IFC 2004 Corporate Slideshow

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INDIA Business Environment, Opportunities
and IFCs Role Iyad Malas Director, South Asia
Department Frankfurt, October 7, 2005
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India The Growth Enablers

• Cultural
• Education base
• Skilled, low cost work
• force
• Performance oriented
• Engg /IT/ English
• language skills

• Political
• Strong democracy
• Stable secular state
• Strong judiciary
• Liberalized economy
• Reform oriented policy

Geo-political Abundant natural resources

• Economic
• High growth
• Strong Capex Growth
• Comfortable BOP position
• Well developed entrepreneurial class
• Booming stock market
• Increasing international competitiveness
• Resilient economy

• Demographic
• Vast working population
• 54 of population lt 25 years old
• Large domestic market
• Size of the Indian middle class larger
• than that in the entire Europe

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Macro Trend

• Liberalization firmly on path
• Tariff rationalization and tax reforms
• Financial sector reforms
• Power sector reforms
• Telecom sector reforms
• Infrastructure development roads, ports
• Capital market rationalization

India to be third largest economy by 2050

• Favorable indicators
• Prime lending rates have fallen from 16 in Nov.
  1996 to 10.5 in September 2005
• Stable / appreciating currency
• Record FDI (US 5bn), and
• FII (US8.5 bn) inflows (Jan. to Aug. 2005)

• Strong BOP Position

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Robust Financial Markets

• Equity markets
• -6,897 scrips listed as of Aug 2005, with market
  capitalization of 460 bill
• -Electronic settlement, increasingly effective
  regulator, corporate governance
• laws
• -Record of 7 billion raised through public
  issues in 2004
• Growing debt and derivatives segments
• -Average daily turnover for wholesale debt
  markets (2004-05) of US 700
• million
• Turnover for derivates segment in excess of US
  27 billion

• Well-functioning financial markets ensure
  liquidity and availability of capital

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But Structural Constraints Remain

• Pressures of Coalition Govt second generation
  reforms stalled (particularly disinvestment)
• High fiscal deficits crowd out public and private
  investment
• Private investment only 15 of GDP (public 8)
• FDI flows less than 1 of GDP
• Industry contributes lt 25 of GDP
• Only 7 of total employment in organized sector
• Huge Regional disparities
• Severe Infrastructure bottlenecks
• Widespread govt. ownership in business, dominance
  in banking

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Business Environment -Not Easy

• DOING BUSINESS REPORT 2005-06 ranks India 116 out
  of 155 countries on the ease of doing business
  because
• Rigidities in labor and land markets
• Import tariffs, complex tax regimes
• Excessive regulation increases costs of doing
  business

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Possible Risks to Investment

• Short to Medium Term
• Rising crude oil prices (India imports 2/3 of oil
  needs)
• Global opposition to outsourcing
• Infrastructure bottlenecks
• Long Term
• Inflation and interest rates
• Policy risk reforms slowdown
• Income /regional disparities
• High fiscal deficits
• Infrastructure bottlenecks

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Still, Indian Industry is Gaining

• Hero Honda is the largest manufacturer of
  motorcycles in the world
• Fifteen of worlds major automobile firms now
  source components from Indian firms
• Essel Propack is the worlds largest laminated
  tubes manufacturer
• Moser Baer is the worlds third largest optical
  media producer
• TISCO is the lowest cost producer of hot-rolled
  steel globally

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Still, Indian Industry is Gaining

• Bharat Forge has the worlds largest single
  location factory
• India is one of the largest diamond cutting and
  polishing centers. 9 out of every 10 stones sold
  in the world pass through India
• 100 of the Fortune 500 firms have RD facilities
  in India (Delphi, Eli Lilly, GE, HP, Heinz,
  Daimler Chrysler, Microsoft, Intel, Motorola,
  Dell etc)

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Broad-Based Growth Across Sectors

• IT, ITES and BPO on track to reach US 50
  billion of exports by 2008
• Pharmaceuticals and biotechnology robust
  export-led growth
• Textiles well-positioned to capture post-MFA
  growth along with China
• Auto and Auto ancillaries exports to grow
  ten-fold to 15 billion by 2009
• Construction/Building Materials - growth driven
  by infrastructure/housing

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Broad-Based Growth Across Sectors

• Manufacturing some of the largest and lowest
  cost (TISCO, Hindalco) producers in the world
• Retail and distribution second most attractive
  retail market in the world
• Engineering based manufacturing - capital goods
  industry driven by strong capex
• Alternative to China for cos looking
• to source merchandise globally

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India has Benefited from the Outsourcing Wave
Source CLSA Research
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India has Benefited from the Outsourcing Wave
Source CLSA Research
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IFC Strategic Focus

• Private Infrastructure
• Power generation, distribution, transmission
• Mobile telecoms
• SEZs/ports/airports
• Water and Sanitation
• Manufacturing and Service Companies
• New Growth Sectors IT, Pharma, Auto Parts
• Achieving international competitiveness
• Bring FDI into India through MNCs
• Take Indian companies abroad
• Agribusiness
• Financial Institutions
• Second tier banks
• Micro and SME Finance

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IFCs India Portfolio

• IFCs 3rd largest exposure with 1.27 billion
  invested in 79 companies, and 353 million
  mobilized through syndications
• Long-term presence investor since 1956
• IFC has played a significant role in creating
  leading financial institutions
• India portfolio has doubled since 2001
• Record Commitments of 413 million in FY 2004-05
• Expect to continue to invest 400 - 500 million
  pa

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3.2 bn Invested in India Since 1958
Outstanding Portfolio 1.27 billion Syndications
353 million
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For more information, please contact

• International Finance Corporation
• Iyad Malas
• Director, South Asia Department
• Email SouthAsia_at_ifc.org
• Website www.ifc.org/southasia

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THANK YOU