FD I Summary Presentation

Delhi, April 24th 2009
Foreign Direct Investment in India

An AMCHAM and Booz & Company Study
This document is confidential and is intended solely for the use and information of the client to whom it is addressed.
Rapid FDI growth in India from 2005 onwards

FDI in India
(US$ Bn)
FDI Growth Rate (2004-08)
70% 65% 60%
Global comparison of FDI

(%)
India
33.7
55% 50% 45%
23.0 19.7
40% 35% 30% 25% 20%
Russia
Brazil
7.6 5.0
15% 10% 5% 0% 0% 1% 2% 3% 4% 5% 6% 7%
China
Share of Global FDI 8% (2008)
2000-04 (Average)
2005
2006
2007
2008
Source: World Investment Report, IHS Global Insight, CIA, DIPP, Ministry of Finance, World Economic Forum, Media Reports, Booz & Company Analysis
Booz & Company AMCHAM India 090324 FDI Summary Presentation vf.ppt Friday, 24 April 2009
FDI growth in line with overall investment growth - local market demand key driver
Reasons for FDI Investment
Booz & Co. and AMCHAM Survey (% of Respondents)
86%
FDI as % of Gross Total Investment (%)

7.4%
5.6%
5.6%
3.2% 29% 29% 24% 24% 24% 14% 2.6%
Low Cost Operations
Ease of Making FDI
Entry of Other Players
Labor Availability
Political Stability
Time zone Advantage
Local Market Demand
2000-04
2005
2006
2007
2008
Source: Booz & Company and AMCHAM Survey; DIPP: Global Insight; Booz & Company analysis
Growth has been driven by the services sector

Sectoral Distribution of FDI
(2000-2008) 33.7 Housing and Real Estate Construction Activities Petroleum and Natural Gas Computer S/W and H/W Automobile Metallurgical Chemicals ITES / BPO / KPO Telecommunications 12.9 9.4 8.3 Services Trading Information and Broadcasting Hotel and Tourism Consultancy Hospital and Diagnostic Power Ports Rail Air Transport and Freight Electrical Equipment Drugs and Pharma Paper & Pulp
Key Industries Included
10.3
Infrastructure
22.2 19.7
3.0 5.7
10.5
Manufacturing
7.3 7.6 0.5 5.2 1.8 2005 2006
8.2
5.0 0.7 3.1 1.2 2000-04 (Average)
2007
2008
Source: DIPP: Booz & Company analysis

Limited FDI impact in the short-run

Short-Term FDI Expectation
Booz & Co. and AMCHAM Survey
Approvals ($Bn)
1.5 1.4 1.3 1.2 45 40 35 30 25 20 15
Monthly India FDI Approvals

(Jan 2007 to Feb 2009)
Number of FDI Approvals
55 50
Undecided
20%
1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4
Commitment continues Re-profiling of flows Environmental uncertainty
Reducing 10% FDI 70%
0.3 0.2 0.1

May 2008 Aug 2007
Developed Economies
10 5
Aug 2008
Sep 2007
Dec 2007
Sep 2008
Dec 2008
Feb 2008
Jun 2008
FDI Approved ($ bn)

Source: Booz & Company and AMCHAM Survey; Booz & Company analysis
# of Approvals
Feb 2009
Mar 2008
Jan 2008
Apr 2008
Jan 2009
Oct 2007
Oct 2008
Nov2007
Nov2008
Jul 2008
No change
0.0
In-fact India is a relative gainer in global FDI share

Change in FDI vs. Size of FDI Inflow for Developed and Developing Countries
FDI Inflow Size 2008 ($Bn)
220 110 100 90 80 70 60 50 40 30 20 10 0 -120% United Kingdom
France
Developed Nations Average
United States
Developing Nations Average
Worldwide Average
China
Weakened FDI
Strengthened FDI
Russian Federation
Hong Kong
Brazil India
Turkey
Mexico Egypt South Africa

Change In FDI (2007-08)
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Developed Economies
Source: Global Insight, Booz & Company analysis
Developing Economies 5
In the long-term, continued positive outlook

Long-term Outlook on FDI into India
Based on Booz & Co. and AMCHAM Survey
Long-term Drivers
Attractiveness of Domestic Market
More Attractive
29%
2
Local Talent Pool
Attractive (No Change)
52%
Availability of capital
Less Attractive
0%
Improved Infrastructure
? ?
6
Undecided
19%
5
FDI Policy Liberalization
Indias opportunity
Sectoral(1) Comparison of FDI Investment
(Various Years from 2000-2008(2))
18%
15% 25% 41% 8%
FDI as % of Gross Investment

(%)
Infrastructure
16%
Brazil
14% 12%
Russia
38% 29% 72% Manufacturing
10% 8%
India China
48% 46% 47% 19% 11% India Brazil Russia China Services
6% 4% 2% 0% 2005
2006
2007
2008
1) Multiple sectors reported by DIPP Have been combined together into the three higher level sectors 2) Same year data not available across countries, so representative years used from 2000 to 2008; India data is Jan 2008 to Sep 2008 Source: Respective Central / Reserve Bank Statistical Databases, Research Reports, UNCTAD, Booz & Company Analysis
Seizing the opportunity

Top 5 Drivers for FDI Improvement in India
(% of Total Respondents Identifying Initiative within Top 5)
Key Concerns Highlighted by AMCHAM Members

(Quotes from Interviews) It is hard to find economical raw materials for our manufacturing plant due to lack of proper roads The telecom sector cannot grow without further investing significantly in infrastructure development It is not clear where we can and where we cannot invest - the government needs to create clear guidelines for FDI investment To get funds for manufacturing we used the automatic route, but to set up the plant we needed approvals for starting building construction, final building audit, manufacturing permit Educated employees are available but there is a serious lack of employable talent Labor laws are antiquated and have not changed for the last 50 yearsfocus is not on improving productivity Doing business in different states is like doing business in 30 different countries
Infrastructure Development
60%
Simplified FDI Processes
55%
Reduced Bureaucracy
40%
Quality and Availability of Talent
25%
Stable Economic Policy
20%

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Delhi, April 24th 2009

Foreign Direct Investment in India

Rapid FDI growth in India from 2005 onwards

Global comparison of FDI

55% 50% 45%

40% 35% 30% 25% 20%

FDI as % of Gross Total Investment (%)

3.2% 29% 29% 24% 24% 24% 14% 2.6%

Low Cost Operations

Ease of Making FDI

Entry of Other Players

Time zone Advantage

Local Market Demand

Growth has been driven by the services sector

Key Industries Included

7.3 7.6 0.5 5.2 1.8 2005 2006

5.0 0.7 3.1 1.2 2000-04 (Average)

Source: DIPP: Booz & Company analysis

Limited FDI impact in the short-run

Monthly India FDI Approvals

1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4

Commitment continues Re-profiling of flows Environmental uncertainty

Reducing 10% FDI 70%

0.3 0.2 0.1

FDI Approved ($ bn)

In-fact India is a relative gainer in global FDI share

220 110 100 90 80 70 60 50 40 30 20 10 0 -120% United Kingdom

Mexico Egypt South Africa

In the long-term, continued positive outlook

Attractiveness of Domestic Market

Local Talent Pool

Attractive (No Change)

FDI Policy Liberalization

FDI as % of Gross Investment

38% 29% 72% Manufacturing

Seizing the opportunity

Key Concerns Highlighted by AMCHAM Members

Simplified FDI Processes

Quality and Availability of Talent

Stable Economic Policy

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