European Network for Contemporary Academic Research on India ENCARI

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• European Network for Contemporary Academic
  Research on India (ENCARI)
• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Indias Emergence as a Global Economic Player
  Implications and Opportunities for Europe
• Dr Willem van der Geest
• Asia Institute Europe, Brussels
• Coordinator ENCARI project
• Ms Miniya Chatterji,
• Centre dEtudes et de Recherches Internationales
  (CERI), Paris

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Table of Contents
• A. IndiaEU relations trends and issues
• B. India-EU foreign investments a survey of the
  major European players
• C. Indian investors in the EU challenges and
  strategies
• D. Foreign Direct Investment in India
  Challenges and strategies for European players
• E. Will Indias fly ? The writing on the wall
  and implications for Europe
• F. Conclusions

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• IndiaEU relations trends and issues
• Comparatively low levels of EU-India trade
• Indias exports to EU insufficiently diversified
• EUs market access to India still too restricted
• EUs focus on China, overlooking under-rating
  India
• Barriers to EU-India FDI, both ways, reflecting
  domestic constraints and social objectives

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• B. India-EU foreign investments the major
  European players
• Indian companies paying Euro 1.3 billion for 62
  overseas companies (2005 q1-q3, KPMG report)
• India has grass-root level multinationals (unlike
  Chinas SOEs)
• But, low levels of FDI inflows from EU, less than
  Euro 5 billion over the last 15 years
• Review selected countries Germany, United
  Kingdom, France,

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Indo-German economic relations
• - Long historical commercial presence (Bosch,
  Siemens, Daimler-Chrysler)
• - Indo-German joint ventures/invested companies
  were market leaders in 21 product groups, second
  in 17 and third in 10.
• - Expectation of fast increasing trade flow
  (Euro 10 billion by 2008)
• - However, German investment flow into India
  below UK, NL, Belgium
• - Indian investment in Germany
• - pharma Dr Reddy ? Betapharm (Euro 480 mln)
• - forging Bharat-Forge ? CDP (2nd world player
  after Thyssen-Krupp)
• - fasteners Sundram ? Umformtechnik
• Motivation Germany as 2nd largest generic
  drugsmarket, good access to CEEC for markets
  and low-cost manufacturing

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• UNITED KINGDOM
• gt 2000 joint ventures India-UK
• UK second largest source of FDI in India
  (1991-2005) (after US)
• UK largest market for Indian IT services (Euro
  700 mln)
• FRANCE
• Popular target for Indian investors post 2002
• Pharma Ranbaxy ? RPG Aventis
• ZYDUS Cadila ? Alpharma France
• RD Sankhya ? ENSICA (e-governance/e-learning)
• TCS ? TKS
• French inwards investment
• ICT Cap-Gemini, Atos-Origin, Valtech, Dassault,
  Alcatel, Thales, Thomson
• Processed Food joint ventures Danone, Bongrain,
  Pernod,
• Power Areva TD, Schneider, Leroy, Legrand, HPL,
  Socomoc
• Road-building Infrastructure GTME, Colas,,
  Scetauroute, Delhi-metro
• Water Treatment SUEZ and VEOLIA

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• C. INDIAN INVESTORS IN EU Challenges and
  Strategies
• CHALLENGES reported from Indian sources relate to
  immigration legislation and labour market policy
  (for qualified professionals)
• - visa restrictions may function as a barrier to
  access
• - wage parity conditions
• - non-recognition of professional qualifications
• - licensing requirements in professional
  services
• STRATEGY AND BUSINESS MODEL
• - develop brand capability
• - acquire mid and top level industry players,
• - produce within the acquired market with
  greater cost-efficiency multi-shore model

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• D. FDI in INDIA Challenges and Strategies for
  European Players
• Sectors Software, IT outsourcing, RD, biotech,
  customer contact, design, and other
  knowledge-based products and services
• Consumer Target rapidly expanding middle-class
  market
• Assets Managerial talent returnee brain gain
• Constraints Indias uncompetitive production
  conditions
• - interrupted power supply, road jams, controls
  on hiring/firing,
• - licensing requirements partial
  liberalization (most sectors)
• - market distortions -- 88 days set-up time for
  new company
• - difficulties in contract enforcement
• - poor infrastructure
• - insecurity perceptions (Kashmir, Mumbai
  bombings etc)

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• E. Will Indias fly ? Two Schools Yes, if and
  No, unless
• (Economist Survey, June 1, 2006),
• Yes, if
• Robust economic growth prospects
• Demographic dividend of young workers
• Emerging world-class companies (mini-multinational
  s) esp in IT and BPO
• Rapid progress in internationalization of Indian
  companies
• Indias look east policy with East Asia (China)
  and ASEAN (RTIA)
• Predictability of political democratic
  institutions
• Strong Labour Productivity Growth ( 4.1
  2000-05)

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• E. Will Indias fly ? NO, unless
• Reduce too high budget deficits in States and
  massive oil import bill as precondition to
  sustain economic growth prospects
• Demographic dividend can be reaped only if
  education quality is massively improved
  (coincidence high TFR low educational
  attainment)
• Emerging world-class companies (mini-multinational
  s) esp in IT and BPO will it be enough? Need
  for more inward FDI
• Indias neighbourhood policy resolves regional
  tensions (esp. Pakistan) and SAARC
• Risk of political stalemate with anti-reform
  left politics and weak coalitions
• Labour Productivity Growth much below China (
  8.7 2000-05)
• Conflicts and Insecurity in Kashmir, North East,
  Chattisgarh are resolved

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• THANK YOU FOR YOUR ATTENTION

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• EU-INDIA BUSINESS COOPERATION
• Modalities and Instruments
• PPP public private partnerships
• EBTC European Business and Technology Centre

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• PPP public private partnerships
• Context Accelerated growth
• more than proportional demand for public services
  and public goods delivery
• Private Sector as a Partner in Development

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Estimated gross capital formation in
  infrastructure 4.6 per cent of GDP (1997-98 to
  2003-04)
• Target . Need for infrastructure investment to
  increase 8 per cent (old target 1996)1
• Reality less than half 2.8 from the public
  sector and 0.9 from the private sector
• To increase the level of infrastructure spending
  up to 8 per cent of GDP will require a major
  participation from domestic and foreign private
  sources.
• 1 India Infrastructure Report, 1996.

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Responsibilities in PPP
• public authority concerned remains responsible
  for quality, price and cost-effectiveness
• private sector company (co-)finances, designs,
  builds and operates the facility, within an
  agreed time frame.
• exploit the complementarities between public
  authorities and private sector companies
• BOO Build-Own-Operate
• BOOM Build-Own-Operate-Maintain
• BOOT Build-Own-Operate-Transfer
• BOT Build-Own-Transfer
• OMST Operate-Maintain-Share-Transfer

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• GOI measures to promote PPP
• The creation of a PPP Cell in the Ministry of
  Finance, a professional website, consultancy
  support as well as capacity building through
  specialized workshops.
• The Viability Gap Funding (VGF) scheme for
  economically justifiable but not commercially
  viable projects, including Special Economic
  Zones (SEZs).
• The India Infrastructure Finance Company Limited
  (IIFCL) has been established as a government
  owned company to provide long-term finance.
• Attract private sector investors with
  standardized contractual frameworks (Model
  Concession Agreements MCAs) to identify both risk
  obligations as well as expected returns.
• (The IIFCL is established under the Companies
  Act 1956 with an authorized capital of Rs. 1000
  crore and a paid-up capital of Rs. 10 crore).

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Projected Infrastructure Investment ( Bln)
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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Private Sector Responses
• Foreign as well as domestic private investors are
  raising private equity for infrastructural
  development in India.
• For example 3i, which has plans to raise US 5
  billion.
• Citigroup and Blackstone, in collaboration with
  the Infrastructure Development Finance Company
  (IFDC) and the IIFCL recently floated an
  investment fund to raise US 5 billion.
• The State Bank of India Mutual Fund, a joint
  venture of SBI and Societe Generale de France
  opened an infrastructure fund in May 2007.
• In September 2007 the ICICI Bank was planning to
  set up a US 2 billion infrastructure fund.
  (Lehman Brothers, 2007, p. 58)

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• International Best Practice Lessons
• Implementation
• - The over-riding need for detailed policy and
  project planning- The importance of optimal
  allocation of risks across partners and
  financiers- The provision of adequate
  protection for lenders in cases of force majeur-
  The importance of avoiding renegotiation of
  contracts and design after the award
• - Management strategies to prevent midway
  changes to save costs and delays, and
• - Development of public sector capacity.
• Communication with partners and stakeholders
  would focus on
• - Extending full and clear support by
  government- Proactive public communication and
  stakeholder management

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• EU Experience Resources what role in India?
• European Union facilitates PPPs across its Member
  States - relevance for India?
• Could EU development assistance be used to
  support PPPs in India?

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Cohesion Funds for PPPs?
• Cohesion funds were eligible for funding
  Public-Private Partnerships
• but raises questions
• Is it consistent with state-aid guidelines,
  ensuring level playing-field between subsidised
  and non-subsidised companies?
• May public co-financing be replaced by private
  co-financing?
• EU grant funds are for limited eligibility period
  can not support the whole life costing
  approach, which may take up to 20-30 years,
  under availability charge and shadow toll
  schemes.
• Member State (GOI) underwrites the risk of having
  to refund EU grant funds in case of
  non-compliance with EU rules. Who should bear the
  risk as private contractor would be unlikely to
  accept such risks?1
• Same questions for use of EU grant in the context
  of Indias development assistance, especially in
  view of focus/character of the DCI
• 1 Public procuring authorities would need to
  bear these risks, but they would need to
  establish their recourse back to private
  contractors if its poor performance is the reason
  of the refund.

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• The immediate forms through which the Commission
  can support PPPs could go well beyond the
  provision of technical assistance.
• The Trans European Network regulation (2007-13)
  includes 3 instruments for PPPs
• - Loan guaranty instrument (only for transport
  sector, up to a maximum of 50)
• - Construction Grant / Availability Payments
• - Risk Capital Facility part of the EU budget
  can be used to support equity fund.

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• Above discussion of PPPs in the context of
  EU-India focused on possible new modalities
• Is there a need for a new institution to deepen
  EU-India Business-to-Business cooperation?
• Yes Sharpen focus on Business and Technology
• No Role of Business it self

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• A European Commission initiative promoting policy
  relevant EU-India knowledge and research

• THANK YOU FOR YOUR ATTENTION