,000 mark, the Government estimating FDI flow of US$ 12 billion in this fiscal, and a more than 22 per cent surge in exports, it is easy to understand why India is a leading destination for foreign investment.

• The economy has grown by 8.9 per cent for the April-July quarter of ’06-07, the highest first-quarter growth rate since '00-01.

• The growth rate has been spurred by the manufacturing sector, which has logged an 11.3 per cent rise in Q1 ’06-07, according to the GDP data released by the Central Statistical Organisation. It was 10.7 per cent in the corresponding period of the last fiscal year. The GDP numbers come just weeks after the monthly IIP growth figures have touched 12.4 per cent.

• Agriculture, which accounts for nearly a quarter of the GDP, has also grown by a healthy 3.4 per cent, unchanged from the corresponding period of last fiscal.

• Other propellers of GDP growth for the first quarter this fiscal have been the trade, hotels, transport and communications sector which grew by 9.5 per cent and construction, which grew by 13.2 per cent. In the corresponding period of last fiscal, these sectors grew by 11.7 per cent and 12.4 per cent, respectively.

• Electricity also grew by 5.4 per cent this first quarter as opposed to 7.4 per cent in the same period last year. The overall growth in this sector was fuelled by growth in July and August. The services sector also grew by 10.6 per cent in the first quarter of ’06-07. It was only 9.8 per cent last year in the same period.

• There has been exceptional growth rate in some specific industries, like commercial vehicles at 36 per cent, telephone connections, by 48.9 per cent and passenger growth in civil aviation by 32.2 per cent.

Some highlights:

• India has more billionaires than China. This year there were 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine.

• India has emerged as the world's fastest growing wealth creator, thanks to a buoyant stock market and higher earnings.

• A number of Indian companies surpassed last year's net profit in just six months of the current fiscal, reflecting an accelerated growth in corporate earnings.

• Forty-four per cent of Top 100 Fortune 500 companies are present in India.

With its manufacturing and services sector on a searing growth path, India’s economy may soon touch the coveted 10 per cent growth figure.

By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the

Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. India - a growing economy

A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average GDP growth of 6.8% since 1994 ( the period when India's external crisis was brought under control). However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years. Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth rates seen in India since independence. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fell sharply from its 2003-04 level of 9 % to 1.1% in the current year primarily because of a bad monsoon. Thus, there is a paramount need to move Indian agriculture beyond its

centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management.

The main contributors to capital account surplus were the banking capital inflows, foreign institutional investments and other capital inflows. Alike current account, capital account too witnessed decline. The capital account surplus in April-September was also down by around US $ 1.5 million. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. However, it declined to 6.4% in the current year to January 28, 2005. During the current financial year 2004-05, broad money stock (M3) (up to December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into banking entity, 7.3 per cent) as compared with the growth rate of 10.3 per cent registered during the corresponding period of the last year. The downward trend in interest rates continued in 2004-05, with bank rate standing at 6% as on Dec 10, 2004. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. During the current financial year (up to December 10, 2004) incremental gross bank credit increased by 20.5 per cent (exclusive of conversion, 16.6 per cent) as compared with a growth of 5.9 per cent in the same period of the previous year. Non-Food credit during the financial year so far, registered a growth of 20.5 per cent (exclusive of conversion, 16.5 per cent) as compared with an increase of 8.4 per cent during the same period of the last year indicated a positive outlook. Equity market return was 85% in 2003-04, second highest in Asia. With continued higher corporate earnings in 2004-05, the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. The expectation of sensex crossing 7 K mark is not yet realized. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years, corrective measures have been adopted. The fiscal deficit decreased to 7.9% in 2004-05 from a 9.4% of GDP in 2003-04. According to recent estimates, fiscal deficit in April-October 2004 is 45.2 per cent of BE compared with 56.0 per cent of BE in the corresponding period last year.

The Three Sectors of Indian Economy Agriculture More than 58% of country's population depends on agriculture, a sector producing only 22% of GDP. The agriculture and allied sector witnessed a growth of 9.1% in 2003-04, which fell steeply to 1.1% in the current fiscal year. Favourable monsoon facilitated an impressive growth rate of 9.6% in 2003-04 on the back of negative growth in the preceding year. However, deficient rainfall from the southwest monsoon is estimated to have caused a significant decline in kharif crops production in the current year. While looking at some of the agricultural products, one finds that India is the largest producer of Tea, jute and jute like fibre. India is not only the largest producer but also largest consumer of tea in the world. India accounts for around 14% of the world trade in tea. Indian tea is exported in various forms such as bulk tea, packet tea, tea bags, instant tea etc, to more than 80 countries of the world. Among livestock cattle and buffalo are found maximum in India. Indian total milk production is highest in the world. India has also the privilege of having the 1st rank in total irrigated land in area terms in the world. Among cereals production, India is placed third, having second largest production in wheat and rice and the largest production in pulses. However, the full potential of Indian agriculture as a profitable activity hasn't been realized yet. Agriculture upliftment will not only benefit farmers and a large section of the rural poor, but also will give fillip to overall growth of the economy through the backward and forward linkages of agriculture with the rest of the economy. Priority must be given to livestock's & fisheries, horticulture, organic farming, commercial crops and agro-processing, as these are the potential areas of high growth. Further, rationalization of minimum support price regime and introduction of other risk- mitigation measures, improvements in rural infrastructure are essential for sustaining high agricultural growth. It is conceived that reforms in legislations, strengthening R&D and improvements in post harvest management technologies will give a further boost to Indian agriculture. While acceleration in agriculture growth to 4 - 4.5% is imperative, even with such growth rate; share of agriculture in total GDP is likely to reduce further. Therefore, there is a need to absorb excess agricultural labour in other sectors, notably industry. Rapid growth of agro - processing industry close to the agricultural production centers can bring about this shift without moving people from rural to urban areas. Also, public investment in agriculture needs to be augmented, especially in rural infrastructure, irrigation, and agricultural research & development. Better access to institutional credit for more farmers, is also high on priority list. The New trade policy gives focus to agriculture and all the hurdles in Indian agriculture will be crossed gradually.

Industry Index of industrial production which measures the overall industrial growth rate was 10.1% in October 2004 as compared to 6.2% in October 2003. The double digit in IIP was aided by a robust growth of 11.3% in the manufacturing sector followed by mining and quarrying and electricity generation. But industrial production saw a decline in Dec 2004 when IIP dipped to 8 %. Thus one of the critical challenges facing Indian economic policy consists in devising strategies for sustained industrial growth. Final phase-out of the MFA and India's conformity with the international intellectual property system from Jan 1st Jan 2005, have been two significant developments in the world of commerce & industry. Textile industry is the largest industry in terms of employment economy from the current US $37 billion to $ 85 billion by 2010 creation of 12 million new jobs in the textile sector and modernization & consolidation for creating a globally competitive textile industry. With the phasing out of quota regime under MFA, from Jan 1st 2005, developing countries including India with both textile & clothing capacity may be able to prosper. Automobile sector has demonstrated the inherent strengths of Indian labour and capital. The pharma industry and the IT industry are two sunrise sectors for India. Among the sectors that have experienced the greatest transformation in India, the pharmaceutical is perhaps the most significant. India's WTO involvement during the last decade has encouraged our pharma companies to adopt a strategy of R & D based innovative growth. Indian pharma exports were 14000 crore Rupees & accounts for more than a third of the industry's turnover. Apart from manufacture of drugs, the pharma industry offers huge for outsourcing of clinical research. A vast pool of scientific and technical personnel & recognized expertise in medical treatment & health care are India's strength, India can take advantages of its strength once patent protection is given to the result of the researches. By participating in the international system of intellectual property protection, India unlocks for herself vast opportunities in both exports as well as her potential to become a global hub in the area of R & D based clinical research outsourcing, particularly in the area of bio-technology. The three main sub sectors of industry viz Mining & quarrying, manufacturing, and electricity, gas & water supply recorded growths of 5%, 8.8% and 7.1% respectively. Apart from infrastructure, particularly adequate and reliable power supply at reasonable cost and transportation facilities, there is need for stepped up investment in manufacturing. Industry needs to grow rapidly not only to boost the overall growth rate in the economy but also to generate gainful employment for the existing unemployed, as well as the new entrants. In a diverse range of industrial activities, several Indian firms have succeeded in getting integrated into global production chains and realized rapid growth of exports. This experience suggests that with appropriate scale, investment and technology, rapid industrial growth is indeed possible.

Services Service sector has maintained a steady growth pattern since 96-97, except into a fall in 2000-01. Trade hotels, transport & communications have witnessed the highest growth of level 10.9% in 2004, followed by financial services (With a overall growth rate of (6.4) % and community, social & personal services (5.9)% of all the three sectors, services have been the highest contributor to total GDP growth rate. While in most parts of the developed world, the services sector's share of employment rose faster than its share of output in India there has been a relatively slow growth of jobs in the service sector. This is primarily because of the rise in labour productivity in services in sectors such as information technology that is dependent on skilled labour. Growth in tourism and tourism - related services such as hotels, holds a large potential for employment generation. IT enabled services, such as Business Process Outsourcing have been growing rapidly in the recent past and will continue to rise. India's large number of English speaking skilled manpower has made India a major exporter of software services and software workers. However, the emergence of somewhat inexplicable protectionist tendencies in some developed countries is a disturbing trend. At the same time it is important that India sees BPO in a larger perspective, than the Internet, as India's share is just $ 3.5 billion in December 2004 compared to the global market of US $ 178 billion. Also India outsourcing companies need to work more closely with their customers. In the complex BPOs, customers would like to have hybrid processes to control value. Indian companies need the right mix of domain expertise and process expertise, further, mere knowledge of English is not sufficient; management skills are also needed. Education for the offshoring industry needs to be given impetus too. The beginning of New Year saw Tsunami, a worst ever disaster, which killed thousands of people in India, Sri Lanka, Indonesia & Thailand. Many of them were international tourists. The disaster was expected to have a negative impact on India's tourism in terms of large-scale cancellations of tourists to India but nothing of that sort was seen. In fact, tourist arrivals in India rose 23.5 percent in Dec 2004 and tourist arrivals crossed 3 million mark for the first time in 2004.

PART 9 INFORMATION SOURCES Indo Italian Chamber of Commerce 502, Bengal Chemicals Compound Veer Savarkar Marg Prabhadevi Mumbai- 400 025 Tel: 0091.22.24368186 Dir Fax: 0091.22.24382716 E-mail: iicci@indiaitaly.com Website: www.indiaitaly.com Branches: Delhi, Kokatta, Banglore, Chennai,Goa 9.1 CONTACTS FOR INFORMATION TECHNOLOGY Mr. Rajiv Vaishnav Director( Western Region) Nasscom,#2, 4th floor Samruddhi Venture Park,Central MIDC Road Andheri East,Mumbai 400093 India Tel: 091-22-28234844/ 28234851 Mr. Mandeep Singh Dy. Director ( Western Region) MAIT C/o ACMA Building No. 80 2nd Floor,Dr. Annie Besant Rd. Worli, Mumbai 400018 Tel: 091-22-24975813 9.2 CONTACTS FOR TELECOMMUNICATIONS Department of Telecommuncations Sanchar Bhawan 20, Ashoka Rd New Delhi 110001 Tel: 0091-011 23719898 Telecom Regulatory Authority of India A-2/14, Safdarjung Enclave New Delhi 110029 Tel: 0091-011-26101934

PART 10 IMPORT LEGISLATION 10.1 How to Start Import [As governed by the Foreign Trade (Development & Regulation) Act, 1992] With the globalisation of the Indian economy and consequent upon comfortable balance of payments position, the Government of India has liberalised the Import Policy and practically all Controls on imports have been lifted. Imports may be made freely except to the extent they are regulated by the provisions of Import Policy or by any other law for the time being in force. Importers need an Importers/Exporters Code Number from the Directorate General of Trade in order to be able to import 10.2 Principal Law & Import Export Policy 10.2.1 Principal Law Imports in to India are governed by the Foreign Trade (Development & Regulation) Act 1992. Under this Act, imports of all goods are Free except for the items regulated by the policy or any other law for the time being in force. In exercise of the powers conferred by the Foreign Trade (Development & Regulation) Act 1992 items not appearing in Prohibited list or Restricted list can be imported freely without any import licence. A large number of Consumer goods are freely importable without licence. For import of items appearing in the Restricted list you need to secure an import licence. 10.3 Mode of Pricing and INCO TERMS While finalising the terms of import contract, the Importer, should, inter alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As regards mode of pricing, the overseas suppliers normally quote the terms prevailing in international trade. The importer for his benefits should know the meaning of the technical terminology. To avoid ambiguity in interpretation of such terms, International Chamber of Commerce, Paris, has give detailed definition of a few standard terms popularly known as 'INCO TERMS'. These terms have almost universal acceptance and are explained below: 10.4 Ex-work 'Ex-work' means that the seller's responsibility is to make the goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this place to the desired destination will be borne by the buyer. This terms thus represents the minimum obligation for the seller. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa.

10.5 Free on Rail (FOR)/Free on Truck (FOT) These terms are used when the goods are to be carried by rail, but they are also used for road transport. The seller's obligations are fulfilled when the goods are delivered to the carrier. 10.6 Free Alongside Ship (FAS) Once the goods have been placed alongside the ship, the seller's obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter. 10.7 Free on Board(FOB) The sellers's responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a Received for Shipment' Bill of Lading is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shiped on Board' and must bear signature of the carrier or his authorised representative together with date on which the goods were 'boarded'. 10.8 Cost and Freight (C & F) The seller must on his own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship's rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though the seller bears the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself. 10.9 Cost Insurance Freight (CIF) The term is basically the same as C & F but with the addition that the seller has to obtain insurance at his cost against the risks of loss or damage to the goods during the carriage. 10.10 Customs Clearance Services for Import Consignments

• Prior Documentation- As soon as the advance set of documents are received, the documentation process starts with respect to classification of items for the best possible benefit to the Customer with reference to various Custom Notifications/exemptions etc. The anticipation of problems by Experts enable Customers to not only avoid the delay in clearance but also avoid heavy demurrage, detention charges etc., which account for huge financial loss.

• Documentation for Imports

The following documents are necessary to clearance of Imported goods in India � Invoice in Original � Packing list Original � Bill of Lading/AWB Original endorsed by the Importer & Bank (if any) � Insurance Certificate / Cover note � Purchase Order & Letter of Credit (if any) � Price List/Sale Contract � Import License (if the Item requires License) � Write-up/Literature (if it is Chemical Item) & Catalogue General Provisions, according to the ministry of commerce, regarding imports to India is given below: Imports free unless regulated

Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The item wise export and import policy shall be, as specified in ITC(HS) published and notified by Director General of Foreign Trade, as amended from time to time.

Compliance with Laws Every exporter or importer shall comply with the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders made thereunder, the provisions of this Policy and the terms and conditions of any Licence/certificate/permission/Authorisation granted to him, as well as provisions of any other law for the time being in force. All imported goods shall also be subject to domestic Laws, Rules, Orders, Regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods. No import or export of rough diamonds shall be permitted unless the shipment parcel is accompanied by Kimberley Process (KP) Certificate required under the procedure specified by the Gem & Jewellery Export Promotion Council (GJEPC).

Interpretation of Policy If any question or doubt arises in respect of the interpretation of any provision contained in this Policy, or regarding the classification of any item in the ITC(HS) or Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of DEPB Rate the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding. If any question or doubt arises whether a licence/ certificate/ permission has been issued in accordance with this Policy or if any question or doubt arises touching upon the scope and content of such documents, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.

Procedure

The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Orders made thereunder and this Policy. Such procedures shall be included in the Handbook (Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in ITC(HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time. The Handbook (Vol.1) is a supplement to the Foreign Trade Policy and contains relevant procedures and other details. The procedure of availing benefits under various schemes of the Policy are given in the Handbook (Vol.1).

Exemption from Policy/ Procedure Any request for relaxation of the provisions of this Policy or of any procedure, on the ground that there is genuine hardship to the applicant or that a strict application of the Policy or the procedure is likely to have an adverse impact on trade, may be made to the Director General of Foreign Trade for such relief as may be necessary. The Director General of Foreign Trade may pass such orders or grant such relaxation or relief, as he may deem fit and proper. The Director General of Foreign Trade may, in public interest, exempt any person or class or category of persons from any provision of this Policy or any procedure and may, while granting such exemption, impose such conditions as he may deem fit. Such request may be considered only after consulting Norms Committee (NC) if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem & Jewellery sector) and EPCG Committee if the request is in respect of a provision of Chapter-5 of the Policy/ Procedure. However, any such request in respect of a provision other than Chapter-4, Chapter-5 and Gem & Jewellery sector as given above may be considered only after consulting Policy Relaxation Committee.

Principles of Restriction DGFT may, through a notification, adopt and enforce any measure necessary for:- i Protection of public morals. ii Protection of human, animal or plant life or health. iii Protection of patents, trademarks and copyrights and the prevention of deceptive practices. iv Prevention of use of prison labour. v Protection of national treasures of artistic, historic or archaeological value. vi Conservation of exhaustible natural resources. vii Protection of trade of fissionable material or material from which they are derived; and viii Prevention of traffic in arms, ammunition and implements of war.

Restricted Goods

Any goods, the export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with a licence/ certificate/ permission or a public notice issued in this behalf.

Terms and Conditions of a licence/ Certificate/Permission Every Licence/certificate/permission/Authorisation shall be valid for the period of validity specified in the Licence/ certificate/ permission and shall contain such terms and conditions as may be specified by the licensing authority which may include: (a) The quantity, description and value of the goods; (b) Actual User condition; (c) Export obligation; (d) The value addition to be achieved; and (e) The minimum export price.

Authorisation/Licence/Certificate/Permission not a Right No person may claim a licence/certificate/ permission as a right and the Director General of Foreign Trade or the regional authority shall have the power to refuse to grant or renew a Licence/certificate/permission/Authorisation in accordance with the provisions of the Act and the Rules made there under.

Penalty

If a Licence/certificate/permission/Authorisation holder violates any condition of the Licence/certificate/ permission or fails to fulfill the export obligation, he shall be liable for action in accordance with the Act, the Rules and Orders made there under, the Policy and any other law for the time being in force.

State Trading Any goods, the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), may be imported or exported by the State Trading Enterprise(s) as specified in the ITC(HS) Book subject to the conditions specified therein. The Director General of Foreign Trade may, however, grant a Licence/certificate/ permission/Authorisation to any other person to import or export any of these goods. In respect of goods the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), the State Trading Enterprise(s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale. These enterprises shall act in a non discriminatory manner and shall afford the enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales.

Importer-Exporter Code Number

No export or import shall be made by any person without an Importer-Exporter Code (IEC) number unless specifically exempted. An Importer-Exporter Code (IEC) number shall be granted on application by the competent authority in accordance with the procedure specified in the Handbook (Vol.1).

Actual User Condition Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require a licence/ certificate/ permission, the actual user alone may import such goods unless the actual user condition is specifically dispensed with by the licensing authority.

Import of samples Import of samples shall be governed by the provisions given in Handbook (Vol.1).

Import of Gifts

Import of gifts shall be permitted where such goods are otherwise freely importable under this Policy. In other cases, a Customs Clearance Permit (CCP) shall be required from the DGFT.

Import on Export basis

New or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without a Licence/certificate/permission/ Authorisation on execution of Legal Undertaking/Bank Guarantee with the Customs Authorities provided that the item is freely exportable without any conditionality/requirement of Licence/ permission as may be required under ITC(HS) Schedule II.

Sale on High Seas Sale of goods on high seas for import into India may be made subject to this Policy or any other law for the time being in force.

Clearance of Goods from Customs

The goods already imported/shipped/arrived, in advance, but not cleared from Customs may also be cleared against the Licence/ certificate/ permission issued subsequently.

Execution of BG/ LUT

Wherever any duty free import is allowed or where otherwise specifically stated, the importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/ Bond with the Customs Authority before clearance of goods through the Customs, in the manner as may be prescribed. In case of indigenous sourcing, the Licence/

certificate/ permission holder shall furnish LUT / BG / Bond to the licensing authority before sourcing the material from the indigenous supplier/nominated agency.

Exemption from Bank Guarantee All the exporters who have an export turnover of at least Rupees 5 crore in the current or preceding licencing year and have a good track record of three years of exports will be exempted from furnishing a BG for any of the schemes under this Policy and may furnish a LUT in lieu of BG.

Private/ Public Bonded Warehouses for Imports Private/Public bonded warehouses may be set up in the Domestic Tariff Area as per the terms and conditions of notification issued by Department of Revenue. Any person may import goods except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such private/public bonded warehouses. Such goods may be cleared for home consumption in accordance with the provisions of this Policy and against Licence/certificate/ permission, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, the importer of such goods shall reexport the goods.

Registration -cum- Membership Certificate

Any person, applying for (i) a licence/ authorisation/ certificate/ permission to import/ export, [except items listed as restricted items in ITC(HS)] or (ii) any other benefit or concession under this policy shall be required to furnish Registration-cum-Membership Certificate (RCMC) granted by the competent authority in accordance with the procedure specified in the Handbook (Vol.1) unless specifically exempted under the Policy.

Import Policy by HS Code

Import Policy by HS Code is available at the link given below. http://dgft.gov.in/ (ITC (HS) Based Query on left side of the window)

Import Tariff by HS Code

Import tariff by HS Code is available at the link given below. http://www.cbec.gov.in/cae/customs/cst-0607/chap-84.pdf

10.11 CUSTOMS DUTY Customs duty is levied under the Customs Act, 1962 on the import of goods into India. The rates of customs duty are laid down in the Customs Tariff Act, 1975. Customs duty on imports comprise the following: Basic Customs Duty Additional Customs duty in lieu of excise duty Additional duty of customs to countervail state taxes/VAT Education Cess The general rate of basic customs duty ranges between 0 % to 20 %, with most products being charged duty at a rate of 12.5 %. However, additional duty in lieu of and additional duty of 4 % in lieu of sales tax/VAT payable on the sale of goods is also leviable on the imported goods. In addition 2 % education cess is also charged on the aggregate customs duties. Certain specified categories of goods are exempt from this levy in accordance with commitments under the WTO. Thus, imported goods which have a basic customs duty rate of 12.5% are subject to an effective customs duty rate of 36.74 % as a result of the additional duties. Further certain exemptions/concessions ( drawback of duties, benefit under export promotion capital goods scheme etc.) are available for import of specified products such as IT products or for imports under specific schemes and projects. The primary basis for the valuation of goods under the Indian customs law is the transaction value. The government of India has entered into a number of free trade agreements with trade partners like Thailand, Sri Lanka, South Asian Association for Regional Cooperation (SAARC) countries and Singapore to promote preferential tariffs for certain identified goods. Similar trade agreements with ASEAN, Mercosur countries and the European Union are also on the anvil.

PART 10 BANKING SYSTEM AND EXCHANGE POLICIES 11.1 Reserve Bank of India The Reserve Bank of India (RBI) established in 1935, is the central bank of the country. Its role is four-fold: It regulates and supervises the Indian financial system It formulates, implements and monitors the monetary policy of the country It manages the country’s foreign exchange reserves and prescribes exchange control norms to facilitate external trade and payment It acts as a banker to the Central and State Governments 11.2 Types of Institutions The banking system in India comprises scheduled commercial banks, urban and state cooperative banks, and regional rural banks. Scheduled commercial banks, in turn, can be categorised into public sector banks, private sector banks and foreign banks. Besides banks, another segment of players in the Indian financial system, are non-banking financial companies (NBFcs). 11.2.1 Public Sector Banks This segment comprises 28 banks, including the State Bank of India and its seven subsidiary banks. It is the dominant segment in the banking industry. The central government is its majority shareholder, holding more than 51 per cent equity stake in all the public sector banks, although its shareholding has decreased over the years. 11.2.2 Private Sector Banks This segment comprises 28 banks, including seven new private sector banks and 21 old private sector banks. The new private sector banks are growing rapidly in size and the last couple of years have witnessed some mergers and acquisitions. 11.2.3 Foreign Banks This segment comprises 29 banks, including most of the leading international banks, although their presence is restricted to the metropolitan and large cities. Currently, there are several restrictions on foreign banks with respect to the expansion of branch network, location of new branches and acquisition of shareholding in Indian banks. However, the RBI has recently come out with a road map for deregulation of foreign banks.

11.2.4 Recent Developments All commercial banks are expected to implement Basel II norms with effect from March 31, 2007 From April 2009, RBI proposes to accord full national treatment to wholly-owned subsidiaries of foreign banks.

List of Commercial Banks S.No Names of Commercial Banks Type of Bank

1 ABN AMRO Bank N.V. Private Foreign Bank

2 Abu Dhabi Commercial Bank Ltd. Private Foreign Bank

3 American Express Bank Ltd. Private Foreign Bank

4 Arab Bangladesh Bank Limited Private Foreign Bank

5 Allahabad Bank Nationalized Bank

6 Andhra Bank Nationalized Bank

7 Antwerp Diamond Bank N.V. Private Foreign Bank

8 Bank Internasional Indonesia Private Foreign Bank

9 Bank of America N.A. Private Foreign Bank

10 Bank of Bahrain & Kuwait BSC Private Foreign Bank

11 Barclays Bank Plc Private Foreign Bank

12 BNP PARIBAS Private Foreign Bank

13 Bank of Ceylon Private Foreign Bank

14 Bharat Overseas Bank Ltd. Indian Private Bank

15 Bank of Baroda Nationalized Bank

16 Bank of India Nationalized Bank

17 Bank of Maharashtra Nationalized Bank

18 Canara Bank Nationalized Bank

19 Central Bank of India Nationalized Bank

20 Calyon Bank Private Foreign Bank

21 Citibank N.A. Private Foreign Bank

22 Cho Hung Bank Private Foreign Bank

23 Chinatrust Commercial Bank Ltd. Private Foreign Bank

24 Centurion Bank of Punjab Limited Indian Private Bank

25 City Union Bank Ltd. Indian Private Bank

26 Coastal Local Area Bank Ltd. Indian Private Bank

27 Corporation Bank Nationalized Bank

28 Catholic Syrian Bank Ltd. Indian Private Bank

29 Deutsche Bank AG Private Foreign Bank

30 Development Credit Bank Ltd. Indian Private Bank

31 Dena Bank Nationalized Bank

32 IndusInd Bank Limited Indian Private Bank

33 ICICI Bank Indian Private Bank

34 IDBI Bank Limited Indian Private Bank

35 Indian Bank Nationalized Bank

36 Indian Overseas Bank Nationalized Bank

37 Industrial Development Bank of India Other Public Sector-Indian Banks

38 ING Vysya Bank Indian Private Bank

39 J P Morgan Chase Bank, National Association

Private Foreign Bank

40 Krung Thai Bank Public Company Limited

Private Foreign Bank

41 Kotak Mahindra Bank Limited Indian Private Bank

42 Karnataka Bank Indian Private Bank

43 Karur Vysya Bank Limited. Indian Private Bank

44 Lord Krishna Bank Ltd. Indian Private Bank

45 Mashreqbank psc Private Foreign Bank

46 Mizuho Corporate Bank Ltd. Private Foreign Bank

47 Oman International Bank S A O G Private Foreign Bank

48 Oriental Bank of Commerce Nationalized Bank

49 Punjab & Sind Bank Nationalized Bank

50 Punjab National Bank Nationalized Bank

51 Societe Generale Private Foreign Bank

52 Sonali Bank Private Foreign Bank

53 Standard Chartered Bank Private Foreign Bank

54 State Bank of Mauritius Ltd. Private Foreign Bank

55 SBI Commercial and International Bank Ltd.

wholly owned subsidiary of SBI

56 State Bank of Bikaner and Jaipur SBI Associate Bank

57 State Bank of Hyderabad SBI Associate Bank

58 State Bank of India SBI Associate Bank

59 State Bank of Indore SBI Associate Bank

60 State Bank of Mysore SBI Associate Bank

61 State Bank of Patiala SBI Associate Bank

62 State Bank of Saurashtra SBI Associate Bank

63 State Bank of Travancore SBI Associate Bank

64 Syndicate Bank Nationalized Bank

65 The Bank of Nova Scotia Private Foreign Bank

66 The Bank of Tokyo-Mitsubishi, Ltd. Private Foreign Bank

67 The Development Bank of Singapore Ltd. (DBS Bank Ltd.)

Private Foreign Bank

68 The Hongkong & Shanghai Banking Corporation Ltd.

Private Foreign Bank

69 Tamilnad Mercantile Bank Ltd. Indian Private Bank

70 The Bank of Rajasthan Limited Indian Private Bank

71 The Dhanalakshmi Bank Limited. Indian Private Bank

72 The Federal Bank Ltd. Indian Private Bank

73 The HDFC Bank Ltd. Indian Private Bank

74 The Jammu & Kashmir Bank Ltd. Indian Private Bank

75 The Nainital Bank Ltd. Indian Private Bank

76 The Sangli Bank Ltd. Indian Private Bank

77 The South Indian Bank Ltd. Indian Private Bank

78 The Ratnakar Bank Ltd. Scheduled Commercial Bank

79 The Lakshmi Vilas Bank Ltd Indian Private Bank

80 UCO Bank Nationalized Bank

81 UTI Bank Ltd. Indian Private Bank

82 Union Bank of India Nationalized Bank

83 United Bank Of India Nationalized Bank

84 Vijaya Bank Indian Private Bank

85 Yes Bank Indian Private Bank

Financial Institutions

1 National Bank for Agriculture and Rural Development

2 Export-Import Bank of India

3 National Housing Bank

4 Small Industries Development Bank of India

5 Industrial Investment Bank of India Ltd.

6 North Eastern Development Finance Corporation 11.3 CURRENCY India’s monetary unit is the Indian Rupee (INR/Rs). Only the central government is empowered to legislate on matters relating to currency and coinage and the RBI is the sole authority empowered to issue currency. RBI notes are fully backed by approved security, including bullion, foreign securities, rupee coins and rupee securities of the government. A rupee is divided into 100 paise. As the rupee is not freely convertible into foreign currency, foreign exchange transactions are carried out through entities authorized by the RBI to deal in foreign exchange or foreign securities, i.e. an authorized moneychanger or an offshore banking unit. A person may purchase foreign exchange from an authorized dealer by providing a declaration of the intended use of the foreign exchange. Usage of foreign exchange for purposes other than that declared would lead to contravention of the Foreign Exchange Management Act, 1999 (FEMA). Forex Control

• The Indian currency, the Rupee is convertible on current account transactions as capital account transactions carried out by foreign investors; however Indian firms and individuals remain subject to capital account restrictions.

• All investments are on repatriation basis. • Original investment, profits and dividends can be freely repatriated. • Foreign investor can acquire immovable property incidental to or required for their

activity. • When imported machinery and capital goods require down payments exceeding

USD 15,000, a bank guarantee from an international bank covering the advance remittance amount is required from importers.

• Finance measures such as exchange control management and regulation are under the responsibility of the Reserve Bank of India (RBI) vide 1973 Foreign Exchange Regulation Act (FERA) superseded by the Foreign Exchange Management Act (FEMA) of December 1999.

11.4 Foreign Exchange Controls 11.4.1 Current Account Transactions The rupee is fully convertible for trade and current account purposes. Except for certain specified restrictions where RBI approval is necessary, foreign currency may be freely purchased for trade and current account purposes.

11.4.2 Capital Account Transactions Capital account transactions are not permitted unless they are specifically allowed and prescribed conditions are satisfied. Special provisions apply for repatriation of capital, royalties and technical know-how fees, technical service fees, dividends, interest and other remittances. 11.5 Foreign Exchange Management Act

• The Reserve Bank of India’s Exchange Control Department, administers Foreign Exchange Management Act, 1999, (FEMA) which has replaced the earlier Act , FERA, with effect from June 1, 2000. The new legislation is for “facilitating external trade” and “promoting the orderly development and maintenance of foreign exchange market in India”.

• In terms of Section 6(3)(b) of Foreign Exchange Management Act, 1999, Reserve

Bank of India regulates transfer or issue of any security by a person resident outside India read with Notification No. FEMA 20/2000-RB dated May 3, 2000.

11.6 General Permission under FEMA 11.6.1 Issue of Rights/ Bonus Shares

General permission is available to Indian companies to issue Right/Bonus shares subject to certain conditions. Entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. Such issuing companies would have to seek specific permission from RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile Overseas Corporate Bodies(OCBs).

11.6.2 Issue of Shares Under Merger/ Amalgamation

Where a Scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company may issue shares to the shareholders of the transferor company, resident outside India subject to ensuring that the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank. This entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. For this specific permission from RBI is necessary.

11.6.3 Issue of Shares under ESOS Scheme A company may issue shares under this Scheme, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI; and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company.

11.6.4 Issue of Shares by Indian Companies under ADR/GDR An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs. Regulation 4 of Schedule I of FEMA Notification No. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs and/ or ADRs, subject to the conditions that: • the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time. • The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and • Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations.

11.6.5 Repatriation of Investment Capital and Profits Earned in India

• All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.

• Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/tax clearance certificate issued by Income Tax authorities.

• For sale of shares through private arrangements, Regional offices of RBI grant

permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No. FEMA.20/ 2000 RB dated May ‘2000. The sale price of shares on recognized units is to be 3rd determined in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification.

• Profits, dividends, etc. (which are remittances classified as current account

transactions) can be freely repatriated.

11.6.6 Transfer of Shares/ Debentures

In order to make the environment in India more attractive for foreign investors, Government has decided to simplify the procedure by placing the following under the General Permission route ( i.e. RBI route ) instead of existing Government approval route (i.e. FIPB route) for speedy and streamlined investment approvals:

• Transfer of shares from resident to non-resident (including transfer of subscribers’ shares to non-residents) other than in financial services sector provided the investment is covered under automatic route, does not attract the provisions of SEBI’s (Substantial Acquisition of Shares and Takeovers)Regulations, 1997, falls within the sectoral cap and also complies with prescribed pricing guidelines.

• Conversion of ECB/Loan into equity provided the activity of the company is covered under automatic route, the foreign equity after such conversion falls within the sectoral cap and also complies with prescribed pricing guidelines.

• Cases of increase in foreign equity participation by fresh issue of shares as well as conversion of preference shares into equity capital provided such increase within the sectoral cap in the relevant sectors, are within the automatic route and also complies with prescribed pricing guidelines.

General permission has been granted to non-residents/NRIs for transfer of shares and convertible debentures of an Indian company as under:-

• A person resident outside India ( Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India ( including NRIs); provided transferee has obtained prior permission of SIA/FIPB to acquire the shares if he has a venture or tie-up in India through investment in shares or convertible debentures or a technical collaboration or a trade mark agreement or investment in the same field in which the Indian company whose shares are being transferred, is engaged.

• NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another non-resident Indian; provided transferee has obtained prior permission of Central Government to acquire the shares if he has a venture or tie-up in India in the same field in which the Indian company whose shares are being transferred, is engaged.

• The person resident outside India may transfer any security to a person resident in India by way of gift.

• A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker.

PART 12 METHODS OF PAYMENT 12.1 Payment against imports Payment under Letter of Credit is a universally accepted mode of payment. A Letter of Credit is a Signed instrument and an undertaking by the banker of the buyer to pay the seller a certain sum of money on presentation of documents evidencing Shipment of Specified goods subject to Compliance with the stipulated terms and Conditions. 12.2 Letter of Credit vs Bank Gaurantee A letter of credit differs from a bank guarantee. An issuing or confirming bank's obligation is independent of, and unqualified by, the contract of sale under the transaction. A commercial credit is neither a performance bond, nor it is a guarantee of the quantity or quality of the goods shipped. 12.3 Letters of Credit are Separate Transactions A contract for sale of goods between the seller and the buyer incorporates mode of settlement. Letters of credit by their nature are separate from the sale contract, and banks are not concerned or bound by such sale contracts even if the credits bear reference to them. The credits stipulate documents which have to be tendered for payment and it, therefore, follows that in credits parties deal with documents and not with goods, services or performances to which the documents relate. It is, therefore, in the interest of all the parties concerned that the conditions and terms of credit are complete and precise and bereft of excessive details. Payment under a letter of credit does not depend on the performance obligation on the part of the exporter except those which the credit imposes. Banks accept documents under letters of credit for what those document purport to be on their face. Contract between the buyer and the seller is obligatory between themselves. The seller (beneficiary) cannot take advantage of any contractual terms in between the buyer and the opening bank and between the opening bank and the advising/confirming bank.

12.4 Parties to a Letter of Credit: Following persons are generally parties, to a letter of Credit: 12.4.1 Benificiary : The exporter of goods in whose favour the L/C has been established. Customer/importer : The person we intends to import the goods and instructs bank to established Letter of Credit. 12.4.2 Issuing Bank: The Banker in the importers Country who opened the L/C. Correspondent Bank or Advising Bank: The banker in the exporters country, who is authorised by the issuing bank to advise the beneficiary of the Credit and to effect such payment or to accept and pay such bills of exchange or to negotiate against Stipulated documents and on Compliance of Stipulated terms and condition specified by the importer on the exporter. 12.4.3 Confirming Bank: The banker in the exporters(beneficiary) country, who at the desire of the beneficiary adds confirmation to the letter of Credit so that beneficiary can get payment without recourse from the Confirming bank. The Confirming bank may be correspondent bank itself or some other bank. 12.5 Mode of payment Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India, must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment for import bills-Where the import bills are drawn in Indian Rupees (INR), an equivalent amount(plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate. Fixing of Re. Equivalent-In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI to follow the following procedure: Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10 days from the date of receipt of documents by the Bank. An importer may not like to clear or may have certain problems in clearing the imported goods immediately on payment of duty for home consumption. In that case the importer can deposit the goods in a Public or Private Bonded Warehouse, provided he is satisfied

with the arrangement. Thus, the importer can avail the facility of deferring payment of duty on imported goods pending their actual clearance. Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment against bills should not be accepted in cash. This rule also applies to private imports where the amount involved is Rs 20,000 or more. Payment for import bills-Where the import bills are drawn in Indian Rupees (INR), an equivalent amount (plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate. Fixing of Re. Equivalent- In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI for following the below procedures: Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10 days from the date of receipt of documents by the Bank. In case of non-payment by the drawee within 10 days, the importer's liability on the foreign currency bill shall be crystallised by converting the foreign currency amount in to rupee at the selling rate prevailing on the 10th day or the forward exchange contract rate where applicable. Authorised dealers shall keep a proper record of the date of receipt of documents. In case the 10th day is a holiday or a Saturday, the importer's liability in rupees shall crystallise on the next following working day. The Authorised dealer shall carry swap costs from the customer. Authorised dealer shall charge interest at the rate as prescribed by RBI for advances to non-priority sectors from time to time on rupees advances made against the import bills pending retirement by the customer. Such interest shall be recovered from the date of negotiation or the date of crystallisation of the rupee liability and thereafter penal interest shall be recovered. When the rupee liability on an import bill is crystallised at the Forward Exchange Contract Rate and it results in early/late delivery, the charges as per FEDAI rule 9 shall be levied.

Authorised dealers shall charge commission/handling charges at the rate of 0.15% on the bill amount at the time of converting foreign currency into rupees (Rs) irrespective of the fact whether the bill is retired within 10 days or later. Time limit for import remittance: The remittance against imports should be completed not later than 6 months from the date of shipment. Accordingly, deferred payment arrangements involving payments beyond 6 months are not permissible without the approval of RBI/Gol. However, no objection to importers withholding a small part of the cost of the goods not exceeding 15% towards guarantee of performance etc. Authorised dealers may make remittances of amounts so withheld provided the earlier remittance had been made through them. No interest payment should be allowed to be remitted on these withheld amounts. Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, Authorised dealers are permitted by the RBI to make remittances in such cases even if the period of 6 months expires, provided- Authorised dealer is satisfied about the bona fides of the circumstances leading to a delay in payment. No payment of interest is involved for the additional period. In case, where the overseas supplier insists on payment of interest, it may be allowed in accordance with the provisions contained in para 7A.12 up to a maximum period of 60 days beyond 180 days from the date of shipment provided the import bill is paid within that period. Remittances against import of books may be allowed without restrictions regarding time-limit, provided no interest payment is involved nor has the importer foregone any part of the discount/rebate normally allowed to importers towards compensation for delay in the settlement of dues. Interest remittance on import bills-interest accrued on usance bills under 'normal interest clause' or on overdue interest paid on sight bills for a period not exceeding 6 months from the date of shipment in respect of imports without prior approval of RBI. In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which the interest has been claimed or the 'prime' rate (or its equivalent) of the country in the currency of which the goods are invoiced, whichever is higher. Where interest is not separately claimed remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevailing 'prime'. However, interest under normal interest clause would mean interest at the prime rate (or its equivalent) of the country in the currency of which the goods are invoiced.

Importer's documents-The importer should comply with certain obligations: submission of Exchange Control Copy of Bill of Entry for Home Consumption/Postal Wrappers to the authorised dealer. This will act as evidence that the goods, for which the payment was made, have actually been imported into India. Authorised dealers should ensure that in all cases, including cases of advance remittances permitted (Vide para 7A, 10), these are submitted by their importer customers and are verified. In respect of imports made on Documents against Acceptance basis, since goods would normally be cleared before the due date of payment, authorised dealers should insist on production of documentary evidence of import i.e. Exchange Control Copy of Bill of Entry for Home Consumption/ postal wrappers at the time of effecting remittance of import bill. Authorised dealers should also advise this requirement to their importer customers in writing while delivering the documents against acceptance. 12.6 Postal Imports Remittances against bills received for collection in respect of imports by post parcel may be made by authorised dealers, provided the goods imported are such as are normally despatched by post-parcel. In these cases the relative parcel receipts must be produced as evidence of dispatch through the post and on undertaking to submit importers should furnish post parcel wrappers within three months from the date of remittance. If the parcel has already been received in India, the parcel wrapper should be produced in support of the remittance application. Where goods to be imported are not of a kind normally imported by post parcel or where authorised dealer is not satisfied about the bona fides of the applications the case should be referred to the RBI for prior approval with full particulars together with relative parcel receipts/or wrappers.

PART 13 LOCAL JURIDICAL SYSTEM The Indian judiciary is relatively independent and the legal system is based on English common law. India’s independent judicial system began under the British, and its concepts and procedures resemble those of Anglo Saxon countries. India has a three tier court system. At the apex is the Supreme Court, which has original, appellate and advisory jurisdiction and proceedings arise out of judgments of sub-ordinate courts including the High Courts. The Supreme Court consists of a chief justice and 25 other justices, all appointed by the President of India on the advice of the Prime Minister. The High Court stands at the head of the state’s judicial administration. Each state is divided into judicial districts presided over by a district and sessions judge, who is the highest judicial authority in a district. Below him, there are courts of civil jurisdiction known in different states as musifs, sub-judges, civil judges and the like. Similarly, the criminal judiciary comprises chief judicial magistrates and judicial magistrates, first and second class. The Supreme Court has exclusive original jurisdiction that extends to all disputes between the Union and one or more states or between two or more states. The Constitution gives original jurisdiction to the Supreme Court to enforce Fundamental Rights. Appellate jurisdiction of the Supreme Court can be invoked by a certificate of the High Court concerned or by special leave granted by the Supreme Court in respect of any judgment, decree or final order of a High Court in cases both civil and criminal, involving substantial questions of law as to the interpretation of the Constitution. The President may consult the Supreme Court on any question of fact or law of public importance. High Courts There are 18 High Courts in the country, three having jurisdiction over more than one state. Bombay High Court has jurisdiction over Maharashtra, Goa, Dadra and Nagar Haveli and Daman and Diu. Guwahati High Court, which was earlier known as Assam High Court has jurisdiction over Assam, Manipur, Meghalaya, Nagaland, Tripura, Mizoram and Arunachal Pradesh. Punjab and Haryana High Court has jurisdiction over Punjab, Haryana and Chandigarh. Among the Union Territories, Delhi alone has a High Court of its own. The Chief Justice of a High Court is appointed by the President in consultation with the Chief Justice of India and the Governor of the State. Each High Court has powers of superintendence over all courts within its jurisdiction. Certain High Courts, like those at Bombay, Calcutta and Madras have original and appellate jurisdictions, while most High Courts have only appellate jurisdiction.

There is an Advocate General for each state. At the local level, there are district courts which deal with local issues. The right to fair trial and recognition as a person before the law constitutes a low-risk human rights area in India since the Indian legal system complies with international standards and the rights of a person are respected.

The Indian Legal Hierarchy is somewhat of the following nature:

• In the Metropolitan Cities on the Civil Side, the first are the Small Cases Courts and above them the City Civil Courts. On the Criminal Side there are the Metropolitan Magistrates' Courts and above them the Sessions Courts.

• In the Moffusil on the Civil Side, there are the Courts of the Civil Judge, Junior

Division, Civil Judge Senior Division, and District Courts. On the Criminal Side there are the Courts of the Judicial Magistrates and Sessions Courts. Then there are the Industrial Courts, Family Courts, Co-operative Courts and various Tribunals.

• In the Corporate Sector, there is a Company Law Board constituted by the Central

Government under the Provisions of Section 10E of the Companies Act, 1956 which has its Principal Bench in New Delhi and Regional Benches of Single as well as Double Members at New Delhi, Kolkata, Mumbai and Chennai.

• Above all the aforesaid Lower Level Courts, Tribunals and Boards, there are High

Courts in each of the States, and above the High Courts is the Supreme Court of India in New Delhi.

• India has a written Constitution and codified Central and State law. Its Judiciary is

of the highest integrity. The official language is English in the High Courts and in the Supreme Court. The Indian Legislature and Judiciary make constant efforts to bring about improvements in Courts and dispense justice speedily. On the recommendations of the General Assembly of the United Nations to consolidate and amend the law relating to domestic arbitration, international arbitration and enforcement of the foreign arbitral awards a new Arbitration and Conciliation Act has been enacted. To expedite the disposals of cases concerning the transactions related to Banks a special tribunal is being established. To facilitate foreign investment, foreign joint venture and globalization of Indian Trade & Industry, various amendments have been thought of in the existing Companies Act, 1956 and a proposal of enacting a new Take-over Code is under consideration. The Income-Tax Act, 1961, which at present is lengthy and complicated, is thought of being revised and in its place a simple Tax Law is proposed to be enacted. In short there is a general tendency towards improvement in laws and Courts.

Annexure List of Various Central Labour Acts Laws related to Industrial Relations The Trade Unions Act, 1926 The Industrial Employment (Standing Orders) Act, 1946 The Industrial Employment (Standing Orders) Rules, 1946 The Industrial Disputes Act, 1947 Laws related to Wages The Payment of Wages Act, 1936 The Payment of Wages Rules, 1937 The Minimum Wages Act, 1948 The Minimum Wages (Central) Rules, 1950 The Working Journalist (Fixation of Rates of Wages) Act, 1958 Working Journalist (Conditions of service) and Miscellaneous Provisions Rules, 1957 The Payment of Bonus Act, 1965 The Payment of Bonus Rules, 1975 Laws related to Working Hours, Conditions of Services and Employment The Factories Act, 1948 The Dock Workers (Regulation of Employment) Act, 1948 The Plantation Labour Act, 1951 The Mines Act, 1952 The Working Journalists and other Newspaper Employees' (Conditions of Service and Misc. Provisions) Act, 1955 The Working Journalists and other Newspaper Employees' (Conditions of Service and Misc. Provisions) Rules, 1957 The Merchant Shipping Act, 1958 The Motor Transport Workers Act, 1961 The Beedi & Cigar Workers (Conditions of Employment) Act, 1966 The Contract Labour (Regulation & Abolition) Act, 1970 The Sales Promotion Employees (Conditions of Service) Act, 1976 The Sales Promotion Employees (Conditions of Service) Rules, 1976 The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 The Shops and Establishments Act The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Rules, 1984 The Cine Workers' Welfare Fund Act, 1981 The Dock Workers (Safety, Health & Welfare) Act, 1986 The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996

The Dock Workers (Regulation of Employment) (inapplicability to Major Ports) Act, 1997 Laws related to Equality and Empowerment of Women The Maternity Benefit Act, 1961 The Equal Remuneration Act, 1976 Laws related to Deprived and Disadvantaged Sections of the Society The Bonded Labour System (Abolition) Act, 1976 The Child Labour (Prohibition & Regulation) Act, 1986 Laws related to Social Security The Workmen's Compensation Act, 1923 The Employees' State Insurance Act, 1948 The Employees' Provident Fund & Miscellaneous Provisions Act, 1952 The Payment of Gratuity Act, 1972 Laws related to Employment & Training The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 The Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1959 The Apprentices Act, 1961 Others The Fatal Accidents Act, 1855 The War Injuries Ordinance Act, 1941 The Weekly Holiday Act, 1942 The National and Festival Holidays Act The War Injuries (Compensation Insurance) Act, 1943 The Personal Injuries (Emergency) Provisions Act, 1962 The Personal Injuries (Compensation Insurance) Act, 1963 The Coal Mines (Conservation and Development) Act, 1974 The Emigration Act, 1983 The Emigration Rules, 1983 The Labour Laws (Exemption from Furnishing Returns and Maintaining Register by Certain Establishments) Act, 1988 The Public Liability Insurance Act, 1991 Source: www.labour.nic.in/act/welcome.html

PART 13 NAMES OF EVENTUAL PARTNERS

PART 14 ANALYSIS OF DIFFERENT RISKS 14.1 Country Risk Economic Overview India’s economic growth slowed slightly in the second quarter of 2006 to 8.9% year-over-year from 9.3% in the first quarter, but remained the second fastest growing economy among the world’s twenty largest economies.

• Hotel, trade, transport and communication, the largest component of GDP, rose 13.2% following a 12.9% rise.

• The second largest component, agriculture, slowed a bit to 3.4% from 5.5%, which was the fastest growth in two years.

• Manufacturing rose 11.3%, construction rose 9.5%, utilities rose 5.4%, and financial services rose 8.9%.

• The construction industry is booming as the government invests in infrastructure improvement and expansion. This, along with a good monsoon season, which has boosted incomes for farmers, is leading to record demand for financial services and loans. Although wholesale inflation has slowed from 5.5% in June to 4.56% for the week ended September 16, it remains above the government’s 4% target.

• Strong economic growth, record credit growth, high oil and commodity prices and stout consumer spending have led to a 150 basis point increase in the central bank’s key reverse repo rate to 6.0% since October 2004. The rate increases in June and July have helped the rupee to rebound from the plunge in the May-July period amid the global exodus from emerging markets. The rupee has rebounded to Rs45.01: US$1 on November 17 from RS46.95: US$1 on July 19.

• The weaker rupee has supported exports recently, but has not deterred imports, keeping the trade deficit virtually unchanged since April at around $3.9 billion. Imports, which rose 24.2% in July from a year ago, remain elevated as rising incomes spur domestic demand, while factories continue to suck in raw materials for manufacturing goods. In addition, the government’s spending on infrastructure has increased imports of steel and cement. Exports, which rose 34.8% in July, remain strong amid robust global demand for gems, textiles and other manufactured products. All of this has fuelled a surge in industrial production, which rose 12.4% in July from a year ago, the fastest growth since June 1996. Another spate of emerging market jitters, which could weaken the rupee, and high oil and commodity prices could keep inflation elevated and lead to further interest rate hikes, which could slow the economy.

• On the political front, recent polls suggest that if an election were held before the planned election in May 2009, it may be possible for the UPA, the current ruling party, to gain a majority over the opposition BJP without the need for support from the Left Front. This would allow the UPA to enact much needed reforms that the Left Front opposes, such as liberalizing labor regulations, raising foreign investment ceilings and privatizing state-owned enterprises. In addition, it would allow the UPA to decrease the welfare spending that is so vigorously demanded by the Left Front, which has prevented India from reducing its vast public debt. The

risk of going to the polls early and having an unfavorable outcome suggests that the chance of an early election is minimal. However, the risk of political upheaval must not be overlooked.

INDICATORS 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 GDP (at current prices, US$ bn)

478.3 506.1 600.7 694.7 797.6e 880.3 f

GDP Growth (at constant prices, %)

5.8 3.8 8.5 7.5 8.4e 8.0**

Agriculture 6.2 -6.9 10.0 0.7 3.9 e - Industry 2.7 7.0 7.6 8.6 8.8 e - Services 7.1 7.3 8.2 9.9 10.1 e - Sectoral Share in GDP (%) Agriculture 23.2 20.8 21.0 19.6 19.0 Industry 25.5 26.7 26.4 27.3 27.4 Services 51.2 52.6 52.5 53.2 53.6 Inflation rate (WPI, avg. %)

3.6 3.4 5.4 6.4 4.0 5.26(Oct 14)

Gross Fiscal Deficit (% of GDP)

6.1 5.9 4.5 4.0 4.1 3.8

Exchange Rate (Rs/US$

47.69 48.40 45.95 44.93 44.62 44.93 (Nov 02)

Exchange Rate (Rs/Euro

42.18 48.09 53.99 56.51 55.20 57.34 (Nov 02)

Exports (US$ bn)

43.83 52.72 63.84 83.54 102.73 59.3 (Ap-Sep)

% change -1.7 20.3 21.1 30.8 23.0 37.3 Imports (US$ bn)

51.41 61.41 78.15 111.52 142.42 83.9 (Ap-Sep)

% change 1.7 19.5 27.3 42.7 27.7 32.1 Trade Deficit (US $ bn)

-7.58 -8.69 -14.31 -27.98 -39.69 -24.6 (Ap-Sep)

Services Exports (US$ bn)

17.1 20.8 26.9 46.0 60.6 16.6 (end

Software Exports (US$ bn)

7.6 9.9 13.3 17.7 23.6 6.4 (end

Services Imports (US$ bn)

13.8 17.1 16.7 31.83 38.3 8.9 (end

Current Account Balance (US$ bn)

3.40 6.35 14.08 -5.40 -10.61 -6.1 (end-June 06)

Current Account Balance (% of GDP)

0.7 1.3 2.3 -0.78 -1.33 -

Forex Reserves (US$ bn) #

54.11 76.1 113.0 141.51 151.62 166.15 (Oct 20)

External Debt (US $ bn) #

98.84 104.96 111.72 123.2 125.18 132.13 (end

External Debt to GDP Ratio (%) #

21.1 20.4 17.8 17.3 15.8

Short Term Debt / Total Debt (%) #

2.8 4.5 4.0 6.1 7.0 7.0 (end

Foreign Investment Inflows (US$ bn)

8.15 6.01 15.7 15.37 20.24 2.55(Apr-Jul)

Of which: FDI (US$ bn) 6.13 5.04 4.32 6051 7.75 3.39 (Apr GDRs/ADRs (US$ bn)

0.48 0.6 0.46 0.61 2.55 1.55 (Apr

FIIs (net) (US$ bn)

1.51 0.38 10.92 8.69 9.93

Source: RBI Government Intervention The World Bank reports that the government consumed 12.8 percent of GDP in 2003. In the same year, according to the International Monetary Fund's Government Financial Statistics CD–ROM, India received 17.9 percent of its total revenues from state-owned enterprises and government ownership of property. Monetary Policy From 1995 to 2004, India's weighted average annual rate of inflation was 3.85 percent. Foreign Investment According to the U.S. Department of Commerce, "India controls foreign investment with limits on equity and voting rights, mandatory government approvals, and capital controls." The Economist Intelligence Unit characterizes India as "a difficult market for foreign companies. Most economic activities are bound by restrictions, public services

and infrastructure are poor, and the government continues to impede the free flow of capital across its borders." However, India is taking gradual steps to attract more foreign investment, and foreign ownership is permitted in most sectors. The U.S. Department of Commerce reports that in January 2005, "the GOI [Government of India] relaxed restrictions on new [foreign direct investment] in India by foreign partners of joint ventures. The previous rules, issued in Press Note 18 in 1998, had required a release by the Indian partner and GOI approval for any new investment, a provision often subject to abuse. The new rules maintain restrictions on the majority of existing joint ventures, but leave new ones to negotiate their own terms on a commercial basis." Sectors off-limits to foreign investment include agriculture, legal services, railways, real estate, retailing, and security services. The International Monetary Fund reports that central bank approval is required for residents to open foreign currency accounts, either domestically or abroad, and that such accounts are subject to significant restrictions. Non-residents may hold foreign exchange and domestic currency accounts, subject to approval and conditions. Some payments and transfers face quantitative limits. The IMF reports that capital transactions and some credit operations are subject to certain restrictions and requirements. Wages & Prices The government continues to influence prices on several goods and services. The Economist Intelligence Unit reports that the Essential Commodities Act of 1955 applies price controls at the factory, wholesale, and retail levels on "essential" commodities. Electricity, some petroleum products, and certain types of coal are the only items with fully administered prices. The government also controls the prices of pharmaceuticals. The government mandates minimum wages that vary by state and industry. Regulation Businesses must contend with extensive federal and state regulation. According to the U.S. Department of Commerce, "firms have identified corruption as one obstacle to investment. Indian businessmen agree that red tape and wide-ranging administrative discretion serve as a pretext to extort money." In addition, labor laws are rigid. The Economist reports that "any company employing more than 100 people requires the permission of the state authorities to sack workers…."

Informal Market Transparency International's 2004 score for India is 2.8. Therefore, India's informal market score is 4 this year. Currency Restrictions India’s currency unit is the Rupee (INR).

The Rupee floats freely in world foreign exchange markets. Banks in India can only deal with foreign exchange when authorized by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 2000 (FEMA).

Taxes: (Resident and Non-resident) Foreign Institutional Investors (FIIs) are allowed to invest and operate in the Indian capital market under minimal restrictions. There are no restrictions on investment volume or the transfer of funds in and out of the country for FIIs that have been registered with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).

Preferred Method of Payment Paper-based instruments Political Climate Stable at a time of strong economic growth Political Structure Democracy: parliamentary, bicameral

legislature Postal Service India Post is the national mail service under

the Postal Service Board; it is generally reliable (visit www.indiapost.giv.in for more information).

Political & Security risk According to, RiskMap 2007, an analysis published by Control Risks, a reputed international business risk consultancy, India stood out as the most secure location for business in South Asia. On a global level, India was ranked as a low risk country. The report noted the risks posed by mass casualty terrorist attacks by Kashmir-based groups, and the spread of this threat to the high-tech hubs in the south of the country, the `low' security ranking assigned to most parts of the country affirms that it offers business a generally secure platform from which to operate. However, parts of the country such as Jammu & Kashmir, certain pockets of North Eastern states were assigned high risk. The table given below presents the number of fatalities in 2006 (as of Oct 1, 2006) due to Terrorist violence.

Fatalities in Terrorist Violence – 2006

Civilians Security Force Personnel

Terrorist Total

2001 1067 590 2850 4507 2002 839 469 1714 3022 2003 658 338 1546 2542 2004 534 325 951 1810 2005 520 216 996 1732 *2006 285 125 463 873 Source: http://www.satp.org/

Currency On August 1, 2006, Fitch Ratings-London, upgraded the Republic of India’s Long-term foreign and local currency Issuer Default Ratings (“IDRs”) to ‘BBB-’ (BBB minus) from ‘BB+’, both with stable outlooks. The Short-term foreign currency IDR is also raised to ‘F3’ from ‘B’ and the Country Ceiling is upgraded to ‘BBB-’ (BBB minus) from ‘BB+’. Indian government’s deficit which declined to 7.5% in 2005/06 from 10.1% of GDP in fiscal year 2001/02, helped the currency ratings improve. Higher growth and lower interest rates have played a part in this outcome but so, too, have much improved tax administration and some widening of the tax net. Modest tightening at the centre has been matched by parallel progress among India’s 25 states and union territories, many of which have introduced value-added tax and enacted fiscal responsibility legislation over the past year. India’s established track record of macroeconomic stability, low inflation and a high domestic savings rate, coupled with a deep domestic capital market and external capital controls, reduces the country’s currency risk. Overall risk rating The table given below gives overall risk rating for India as of May 2006. India: risk assessment Sovereign

Risk Currency risk

Banking sector risk

Political risk Economic structure risk

May-06 BBB BBB BB BB BBB Source: Economist Intelligence Unit 2006

14.2 Non-collection of goods & Non-payment Indian Council of Arbitration, consisting of representatives from the Government of India, the Federation of Indian Chambers of Commerce and Industry, the other important Chambers of Commerce and trade associations in India as well as export promotion councils, public sector undertakings, companies and firms, is the apex body with the objective of resolving international commercial disputes by arbitration. Its rules of arbitration are of international standard and they provide a guarantee wished for by the trade for quick and just settlement of the dispute. It maintains a panel of arbitrators consisting of Retd. Judges, Advocates, Shipping Experts, Chartered accountants, Chartered Engineers, Businessmen, Foreign Nationals and Executives having specialization in more than 20 fields. The Council has entered into arbitration service agreements with important foreign arbitral institutions in more than 30 countries to administer arbitrations under their rules if arbitration is held in India. The Council also provides arbitration services for settlement of maritime disputes arising out of charter party contracts and it has framed maritime arbitration rules for such disputes. The Ministry of Surface Transport, Government of India has recommended the use of the ICA arbitration clause in the charter party contracts so that dispute, if any, can be settled under the ICA maritime arbitration rules. Parties involved in export-import trade with Indian counterparts can also seek dispute resolution by seeking the services of another organization namely International Centre for Alternative Dispute Resolution (ICADR). This organization has been established as an autonomous organization under the aegis of Ministry of Law, Justice and Company Affairs to promote settlement of domestic and international disputes by different modes of alternate dispute resolution. ICADR has its headquarters in New Delhi and has regional office in Lucknow and Hyderabad. More information on ICADR can be obtained from the website: http://www.icadr.org/

PART 15 LEGISLATION ON INTELLECTUAL PROPERTY The laws relating to intellectual property in India are still in the process of transition and are being harmonized with corresponding laws in developed countries. As a signatory to GATT and trade-related aspects of intellectual property rights(TRIPS) agreements in the capacity of being a member of WTO, India is required to lay down minimum norms and standards with respect to the following areas of intellectual property: Copyrights and other related rights Trademarks Geographical Indications Patents Industrial Designs 15.1 Copyrights India’s copyright law, laid down in the Indian Copyright Act, 1957 as amended by Copyright ( Amendment) Act, 1999, fully reflects the Berne Convention on Copyrights, to which India is party. Additionally, India is party to the Geneva Convention for the Protection of Rights of Producers of Phonograms and to the Universal Copyrights Convention. India is also an active member of the World Intellectual Property Organisation (WIPO), Geneva. As per the Copyright Act, 1957, copyright subsists in original literary, dramatic, musical and artistic work or a cinematographic film or a sound recording. Amendments have been made from time to time to keep pace with changing requirements. Several measures have been adopted to streamline the enforcement of the Copyright Act, which includes the setting up of a Copyright Advisory Enforcement Council, training of enforcement officers and special police cells for enforcement. 15.2 Trademarks A Trade and Merchandise Marks Act was passed in 1958 and replaced by the Trademarks Act 1999, which provides for the registration of trademarks for services and goods, including collective marks. There is a provision for an appellate board for speedy disposal of appeals and a Controller General of Patents, Trademarks and Designs has

been appointed by the government to administer the various provisions of the Act. The Act grants a foreign trademark the right to register a trademark in India. 15.3 Geographical Indications of Goods The Geographical Indications of Goods ( Registration and Protection) Act, 1999 was passed by Parliament in 1999 and Rules notified in 2002. It conforms to the TRIPS regime. 15.4 Patents The Indian Patents Act, 1970 provides for grant, revocation, registration, license, assignment and infringement of patents in India. Any infringement of a patent is punishable under the terms of this Act. To harmonise the law pertaining to patents and other forms of intellectual property and to fulfill its obligations under WTO, India has become an active party to the International Convention for the Protection of Industrial Property ( Paris Convention), GATT and TRIPS agreements. 15.5 Industrial Designs The Designs Act, 2000 passed to give recognition to the obligations under WTO agreements, encourages and protects those who produce new and original designs and seeks to enhance industrial development and competitive progress. The Controller General of Patents, Designs and Trademarks appointed under the Trade and Merchandise Marks Act, 1958 is the Controller of Designs and is responsible for administering the various provisions of the Act.

PART 16 LABELLING AND PACKAGING RULES Packing and labelling requirements in India's ports mostly relate to being located in the tropical region, which means special care is needed when packing goods for shipment. Damage may be caused by damp, heat, exposure to sun and rain, insects, fungus and moulds. Therefore,waterproofing of shipments is necessary and use of cases lined with zinc ortin is recommended. Special attention is needed in packing imported machinery, which may be transported through tropical areas as well as desert areas. Caution is needed when packing to protect against high humidity, dust and sand. There are origin requirements for the labelling of imported merchandise. Labels must indicate the country or place where the goods were produced, other name and address of the manufacturer. Labelling should be in English and words indicating country of origin should be as large and as prominent as any other English wording on the package or label. This requirement applies to every article, label or wrapper that has any words in English. There are standards in effect for marking and labelling related to weights and measures for packaged goods imported into India and intended for retail sale. Packing needs to be strong to protect against extreme heat and humidity in the summer and possible storage in the open. Steel strapping is also recommended because of the threat of pilfering. Outer containers must bear the consignee’s mark and port mark and they should also be numbered (in accordance with the packing list) unless their contents can be otherwise readily identified. Gross weight must also be shown on two faces. Goods produced in more than one country are required to have ‘Foreign Made’ or similar wording clearly marked on the goods, their labels or packages. All other imports must show the country of origin. Materials such as polyvinyl chloride (PVC) are not allowed for packaging in most cities due to environmental concerns and waste disposal problems. Product labels should be printed in English or Hindi (Devnagari script) and must be completed before products are presented for Customs clearance. There are four main label options for imported packaged food: • Printed and securely fixed to the package. • Made on an additional wrapper containing the imported package. • Printed on the package itself. • Contained on a card or tape which is firmly fixed to the package. The government has identified 159 specific commodities (including food preservatives, milk powder condensed milk, infant milk foods, color dyes, steel, cement, electrical appliances and dry cell batteries) that the Bureau of Indian Standards (BIS) must certify before the products are allowed to enter the country. To be certified, exporters/manufacturers must either establish a presence in India or name a local Indian

representative to accept responsibility, pay an annual fee as well as a percentage of the invoice value of shipments to India, and subject all certified exports to inspection. Certifying Agency SGS, Société Générale de Surveillance, an internationally recognized laboratory, carries out inspection and certification required for importation of goods to India. At the time of customs clearance, importers of used equipment must furnish an inspection certificate issued by an internationally known inspection and certification agency from the country of origin, guaranteeing thus, quality with regard to price, for goods exceeding Indian rupees 10 million c.i.f. Imported secondhand automobiles require pres-shipment and post shipment certification. A pre-shipment inspection certificate became compulsory after 25 of October 2004 for all imports of metal scrap in unshredded, compressed or loose form.

• The import of capital goods will be on a self certification basis. • Imported goods to India are subject to the following labeling requirements: goods

must be labeled in English or Hindi with the name and address of the importer, generic or common name, net quantity in terms of standard weights and measures, in metric system, production and shelf-life dates etc...

• As a rule, shipments of goods must be marked in large lettering using indelible ink or paint directly on the container, with trade names revealing the nature of goods.

• Waterproof, zinc or tin-lined packaging is recommended for shipments of goods to India.

• Since 1 of January 2004, imports of second hand automobiles are allowed to enter India, only through customs port at Mumbai.

• Clearance of imported unshredded, compressed or loose metal scrap in loose form are authorized only at the following customs stations: Chennai, Cochin, Ennore, JNPT, Kandla, Mormugao, Mumbai, New Mangalore, Paradip, Tutirocin, Vishakhapatnam, ICD Tughlakabad New Dehli, Pipava, Mundra, Kolkatta, ICD Ludhiana, ICD Dadri Greater Noida, and ICD Nagpur.

Source: http://r0.unctad.org/trains_new/country_notes/india_2005.PDF

PART 17 MAIN EXHIBITIONS India Telecom Date: 14-DEC-06 - 16-DEC-06 ndia Telecom is An International Conference & Exhibition on Telecom Related Equipments & Technologies. The main focus areas of the exhibition & conference shall be the technology development & advancement in this sector including the equipment suppliers, component manufacturers, hardware & software solution providers. This exercise will help in bringing manufacturers of ancillaries to put up their plants in India. Venue: Pragati Maidan, New Delhi, Delhi, India. ELECTRONIC INDIA Date: 06-FEB-07 - 08-FEB-07 Find the export-quality products that you need direct from India manufacturers, at the Electronic India - the largest electronics trade show of its kind. A conference is held at the same time as the fair. Experts from ministries and industry will there discuss the technical and economic future of the Indian electronics. Venue: Pragati Maidan, New Delhi, Delhi, India. Globalcomm India Date: 07-FEB-07 - 09-FEB-07 With the advent of the Internet and automation, IT is no longer only for companies in the technology-related fields. Companies from other sectors such as banking & finance, healthcare, hospitality, logistics and many more recognise the importance of good IT infrastructure in shaping and reinforcing their business competence. Venue: Pragati Maidan, New Delhi, Delhi, India Office Expo Date: 16-FEB-07 - 18-FEB-07 Event Profile: Office Expo will offer a unique opportunity to interact with administrative professionals who influence and make purchasing decisions in their workplaces worldwide. It will provide a perfect and highly productive meeting place to network with colleagues, vendors or clients, exchange ideas, and establish profitable relationships that can impact your bottom-line. Also new strategies, new markets, new designs & new ways of doing business can be explored Venue:NSE Complex Mumbai , Maharashtra, India Organiser-Media Expositions & Events Media exposition & events which is one of India's leading trade show organizers - headquartered at New Delhi has announced a new dedicated event for the office interiors and facilities management sector. 'The Office Expo with the Mediaexpo, India's No.1

exhibition on the advertising. It will showcase a vast range of office design, furniture and systems, including interiors for conference, meeting and boardrooms as well as receptions. Essential office administration services and building maintenance services will also be featured, including cleaning, interior landscaping, climate control, security and communication systems. All state-of-the-art office automation products & equipments varying from copiers, computers to fax machines would be on display. Convergence India Date: 20-MAR-07 - 22-MAR-07 15th Convergence India international exhibition and conference to be held from March 20-22 March 2007, at Pragati Maidan, New Delhi, is the largest and longest running communications event in South Asia. Convergence India is the only forum in India to showcase the convergence of telecommunications, voice and data networks, fixed and mobile networks, internet, computing, delivery of content, satellite communications, television and entertainment applications, etc. Venue: Pragati Maidan, New Delhi, Delhi, India Digital Lifestyle 2006 – MAIT’s Flagship Event Date: December 12-14, 2006 Contact : Kochi Mr K S Nandakumar, Director MAIT 730 CMH Road, 1st Stage Indiranagar, Bangalore 560 038 Tel# 080-25219016/5556 Fax# 080-25215556 Email: maitsr@vsnl.com Website: www.digitallifestyleindia.in

PART 18 LOGISTICS 18.1 OVERVIEW Logistics is one of the key economic activities throughout the world. The global logistics industry was estimated to be about US$3.5 trillion in 2005. The contribution of logistics industry to India’s GDP has gone up in the recent years from 7.4% in 1999-2000 to 9.3% in 2004-05. Cost of transportation In developed countries like the US, logistics costs comprising transportation costs account for 7-9% of the cost of the final product; warehousing cost account for about 1-2% and inventory holding costs for about 3-5%. In developing countries, logistics costs are estimated to be higher at around 15-25% of the final cost of the product due to lack of adequate logistics system. In India, logistics cost is around 13%, comparatively higher than the developed countries. 18.2 Metro Mass rapid transit systems are operational in Mumbai, Kolkatta, Chennai and Delhi. The first rapid transit system in India, Mumbai Railway, was established in Mumbai in 1867. The Mumbai Suburban Railway commutes 6.1 million passengers everyday and boasts to have the highest passenger density in the world. Rapid transit systems are under construction in Hyderabad and Bangalore. To decongest Mumbai's growing traffic, another metro system in Mumbai is being constructed. Delhi Metro started operations on December 24, 2004. Presently three metro lines are operational in Delhi and two more are under construction. The cost of each metro line is estimated to be around 2.2 billion USD. Delhi Metro Corporation expects to transport 2.5 million passengers everyday by the end of 2006. Rapid transit systems are proposed in Noida, Goa, Thane, Pune, Hyderabad, Bangalore, Ahmedabad and Kochi. These proposed rapid transit systems are likely to be approved in the coming days. India's rail network is the longest of any country. Trains run at an average of around 50-60 km/hour, which means that it can take more than two days to get from one corner of the country to another. Rail operations throughout the country are run by the state-owned company, Indian Railways. The rail network traverses through the length and breadth of the country, covering a total length of around 63,000 km (39,000 miles). Out of this a total 16,693 km of track has been electrified till now and 12,617 km have double tracks. Indian Railways uses three type of gauges : Broad Gauge, Metre Gauge and Narrow Gauge. Broad gauge at 1.676 m is one of the widest gauge used anywhere in the world. IR is in the process of converting all the metre gauge (14,406km) into broad gauge. Narrow gauge (3,106 km of track) with a width of 0.610 m to 0.762 m is restricted to very few places.

Railway links with adjacent countries • Pakistan - Operational (Attari-Wagha) • China - non existent • Myanmar - non existent • Bangladesh - yes, freight only • Nepal - up to border town • Bhutan - proposed • Sri Lanka - non existent. Formerly up to India's closest point to Sri Lanka. 18.3 Buses Next only to railways, the most preferred long distance transport option for the public are the buses. Most of the state road transport corportations have buses which connect major cities and towns. There are private bus operators who run regular schedule of buses for connections between major cities and towns. Most long distance buses are scheduled during the night. Long distance travel in buses is quite common for distances upto 500 kms. In some cases there are connections for distances like 1000 kms (eg. Bangalore to Mumbai), with a travel time of 24 hours. With the advent of better buses (eg. Volvo's popular Volvo B7R) and better highways, road transport has become a fast and comfortable option for travellers. 18.4 Highways The Network of National Highways in India India has a network of National Highways connecting all the major cities and state capitals. As of 2005, India has a total of 65,569 km of highways, of which 4,885 km are classified as expressways. Most highways are 2 laned, while in some better developed areas they may broaden to 4 lanes. Close to big cities, highways can even be 8 laned. All the highways are metalled. In most developed states the roads are smooth, however in less developed states and in sparsely populated areas, highways are riddled with potholes. Very few of India's highways are constructed of concrete, the most notable being the Mumbai-Pune Expressway. Highways form the economic backbone of the country. Highways have facilitated development along the route and many towns have sprung up along major highways. In recent years construction has commenced on a nationwide system of multi-lane highways, including the Golden Quadrilateral expressways which link the largest cities in India. A bus service Srinagar (India controlled, Jammu and Kashmir) - Muzaffarabad (Pakistan controlled, Azad Kashmir, part of what India calls PoK), with one bus service every two weeks, at the same time in both directions, opened on 7 April 2005.

Length: total - 3,319,644 km; paved - 1,517,077 km; unpaved - 1,802,567 km (1999 est.) 18.5 Waterways India has an extensive network of inland waterways in the form of rivers, canals, backwaters and creeks. The total navigable length is 14,500 km, out of which about 5200 km of river and 485 km of canals can be used by mechanised crafts. Freight transportation by waterways is highly underutilised in India compared to other large countries like USA, China and European Union. The total cargo moved (in tonne kilometers) by the inland waterway was just 0.1% of the total inland traffic in India, compared to the 21% figure for USA. Cargo transportation in an organised manner is confined to a few waterways in Goa, West Bengal, Assam and Kerala. Inland Waterways Authority of India (IWAI) is the statutory authority in charge of the waterways in India. It does the function of building the necessary infrastructure in these waterways, surveying the economic feasibility of new projects and also administration and regulation. The following waterways have been declared as National Waterways till now. • National Waterway 1 - Allahabad Haldia stretch of the Ganga Bhagirathi Hooghly river system (1620 km) in October 1986. • National Waterway 2 - Saidiya Dhubri stretch of the Brahmaputra river system (891 km) in September 1988. • National Waterway 3 - Kollam Kottapuram stretch of West Coast Canal (168 km) along with Champakara canal (14 km) and Udyogmandal canal (23 km) in February 1993. 18.6 Pipelines Length of pipelines for crude oil 3,005 km; petroleum products 2,68 km; natural gas 1,700 km (1995) 18.7 Ports and harbours The ports are the main gateway of trade. In India about 95% of the trade by quantity and 77% by value take place through the ports. There are 12 major ports and about 180 minor and intermediate ports in India. The total amount of traffic handled at the major port in 2003-2004 was 345 Mt and the minor ports together handled about 115 Mt. The major ports are Calcutta, Haldia, Paradip, Visakhapatanam, Ennore, Chennai, Tuticorin, Kochi, New Mangalore, Mormugao,JNPT, Mumbai and Kandla. The distinction between major and minor ports is not based on the amount of cargo handled. The major ports are managed by port trusts which are regulated by the central government. They come under the purview of the Major Port Trusts Act, 1963. The minor ports are regulated by the respective state governments and many of these ports are private ports or captive ports.

18.8 Merchant marine Total 321 ships (1,000 GRT or over) totaling 6,647,268 GRT/11,074,025 DWT 18.9 Air travel India's booming economy has created a large middle-class population in India. Five years back, air travel was a dream for the majority of the Indian population. But rapid economic growth has made air travel more and more affordable in India. Air India, India's flag carrier, presently operates a fleet 42 aircraft and plays a major role in connecting India with the rest of the world. Several other foreign airlines connect Indian cities with other major cities across the globe. Jet Airways, Indian (formerly Indian Airlines), Air Sahara and Alliance Air are the most popular brands in domestic air travel in order of their market share. Of these, Jet, Indian and Sahara also operate overseas routes after the liberalisation of Indian Aviation. These airlines connect more than 80 cities across India. However, a large section of country's air transport system remains untapped. 18.10 Airports and seaports of India India's vast unutilized air transport network has attracted several investments in the Indian air industry in the past few years. More than half a dozen low-cost carriers entered the Indian market in 2004-05. Major new entrants include Air Deccan, Kingfisher Airlines, SpiceJet, GoAir, Paramount Airlines and IndiGo Airlines. To meet India's rapidly increasing demand for air travel, Air India recently placed orders for more than 68 jets from Boeing for 7.5 billion USD while Indian placed orders for 43 jets from Airbus for 2.5 billion USD. Jet Airways, India's largest private carrier, has invested billions of dollars to increase its fleet. This trend is not restricted to traditional air carriers in India. IndiGo Airlines came into the news with a bang when it announced orders for 100 Airbus A320s worth 6 billion USD during the Paris Air Show; the highest by any Asian domestic carrier. Kingfisher Airline became the first Indian air carrier in June 15, 2005 to order Airbus A380 aircraft. The total deal with Airbus was worth 3 billion USD. 18.11 Airports The Indira Gandhi International Airport in Delhi is one of the busiest airports in South Asia. More than 20 international airports are located within the Republic of India. These include: Begumpet Airport, Chennai; Cochin International Airport Limited, Cochin; HAL Airport, Bangalore; Indira Gandhi International Airport, Delhi; Netaji Subhash Chandra Bose International Airport, Kolkata; Raja Sansi International Airport, Amritsar; Sardar Vallabhbhai Patel International Airport, Ahmedabad, Trivandrum International Airport, Trivandrum: Amausi International Arport,Lucknow. The Indira Gandhi International Airport and the Chatrapati Shivaji International Airport at Mumbai, handle more than

half of the air traffic in South Asia. Besides these airports several other domestic airports are located in India. In total, there are more than 334 (2002 est.) civilian airports in India - 238 with paved runways and 108 with unpaved runways. Airports - with paved runways (1999 est.) Chennai International Airport's main runway 10,000 ft (3,048 m) or more: 12 8,000 to 9,999 ft (2,438 to 3,047 m): 49 5,000 to 7,999 ft (1,524 to 2,437 m): 84 3,000 to 4,999 ft (914 to 1,523 m): 74 under 3,000 ft (914 m): 19 Airports - with unpaved runways (1999 est.) total: 108 8,000 to 9,999 ft (2,438 to 3,047 m): 2 5,000 to 7,999 ft (1,524 to 2,437 m): 4 3,000 to 4,999 ft (914 to 1,523 m): 47 Under 3,000 ft (914 m): 55 (1999 est.) Heliports (2002 est.)