This report has been carryed out by the

Indo Italian Chamber of Commerce & Industry in Mumbay (India)

on november 2006

within the Project

“Friuli Venezia Giulia – India: Imprese e Conoscenza”
realized by:

REPORT
ON
MECHANICAL INDUSTRY
IN INDIA
 CONTENTS
SECTION A: MECHANICAL SECTOR ANALYSIS

1. SECTOR ANALYSIS

2. COMMON MISTAKES IN EXPORT TO INDIA

3. OBSTACLES
4. PARAMETERS OF COMPETITION
5. COMMUNICATION AND PROMOTION
6. PENETRATION IN THE MARKET
SECTION B: GENERAL OVERVIEW
7. INFORMATION SOURCES

8. IMPORT LEGISLATION
9A. BANKING SYSTEM AND EXCHANGE POLICIES
9B.METHODS OF PAYMENT
10. LOCAL JUDICIAL SYSTEM
11. POTENTIAL BUSINESS PARTNERS
12. RISK ANALYSIS

13. LEGISLATION ON INTELLECTUAL PROPERTY RIGHTS

14. LABELLING AND PACKAGING RULES
15. MAIN EXHIBITIONS
16. LOGISTICS
 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 engineering 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. While engineering industry in India follows specific classifications of
industries and its associated sub-sectors, industry sectors with their sub-sectors discussed
here are not exactly according to classification followed in India. As a result some of the
industry sub-sectors could not be discussed with adequate data/information. 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 pose 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. For example what auto majors are doing
in India is the right winning strategy to move up in the business plan.
 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 which is
opening up widely for some sectors like consumer electronics and home
appliances.

 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.
 The study reveals some of the sectors with its end user sub-sectors as very much
potential in terms of opportunities for foreign investors and they are: Automotive
components (including high precision machine tools and fasteners), food
processing machinery like cold chain as the retail industry is booming,
commercial refrigeration, optical instruments and precision laboratory measuring
equipments, lamps and related illumination parts, aeronautical industry (JVs with
Indian airline companies for aircraft maintenance) and special purpose machines
SECTION A: SECTOR ANALYSIS
 1. SECTOR ANALYSIS

Sector 1: Mechanical Components

Definition: A mechanical component is a part/sub-system used in the assembly of

mechanical systems/products.

Type of Products: Components such as fan guards, heat sinks, clips, hinges, castors,
shielding, stamping, card guides, injection mouldings, extrusions, brackets and
general parts for electro-mechanical systems belong to this industry segment.

Use: Mechanical components find wide usage in numerous industries ranging from
agricultural industry to aero-space industry. These products are largely used as inputs
to the capital goods industry. Hence, the demand for this sector depends on the
demand for the capital goods industry.

Overview
Classification: For the purpose of this study, mechanical components are classified as
given below, suggested by Indo-Italian Chamber of Commerce and Industry (IICI).
However, the industry classification is not rigid as there may be overlapping of
segments.

Classification of Mechanical Components

• Mechanical parts and sets (metal manufacturing on iron and non-iron alloys,
stainless steel and aluminium)
• Various mechanical components
• Precision components
• Connectors, pistons, special screws
• Special equipment

Industry Size & Trends

The table given below presents industry size and trends by sub-segments
Industry Size & Trends
Sub-segment Market size (Rs bn) Market size (Rs bn) Growth over FY
FY 2006 FY 2005 2005
Mechanical parts and 107.45 81.61 31.67
sets
Mechanical 9.03 8.26 9.3
 components production
Precision components 8.7 7.08 22.8
Connectors, pistons, 444 338.52 31.16
special screws
Special equipment 58.3 53.00 10
Total 627.48 488.47 28.46
Source: Estimate by Cygnus Research
Sub sector: Mechanical parts and sets (metal manufacturing of iron and non-iron
alloys, stainless steel and aluminium)

Mechanical parts and sets segment consists of Castings and Forging Industry and
Seamless Steel Pipes & Tubes.

Indian Castings and Forging Industry

Type of Products

This sector includes low-tech items like castings and forgings.

Use of the Products

Casting products constitute essential intermediates for automobiles, industrial

machinery, power plants, chemical, fertiliser plants and other engineering
applications.

Overview
Since end of 2002, the industry picked up momentum as steel industries gradually
was moving up. In 2004-05, production increased by 26.9% from 732 thousand
tonnes to 929 thousand tonnes, while exports increased by 24% from US$250m to
US$310m. Capacity utilisation also improved considerably from 40-50% in previous
years to 85% of the additional capacity added during the last two years (1.5m approx)
inclusive of overseas acquisitions. This was largely due to the revival in demand from
the automotive sector and particularly the passenger car segment, which recorded an
excellent performance in both domestic market and exports.

Indian Castings and Forging Industry Production & Export Trend: 2003-06
2003-04 2004-05 2005-06 2006 over 2005 % Change
Production (‘000 tonnes) 600 732 929 26.9
Export (US$m) 178 250 310 24.0
Source:http://www.indianforging.org/

In the year 2005-06, six major companies—Ahmednagar Forgings Limited, Amforge

Industries Limited, Bharat Forge Limited, Electrosteel Castings Limited, Mahindra
Forgings Limited and Shree Ganesh Forgings Limited—recorded estimated sales of
Rs36.95 billion, up by 26.52% over the previous year.
Major Markets
The industry’s major export markets are the US, Europe and China. However, only
30-35 manufacturing units are directly engaged in exports at present.

Outlook
The future looks encouraging for castings and forgings industry in terms of the
expected surge in global demand. In 2006-07, production is expected to touch 1180
thousand tonnes while exports are expected to touch US$388 m. As a result of
liberalisation, more MNCs have entered the domestic automobile market. This has
opened up more business opportunities for castings and forging industry.

Seamless Steel Pipes & Tubes

Type of Products

This sector includes steel pipes and tubes (including stainless steel).

Use of the Products

In oil sector, seamless steel pipes and tubes are extensively used as line pipe, casing
pipe, production tubing, drill pipe etc. In non-oil sector, these are used in a number of
important industries like power equipment, automobiles, chemical plants, fertilisers,
petrochemicals and industrial machinery.

Overview

The size of Indian seamless tube market is around 0.5m tonnes. In India, there are six
manufacturers of seamless steel pipes and tubes. ISMT Limited, one of the major
companies is the largest integrated manufacturer of specialised seamless tubes in the
Asia-Pacific region. The industry is able to manufacture tubes up to 245mm OD and
is, by and large, meeting complete requirement of bearing and high-pressure boiler
industries. With the expected substantial growth in the power and automobile sectors
in the future, the demand pattern may change in favour of these two sectors. In the oil
sector, three units have got American Petroleum Institute's (API) certification for
manufacture of line and casing pipes. Oil sector accounts for around 60% of total
requirement of seamless steel pipes. Bearings, automobile and boiler sector contribute
around 30% demand.

Welded Steel Pipes & Tubes

Welded steel pipes and tubes consist of a wide variety of pipes and tubes like line
precision pipes, tubular poles, Hamilton poles, API pipes, electric poles and light-
weight galvanised pipes for sprinkler irrigation. At present, there are about 123 units
engaged in the manufacture of welded steel pipes and tubes in the organised sector.
 India’s manufacturing capacity of these types of pipes and tubes are adequate. The
capacity utilisation for the manufacturing of welded pipes has improved substantially.
Three-layer, polyethylene-coated pipes used in the oil sector are also being
manufactured in the country.

Stainless Steel Welded Pipes & Tubes

Stainless steel pipes find application in petrochemical, fertiliser, power and nuclear
plants along with other corrosion-resistant applications. Mother pipes are being
manufactured by only two units and other units are engaged in the manufacture of
cold drawn seamless pipes and welded stainless steel pipes. Adequate domestic
capacity is available to meet the requirement of the industry in general. However, a
large part of supply to industries is from unorganised market as well.

Major Markets
The industry’s major export markets are the US, Europe and Far East.

Sub sector: Mechanical Component

Type of Products

This sector includes components / machine tools produced using non-NC machines.

Use of the Products

These are used as inputs in capital goods industry.

Overview

The following table gives the performance of the segment for the last three years
ending March 30, 2006.

Non-NC Mechanical Component Production Trend: 2003-06

2006 over 2005 %
Production 2003-04 2004-05 2005-06 Change
Quantity (numbers) 5,047 3,406 3,370 -1.06
Value (Rs m) 5,508.161 7,270.524 8,723.95 19.99
Source: Indian Machine Tools Mfrs. Association( http://www.imtma.in/)

In 2005-06, Non-NC Mechanical Component output was worth Rs8723.95m, up by

19.99%. Though production in 2005-06 was little lower than 2004-05 but price
realisation was little more due to increase in steel pricess.
Sub sector: Precision Components & Equipment

Type of Products

This sector includes components / machine tools produced using NC machines.

Use of the Products

These products are used as inputs in capital goods industry.

Overview

This segment is growing rapidly due to growth in automobile sector along with its
component manufacturing facilities. Trend in the NC mechanical component
production during 2003-06 is givfen in the following table.

NC Mechanical Component Production Trend: 2003-06

2006 over 2005 %
Production 2003-04 2004-05 2005-06 Change
Quantity (numbers) 2880 3755 4432 18.03
Value (Rs m) 5533.37 7971.67 9364.89 17.48
Source: http://www.imtma.in/

In 2005-06, NC mechanical component output was worth Rs. 4432 m, up by 17.48%

over 2004-05.

Sub sector: Connectors, Pistons, Special Screws (Auto Components other than
electrical parts and other components)

Type of Products

This sector includes fasteners (nuts, bolts, and screws), bearings and other auto
components like pistons (including industrial pistons).

Use of the Products

These products are used as inputs in capital goods industry.

Overview

Fasteners are broadly divided according to consumer segments—automobile sector

and industrial sector. Industrial fasteners are used in varied applications like
construction, railways and manufacturing sector. Total demand for fasteners is almost
equally divided between automotive and industrial sectors. Thus, automobile sector is
the largest end-user segment for fasteners.

Industrial Fasteners

Fasteners include production of nuts, bolts and screws. They are made from cold
heating steel and carbon steel. A significant quantity of raw materials has been
imported; however, the contribution of imports has been decreasing during the past
few years.

Market size and segmentation: Total market size of the fastener industry is estimated
at around Rs15 billion in revenues. Fasteners market can be classified into mild steel
(MS) and high tensile (HT) fasteners. MS fasteners constitute about 30% of the
market size and are mainly produced by the unorganised sector, while HT fasteners
are produced primarily by the organised sector. HT fasteners are further classified
into standard fastener and specialised fastener segments. Specialised fasteners are
mostly customised according to the requirements. There are a few thousand types of
fasteners owing to the lack of standardisation in the industry. Different automobile
companies have divergent specifications while industrial fasteners have numerous
applications and requirements. It leads to a greater contribution from the unorganised
industry. It is estimated that the unorganised sector contributes to about half of the
fastener market size.

Industrial Bearings

Bearings are used to minimise friction between moving parts and find application in
rotating parts of virtually all machines and automobiles. Bearings are produced in
various sizes and shapes with the smallest bearing weighing only a few grams to the
largest one weighing a few tonnes.

Automobile sector is the major demand driver for the bearing industry and constitutes
almost 50% of the total demand in value terms. The demand from the automobile
sector is almost equally divided between OEM demand and replacement demand.

Market Size and Segmentation: The total size of the bearings market by revenues is
estimated in the range of Rs25-30 billion. The bearings industry consists of bimetal
bearings and anti-friction bearings. The anti-friction bearings comprise Rs15-20
billion of the bearings market and bimetal bearings comprise the rest of the market.
The anti-friction bearings can be further divided into ball bearings and other types of
bearings like roller, needle, taper and cylindrical. The ball bearings segment is the
biggest segment of the industry and comprises approximately half of the total market
size in volume terms.

Imports comprise approximately 25-30% of the total market. Imported bearings are
mostly of large dimensions and are not produced in the country due to relatively low
demand for the specialised segments.
Auto component industry

Surge in automobile industry since the nineties has led to robust growth of the auto
component sector in the country. Responding to emerging scenario, Indian auto
component sector has shown great advances in recent years in terms of growth,
spread, absorption of newer technologies and flexibility, despite multiplicity of
technology platforms and low volumes. India’s reasonably-priced skilled workforce,
large population of technology workers coupled with strengths gained by the country
in IT and electronics all build up an environment for significant leap in component
industry. The Indian auto component sector is being seen as the next industry that has
the potential to become globally competitive, after software.

Indian auto component industry, with a turnover of Rs365.40 billion in the year 2004-
05 and manufacturing all the key components required for vehicle manufacturing, is
an important sector of the automotive industry. The Phased Manufacturing Policy
(PMP) followed in the 1980s enabled the component industry to induct new
technologies, new products and a much higher level of quality in their operations that
enabled quick and effective localisation of the component base. Over the years, the
industry has played a key role in the growth and development of the country’s
automotive industry.

After a lull following global economic slump, auto component industry’s growth rate
bounced back to 38% in 2002-03. However, the industry could not sustain such a high
growth rate and could achieve a growth rate of only 24% in 2003-04 and 16% in
2004-05. Indian auto component industry has seen major growth with the arrival of
global vehicle manufacturers from Japan, Korea, the US and Europe. Due to
diversities in the technological profiles of these OEMs, the sector today produces
large variety of components. Today, India is emerging as one of the key auto
component centres in Asia and is expected to play a significant role in the global
automotive supply chain in the near future.

Auto component industry Indicators: 2002-05

2002-03 2003-04 2004-05
Output* 245 306.4 365.4
Exports* 38 46.2 62.37
Employment^ 500,000 500,000 500,000
*Rs bn
^persons
Source:ACMA
Sub sector: Special Equipment & Machines

Type of Products

This sector includes, process control instruments, analytical instruments, electrical

test and measuring instruments, survey and geo-scientific instruments and medical
instruments.

Use of the Products

Process control instruments, analytical instruments, and electrical test and measuring
instruments are used for measuring and controlling temperature, pressure, strain,
force, flow and level of fluids, pH and conductivity. Survey and geo-scientific
instrument products are used for surveying and measuring geological variables.
Medical instruments include instruments such as blood pressure monitors, digital
thermometers, Nebulisers, TENS machines and body fat monitors.

Overview
According to estimates by Industry Chambers, at present, the total cost of production
of instrumentation related products in India is around Rs50 billion per annum. Sector-
wise breakup is shown in the Table. The growth rate is 10-15% per annum. This
production is about 15% of the total demand; the rest is met by imports. Except for a
handful of them, all companies are operating in low-end products.

Cost of annual production of instrumentation related products in

India (Rs M) :2003-06
2004-05 2005-06 % 2003-06
2003-04 Change CAGR
2005
Over
2004
Process Control Instruments 3337.39 3358.39 3740.52 11.38 5.87
Analytical Instruments 9108.90 9921.80 11104.90 11.92 10.41
Electrical Test & Measuring
Instruments 23163.83 24055.13 27397.70 13.90 8.76
Survey & Geo-Scientific
Instruments 1831.95 1843.45 4305.60 133.56 53.31
Medical Instruments 5952.57 6901.14 7508.00 8.79 12.31
Total 43394.64 46079.91 54056.72 17.31 11.61
Source: Indiastat, Cygnus Research

Process Control Instruments

There are about 26 units in manufacturing process control instruments and systems in the
organised sector, out of which seven units are capable of taking up complete turnkey
projects for the entire instrumentation system, including software required by process
industries. The industry is in a position to meet approximately 62% of the country’s
demand.

Analytical Instruments

The market for analytical instruments solutions in India is estimated to the tune of over
Rs11.00 billion, comprising various institutions related to laboratories, pharmaceutical
and biotech sector, clinical research, environmental, metallurgy, universities,
petrochemicals and nuclear research. The market in India grew at around 12% in 2005-06.
Considering the emerging clinical research segment in India; the growth of industries in
the areas of pharmaceutical, biotech and petrochemical sectors; and demand for
environment-related solutions, this growth is likely to become a minimum 15-20% in the
coming years

The domestic manufacturers account for only 10% while the rest is met by imports.
Eyeing the potential, many leading players have already integrated India as part of their
global agenda and all the top ten leading global companies have set up offices in India.
While most of these companies were operating through distributors until a few years ago,
now most have own subsidiaries to run Indian business. This includes companies like
Thermo, Fisher, Waters, Agilent, Sartorius, Shimadsu and niche players like Dionex
(liquid chromatography). Inability of the Indian manufacturers to invest heavily in high-
end technologies and in R&D is the reason why most of the Indian manufacturers are
keeping a low profile, note industry sources.

Electrical Test & Measuring Instruments

The market for Electrical Test & Measuring Instruments in India is estimated to the tune
of over Rs27.4 billion. The market in India grew at around 13.9% in 2005-06. The market
is expected to grow at around 15% for the next few years. Domestic manufacturers
account for 30% while the rest is met by imports. In the coming years domestic
manufacturers are expected to increase their market share.

Survey & Geo-Scientific Instruments

The market for Survey & Geo-Scientific Instruments in India is estimated to the tune of
over Rs4.31 billion. The market in India grew at around 133.56% in 2005-06. The market
is expected to grow at around 20% for the next few years. Domestic manufacturers
account for 9% while the rest is met by imports. In the coming years domestic
manufacturers are expected to increase their market share.

Medical & Surgical Equipment

The market for Medical & Surgical Equipment in India is estimated to the tune of over
Rs7.51 billion. The market in India grew at around 8.79% in 2005-06. Indigenous
manufacturers are currently in a position to manufacture a wide variety of electro-medical
equipments such as electro-cardiograph (ECG machine), X-rays scanner, CT scanner,
short-wave physiotherapy unit, electro-surgical units and blood chemistry analyzers. The
indigenous industry is capable of fulfilling about 35% of the demand and the rest is met
by imports.

End-user sub-sectors

Hydraulic Machinery
The Indian hydraulic industry had its beginning in the sixties and the main objective
behind establishing this industry was to provide substitutes for imported machinery.
Hydraulic machinery from a long time is used in heavy engineering industries
(extensively like shipping, power driven machine tools, automobiles, etc.).

Growing investments in every sector and the Capital Goods Index which has shown a
growth rate of 13.6% in FY06 are projecting a high positive image over the demand for
hydraulic machinery. Demand for hydraulic machinery for FY05 was projected to be
around Rs1,483 crore (US$339.01m) which is growing at a compounded annual growth
rate (CAGR) of 11.99% from 2002 till 2005.

Range of product specifications in the hydraulic industry is wide and the volume of
production in comparison to that is not high. Hydraulic machinery has high quality
standards and therefore requirement of R&D services in this industry is very high and
also demands a high investment. These things make the manufacturing of hydraulic
machinery a capital-intensive one.

Indian manufacturers of hydraulic machinery are going for joint ventures with foreign
technology suppliers in order to obtain new technologies. These technologies are required
to succeed in the market that is dominated by imports.

Opportunities
There is a good demand for hydraulic machinery but the Indian manufacturing base is yet
to come up with a suitable technology base to manufacture heavy duty hydraulic systems.
Foreign investment in this sector would be conducive for its growth. However, precision
casting manufacturers in India at present are not many but with increased inflow of
foreign investments more organized casting manufacturers will be operational. The
current surge in automobile demand is another driving factor for a growth in demand in
hydraulic machinery.

Indian Pumps Industry

The Indian pumps industry caters to a range of sectors from agriculture to nuclear power
generation. The industry, holding
500m worth of global market share as in 2005, is
expected to capture a bigger slice in 2006. Pumps Manufacturing Industry in India is
growing at a rate of 10-12% per annum. Approximately 6,000 pumps are manufactured in
a day in India.
This industry exports to nearly 70 countries around the world. According to industry
estimates, India produces around one million pumps of various kinds. There are around
800 large, medium and small units producing pumps.

Technical Sustainability: India has today become a reliable, technically competent,

competitive and enterprising outsourcing option for many multinational companies in
industrial pumps. This has emerged through technical collaborations and joint ventures
that Indian companies have with multinational majors.

In addition, various research institutes such as the Small Industries Testing and Research
Centre (Si'Tarc) in Coimbatore have developed energy-efficient designs for pumps to
meet the norms of Indian standards. The Indian pump industry has a record of indigenous
research and development in all the three areas of technological intensities - from mass-
produced pumps for agriculture to gigantic pumps for interlinking rivers, and pumps for
critical services such as nuclear power generation.

Growth Drivers: All the core sectors of the industry namely power, oil & gas, water &
infrastructure projects, metal & mining, chemicals, drugs & pharmaceuticals, food &
beverages require various types of pumps and all these industries are growing at a
significant rate today in India.

Textile Machinery
Textile machinery manufacturing is a Rs21,024m (US$471.98m) industry in FY06. This
industry derives its demand from the textile industry which is one of the oldest industries
and has been a back bone for the Indian economy. Growth in Textile machinery
production in India has been very dull for quite some time; this industry has seen a near
to nil growth during the period of FY02 to FY04. But in January 2005 the industry had a
turn around due to quota abolition that brought about a positive note in all the textile
industries and prompted them to go for technologically advanced machinery for
producing international quality of fabrics. As a result textile companies preferred to
import textile machinery from abroad as domestically manufactured machinery were not
technologically advanced like machinery manufactured in European countries.

However, domestic textile machinery production has registered a growth of 9.16% and
53.36% for FY05 and FY06. These growth rates were achieved by domestic
manufacturers with a shift in technology levels of machinery and the competitive prices
that was offered.

Demand Drivers: Growth in the demand for textile machinery is expected from the
growing textile industry. Customs duties on imported textile machinery has been reduced,
reduction in government restrictions on the import of used capital goods has also
prompted industries to import second hand machinery from abroad with a good residual
life. The existing units undertook capacity expansion that triggered a growth in textile
machinery production.
Opportunities
Many representatives’ offices are already there in India who are having their principals in
many countries across the world. As metamorphosis has already happened in the industry
in the post WTO scenario it is a matter of global market force that Indian textile industry
is shaken up for technology upgradation. Under such impacting growth drivers
opportunities lie either in collaborating with a good partner in India to produce textile
machinery or setting up manufacturing units producing components for textile machinery
as lots of imported machinery is installed. Indian machine tools industry is also shaping
up and as a result setting up manufacturing units with local supply of components are
also possible.

Automobile Industry
The Indian automobile industry which is worth Rs960 billion (US$21.94 billion) is one of
the fastest growing automobile industries in the world. This industry has been registering
a compound annual growth rate (CAGR) of 14.5% for the last five years (2000-05) with a
projected growth in 2006 being 17%. Growing initiatives of Indian government in turning
India into a hub for small car manufacturing is attracting huge foreign investments.
Growth in automobile exports has been registering an average rate of 45% for the past
five years (2000-05), with passenger cars and two wheelers having 22% and 60% share in
it.

Two Wheelers: India is the world’s largest manufacturer of two wheelers with a growth
of 15.49% CAGR for the last five years (FY02-FY06). Total two wheeler production in
2005-06 was 7,600,801 (nos.). The share of the two wheelers segment in the entire Indian
automobile market was 70.19% in 2005-06. An upsurge in the Indian economy has
attracted more and more buyers. This has increased the number of people who can afford
a two-wheeler. The intrusion of foreign and merchant bankers have resulted in easy loans
for both the consumers and the entrepreneurs.

The Indian two wheeler market is occupied by five players who have established
themselves with a strong infrastructure, R&D and after sales service support. There are
Japanese OEM’s as well as Indian OEM’s. Hero Honda is the leading motorcycle
manufacturer in India followed by Bajaj Auto Limited.

Passenger cars: The Indian passenger car segment has been growing at a CAGR of
18.23% during FY01-FY06. In this segment small cars occupy around 80% of the
production and sales. Projected CAGR for overall passenger vehicle during 2005-2014
being 9% forecasts a healthy growth. Total 4 wheelers production in 2005-06 was
1,720,897 units. Small cars that are in the affordable price range in terms of Indian
income levels, is attracting major demand, but increase in levels of disposable income
with Indian customers, due to a growth in the economy is gradually increasing the sales
of upper segment or luxury cars also. Maruti Udyog Limited is the leading small size car
marker. There are Japanese, Korean, American and European OEMs along with Indian
OEMs. Foreign manufacturers like Hyundai, GM, Toyota, Skoda, Auto, Volvo and Ford
that have manufacturing facilities in India.
Commercial Vehicles: The Indian commercial vehicles market is broadly categorized
into LCV & MHCV (Medium & Heavy Commercial Vehicles). This segment has been
experiencing a CAGR of 24.55% (FY01-FY06). Total commercial vehicle production in
2005-06 was 391,000 units. Recent growth trends in this industry are because of
increasing investments in infrastructure. Export of commercial vehicles was only 5% of
the total Automobile exports (FY05), but this share is expected to grow with increasing
investments in the commercial vehicles segment from global majors.

Laboratory Equipment
Growing awareness among public and private enterprises about the requirement of R & D
facilitations in order to become more competitive in the world market is leading to an
establishment of R&D units. These new R&D units and modernization of existing units
are creating a higher demand for laboratory equipment.

In India R&D spending is dominated by the Central Government followed by the private
industry. Demand for laboratory equipment is more from the Council of Scientific and
Industrial Research (CSIR), Defense Research and Development Laboratories (DRDL),
Department of Space, and the Department of Atomic Energy. In private industries steel,
pharmaceuticals, telecommunications, and biotechnology sectors are creating a demand
for laboratory equipment.

All the sectors mentioned are experiencing impressive growth rates and attracting high
investments. India for many MNCs has become the major out sourcing destination for
their R&D services. Companies like Nokia and Intel have already established R&D hubs
which will enable requirements for laboratory equipment.

Opportunities

The LAB products that also have better prospects in the Indian market include:
spectrophotometers, HPLC systems, RIA analyzers, electron microscopes, multi-
chemistry analyzers, batch analyzers, random assay analyzers, fully automated
continuous/random analyzers, ELISA readers, electrophoresis instruments, liquid
chromatograph, osmometers, and blood gas analyzers.

Medical Equipment

The medical equipment market is in the throes of rapid modernization. This industry is
currently worth US$1.85 billion. The demand for hi-tech products is close to 80% of the
overall market in India. The domestic market comprises of low-tech devices. Major
international medical equipment giants are lining up their investments in India for setting
up a local base. The Indian health imaging market is expected to double from the existing
US$350m by 2010. X-ray, ultrasound, CT and MRI are expected to collectively account
for 68.6% of the health imaging market.
Medical equipment industry is heterogeneous, comprising sub-markets, each
experiencing different growths. Imported equipments are sold by authorised distributors
who look after the sales and service aspects. Manufacturers can be sub-divided into
Indian operations of MNC’s (Siemens, GE) and local companies. Most of the local
manufacturers are in small scale sectors with a limited market reach. Apart from 6-8
major companies, no big company has a distribution or support network in India, with
most of them dependent on the local dealers/ suppliers for furthering their business
interest.

A number of private entrepreneurs are planning to enter the Indian healthcare sector.
Growth in demand is seen for Products like Intensive Critical Care Unit (ICCU),
Heart/Lung machines, linear accelerators, Doppler, ultrasound machines, MRI scanners
etc. Cardiology equipment accounts for 20% of the total market followed by imaging
systems with 15%. Private sector entry into the Indian insurance market has opened a
vast scope for high-end medical facilities and healthcare equipment market as well.

Demand drivers for this industry

Healthcare Industry

The Indian healthcare industry has emerged as one of the largest service sectors in India.
Healthcare spending in India is expected to rise by 12% per annum. An estimate suggests
that by 2012 healthcare spending could contribute 8% of GDP and employs around 9m
people. Rising incomes and growing literacy are likely to drive higher per capita
expenditure on healthcare. The trend is shifting from infectious diseases to lifestyle
diseases due to a change in lifestyle particularly in the urban and semi-urban locations.

Indian healthcare industry though huge is not enough to meet the requirements of the
Indian population. There is a requirement of around US$20 billion investments in the
healthcare industry. The Indian government is planning to do this invest in multiple
phases, which will create a higher demand for healthcare equipment. Growth in income
levels and awareness towards health in Indian population is leading to increased
healthcare spending. This means more private hospitals apart from government run
hospitals are yet to be established. Demand for Indian healthcare equipment is increasing
in the third world because of their low cost product and services.

Opportunities

An immense opportunity for foreign investment is there in the medical equipment sector.
Increased spending on healthcare will drive more demand into this sector. Hi-tech
equipments in the operation theatre will be more in demand. Similarly devices related to
lifestyle diseases too would be on high demand.
Printing Machinery (for print media)

India has more than 130,000 printing presses by the end of 2005. Though demand for
printing machinery in India for FY06 is around Rs850 crore (US$210.9m), production of
printing machinery for that duration is valued at Rs308.4 crore (US$69.14m). While the
remaining requirement is met through imports which are of the order of about Rs 550
crore (US$123.47m).

The sector that is driving the demand for printing machines is the Indian newspaper
industry with a turnover of US$1.84 billion in 2004, which is growing at a CAGR of
6.9% during 2000-04. This industry has attracted capital investment of US$2.27m in two
years by the end of 2004. The Indian media industry is undergoing a modernization
process in order to gain from these growth opportunities. In this process they have
realized the need for technically advanced printing machinery to achieve success in the
tough competition. Since the machinery manufactured in India is not meeting their
requirements many newspaper/media companies are importing them from Europe and
Japan.

According to NPES, the Association for Suppliers of Printing, Publishing, and

Converting Technologies three major European manufacturers Man Ronald, Heidelberg
and Koenig & Bauer AG (KBA) sold around 100 units to the Indian print industry.
Mitsubishi has installed 71 units in the country. By the end of 2005, 250 new units were
estimated to be in the process of import.

The Indian Printing machinery manufacturers in order to sustain the competition have to
improve technology wise too..

Opportunities
The Indian printing machine manufacturers are not equipped with the latest technology
hence large demand is catered through imports. Recently the print media has been
allowed for 100% foreign direct investment and as a result the foreign print media
companies are attracted towards India. This may further increase the growth in the
demand for printing machines.

Automotive Components Industry

The Indian auto component industry has been growing at 20% CAGR for the last five
years (2000-05). Projected CAGR during 2005-14 is 17%. The Indian automobile
industry which is putting huge efforts in foraying into the European and American
markets is facing stringent technical and safety norms. In order to fulfill these norms and
also push sales in these regions they are investing heavily in acquiring high end auto
components, which drives the demand for this industry. Increasing investments in
production and technology levels in the automobile industry is another driving force for
the creation of higher demand for auto components. Many MNCs are present in
automotive component manufacturing like Delphi, Bosch, Denso, Lear, GKN, etc.
Companies like Tata Motors, Bharat Forge, UCAL Fuel System, TVS Autolec Ltd. etc
are some of the automotive component manufacturers that are also investing in the
overseas markets.

Auto component exports were growing at 25% CAGR during 2000-05. It is projected to
grow 34% during 2005-2014. The manufacturing components industry in India is fast
emerging as a very cost effective, OEM/Tier1 supplier; as a result many vehicle
manufacturers in the world are trying to get benefit from this. Even the Indian
government is encouraging this by allowing 100% foreign direct investment in this sector.

Opportunities:

As per BMI Research, in the Asia/Pacific business ranking, India holds the no.1 rank in
the region. The future growth potential is high; the Indian passenger car market demand
is currently huge and has ample room for further volume growth. A stable market
oriented economy is also conducive for a solid growth in the near future. At the backdrop
of such positive vibes in the market opportunities are significant.

Aeronautical Industry

Aviation is the key driver to any country’s global economy. Air travel in India is no
longer considered a luxury but a necessity. This has been realized by the Indian
government who have designed plans and started implementing them in order to sustain
the growth rate that is being achieved in recent years. These plans constitute investing
Rs1500 billion (US$3.36bn) in the next five years for buying aircraft, upgrading airports,
conducting research and development, improving air traffic control and fabrication of
components. This will create a huge impetus in the growth of the Indian aeronautical
industry.

There is immense potential in India for setting up industries to build aircraft. The existing
fleet with Indian Airlines, Air India, Jet Airways, Air Sahara and Deccan Airlines are
limited and they are expanding their network. India is heavily dependent on foreign
countries for buying and leasing civilian aircrafts such as Boeing and Airbus. Action
plans are being taken by the Indian government for setting up parallel aircraft industry to
design and manufacture small, medium and wide-bodied passenger aircraft as well as
maintenance and overhauling facilities of aircrafts.

The Hindustan Aeronautics Limited (HAL) India’s largest aeronautical organization

manufactures various types of military aircraft and helicopters. Today, HAL has 16
Production Units and 9 Research and Design Centres in 7 locations in India. The
Company has an impressive product track record - 12 types of aircraft manufactured with
an in-house R&D and 14 types produced under license. HAL has so far manufactured
3,550 aircraft (which includes 11 designed indigenously), 3,600 engines and overhauled
over 8,150 aircraft and 27,300 engines.

HAL has been successful in numerous R & D programs developed for both Defence and
Civil Aviation sectors. HAL has made substantial progress in its current projects:
• Dhruv, which is Advanced Light Helicopter (ALH)

• Tejas - Light Combat Aircraft (LCA)

• Intermediate Jet Trainer (IJT)

• Various military and civil upgrades.

• There are three joint venture companies with HAL:

• BAeHAL Software Limited

• Indo-Russian Aviation Limited (IRAL)

• Snecma HAL Aerospace Pvt Ltd

Apart from these three, the other major diversification projects are Industrial Marine Gas
Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.

HAL's supplies / services are mainly to the Indian Defence Services, Coast Guards and
Border Security Forces. Transport Aircraft and Helicopters have also been supplied to
Airlines as well as to various State Governments in India. The Company has also
achieved a foothold in export in more than 30 countries, having demonstrated its quality
and price competitiveness.

Opportunities

The growth in aeronautical industry is almost certain as aviation industry in India is

poised to grow further. Another reason for the high growth in aviation is due to no frill
airlines (low cost airlines). Due to an upsurge in air traffic in India aircraft maintenance is
in great demand. It is even economical to have maintenance facility for aircrafts in India
compared to other developed countries. Opportunities are envisaged in manufacturing
light bodied aircraft, other aircrafts and components for aircraft maintenance. 100% FDI
is allowed in airport infrastructure and 49% for civil aviation. This will create lots of
opportunities for foreign investments as modern airports will have better aircraft handling
and landing facilities. As a result the aeronautical industry and its allied engineering
products will have a great market potential in India.

Shipbuilding Industry
Indian sea trade by volume and value is 90% and 70% respectively. But the priority for
the shipbuilding industry has been very poor till the mid 90’s. The shipbuilding policy
was liberalised in 1991 by allowing private sector participation in building all types of
ships. The Indian shipbuilding industry has risen to the 8th rank globally in terms of order
book position. Indian shipbuilding industry had orders of 977,400 DWT i.e. 91 ships by
the end 2005. The current order book is dominated by vessels less than 10,000 DWT.

Shipbuilding order book has crossed US$1 billion of which bulk cargo occupies a major
share with US$330m. Export revenue is two thirds from the total revenue and export
orders are mainly from the European owners.

Private and public participation in shipbuilding is equal at present but in future it is

expected that private players will have a major share. This is expected on the basis of
problems that public companies face like low technical efficiency, labour related issues
and production performance.

The three important private players in this industry are- ABG shipyard, Bharati shipyard
and Chowgule shipyard. The order book of these companies by the end of 2005 was
US$281.1, US$171.4m and US$111m.

The Indian shipbuilding industry is facing many challenges such as lack of design and
heavy engineering facilities, absence of exposure to new technologies that can be
incorporated in the ships, being confined to small specialised and conventional vessels
and scarcity of qualified professionals. About 80% of the raw material is imported
thereby imposing higher cost of manufacturing coupled with poor infrastructure and
inefficient supply chain management, impeded a healthy growth of the industry.

Opportunities

Future prospects for the Indian shipbuilding industry are expected to be bright with a
growth in Economy, which will result in higher investments in infrastructure (logistics)
making it more competitive.

Valves Production

Valve production in India comes from both the organized and unorganized sectors. The
organized sector of the valves industry is around Rs 950 crore (US$210.9m), while the
unorganized sector contributes Rs 550 crore (US$122.1m) as per 2005 figures. Valves are
imported heavily from China and other countries; Import for the FY06 is around Rs 460
crore (US$103.27m), an increase of 24% to that of previous fiscal year. The import is
largely for precision type of valves mainly used in process industries like Pharma, Food
processing, steel, and chemical and refineries. This industry is growing at an average rate
of 12%. With major expansion in core sector industries such as power, petrochemicals,
oil as well as steel, the valve industry has an ample potential for growth. The other sector
from which demand has been rising is from the water treatment plants, shipyards and
collieries. Another area of potential demand for the valves is the replacement market.

Mechanical control valves, the key actuator in industrial systems, are manufactured in
only three locations worldwide. The first location is the US, and the other two are in
Malaysia and India. In terms of raw material, machining and manufacturing, India and
Malaysian costs run neck and neck. Where India scores is design, with a 6% cost
advantage. This makes Indian-produced mechanical control valves the cheapest in the
world. Quite clearly, the country’s mechanical and eletro-mechanical manufacturing base
has improved dramatically with the evolution of its tooling and machining industry. This,
combined with the easy availability of key raw materials such as steel, polycarbonate,
plastics, aluminium and acrylic has given India a competitive advantage.

Valve manufacturing has traditionally been concentrated in certain regions of the country.
A large number of small manufacturers are concentrated in Jalandhar, Agra, Nasik and
Howrah. These units manufacture the entire range of valves but generally concentrate on
valves used in specific sectors like water supply and small and medium sized light
engineering industries.

The diverse and large industrial valves segment faces a stringent quality requirement that
leaves this field to a few major valve manufacturers. Such valve manufacturing facilities
consist of the large companies such as Audco, Alfa Laval, Schrater Duncan, BDK Group
etc. These companies manufacture the entire range of valves with each company having
its own area of specialisation. And the manufacturers are those who have produced
quality goods and built a brand image over the years.

Opportunities

Valve production in India does not have immense opportunities for foreign investment.
This is due to the fact that the replacement market in India is mostly catered by
unorganized or mid size valve manufacturers. However, current industrial developments
in the steel industry and oil & gas explorations will certainly promote foreign
collaborations in technology.

Food & Food Processing Equipment Industry

Food Process Industry: India, world’s second largest producer of food is one of the
most favored destination for investment to many countries in the world.. Food processing
is one of the largest industries in India and accounts for US$29.4 billion as in FY06. This
industry ranks fifth in terms of production, consumption, export and growth prospects.
This industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP
growth rate of 6-8 per cent, during the tenth five-year plan period. Food processing
industry is highly unorganized. Organised food processing industry is expected to grow at
the rate of 30% in the next five years reaching US$2.4 billion by 2010 from the current
US$674m.

Government Initiatives in attracting Investments: Indian government in order to

attract investment into food processing industry, it has formulated and implemented
several schemes like providing financial assistance in setting up new units and for
modernizing existing units. Food processing industries were included in the list of
priority sector for bank lending in 1999. Automatic approval for foreign equity up to 100
per cent is available for most of the processed food items except alcohol, beer and those
reserved for small-scale sector subject to certain conditions.

Food processing equipment: Food process equipment is gaining demand with the
growing investments in food process industry. Food process equipment manufacturing
industry in India is not highly organized, there are no major brands in manufacturing
these equipments. Major medium sized equipment manufacturing units in India are
having collaboration with foreign companies in order to acquire new technologies. There
is absence of high end research facilities in this industry which will help in developing
technologies.

Machinery imports: Excise Duty of 16 per cent on dairy machinery has been fully
waived off and excise duty on meat, poultry and fish products has been reduced from 16
per cent to 8 per cent.

Investment Opportunities: Even though food processing industry is large but share of
food processed to that of total produced is only 32%, this provides good opportunities of
growth to this industry. The Confederation of Indian Industry (CII) estimates that the
food processing sector has the potential of attracting US$33 billion of investment in next
10 years.

FDI inflow in food processing reached US$2,804m in March ’06. In ’05-06, the sector
received approvals worth US$41m. This figure is almost double the US$22m approved in
'04-05.

Informatics Industry/Computers
Information Technology related hardware sales in India have realized its potential when
there was a boom in IT. In the initial period sales of IT hardware like PC, Notebooks,
Printers, Servers and networking equipment was completely dependent on the imports.
However, large scale investments into IT hardware have changed the scenario and
exports have reached a value of around US$1.4 billion by the end of 2005.

PC sales have been experiencing a growth of 25% for the past two years and are expected
to be steady over 30% till 2007. PC sales demand is deriving its demand mainly from the
IT and ITES sectors and also from other industries that are having increasing applications
of technologies creating a new demand which is expected to grow further. PC penetration
in India is only 14 per thousand households; this shows the potential demand that is
existing in the market that needs to be tapped. Exports of desktops has been growing at
25% CAGR for the past seven years (1998-2005), which is poised to grow further with
the entry of new manufacturers.

The printers market can be divided mainly into three segments; Dot-matrix, Inkjet and
Laser printers. The printers market for FY06 has registered a growth rate of 28%, while
sales of Dot Matrix, Inkjet and Laser has grown by 18%, 13% and 128% respectively for
FY06. Market for these printers is expected to grow further with the increasing ERP
applications in Industry in order to increase the production levels. Further converting
many manual photographic labs into digital lab has raised the demand for laser printers.

Other IT hardware components like Servers, Networking equipments, UPS, Monitors,

and Keyboards are growing at a compounded annual growth rate (CAGR) of 20%, 10%,
34%, 28% and 28% during 2000-05.

The IT hardware market is projected to grow at much higher levels in comparison to the
present growth trends. These growth trends are projected on the basis of growth in IT and
ITES (IT enabled services) industries, growing applications of IT hardware in other
industries for increasing production efficiency and performance efficiency, growing
awareness towards computer utilization, educational institutions making computer
education mandatory and above all increased internet usage in the country is gradually
creating more and more demand for home PCs.

Opportunities
A great potential for foreign investment lies in this sector. Network equipment,
PCs/notebooks/laptops, etc. will be more in demand. There is enough room for new
ventures manufacturing such items and government’s thrust in IT/ITES export will
further add spurt to the demand for informatics/computers.

Boilers Industry
Boilers are critical high-pressure equipments used in steam/power generation plants. The
Indian boiler industry in FY06 is Rs39.5 billion (US$886.77m) and its production in
India has grown at an average rate of 25.37% for the past five years (FY02-FY06).
Though the production decreased by 1.25% in FY04, it regained its growth by 61.5% in
FY06. Import of boilers has fallen by 6.86% to Rs 65.13crore (US$14.6m) (Excluding
the components of boilers), while boiler exports has increased by 27.57% to Rs 54.3
crore (US$12.19m) for FY06.

The boiler market is divided into two segments power plants and industrial boilers.
Boilers used in power plants are above 200 TPH (tonne per hour of steam), industrial
boilers range between 30 to 200 TPH, where as those that are below 30 TPH are called
process boilers. Boilers can be either oil fired or solid fired (Coal). Choice of boilers
depends on the availability of fuel. Demand for oil, gas and naphtha-fired boilers are high
in Western India, whereas in Tamil Nadu demand is more for bagasse-fired boilers due to
availability of sugarcane. Most of the major companies in boilers have acquired the latest
CFBC (circulating fluidized bed combustion) technology through collaborations. There is
also a growing shift towards co-generation (simultaneous production of electrical power
and thermal energy) boilers.

Bharat Heavy Electricals Ltd (BHEL) manufactures power plant boilers above 200 TPH.
The company has a major share in the market (which is estimated to be more than 65%).
Thermax is the market leader in the small boilers segment (<30 TPH). Power sector
accounts for a large part of the demand for boilers. Indian government initiative in
developing infrastructure to sustain the growth rate has allowed the entry of new players
(private) into this sector. Growing investments in the power sector will further increase
demand for the boilers, keeping its growth alive.

Opportunity

High growth power sector envisages a good amount of investment and technology tie-ups
in boilers manufacturing. Industrial boilers (lower capacity) are mostly catered by SMEs
in the domestic market. However, there is a good demand for boilers used in the power
sectors and integrated steel plants.

Sector 2: Machines and Mechanical Devices

Type of Products

The type of products include machines and mechanical devices for thermo-plumping
and air-conditioning, concrete articles production, dishwasher, washing machine,
tumble dryer and industrial use engines.
Use of the Product
Thermo-plumping and air-conditioning products are used as domestic and industrial
appliances. Concrete articles are used in construction industry. Dishwashers, washing
machines and tumble dryers are used in kitchens while industrial use engines
(generators and turbines) are used for electric power generation and/or energy
transformation.
Overview
Machines and mechanical devices have a much bigger scope than indicated in the
above sections – type of products and use of the product. However, for the purpose of
this study, it is restricted to the above categories.

Sub sector: Thermo-plumping & Air Conditioning, Washing Machine (Household

Appliances Industry)
The table given below presents the trends for household appliances.
Trends in Household Appliances
2003-04 2004-05 2005-06
Production (m units)
Refrigerators 3.72 4.36 5.14
Air Conditioners 0.98 1.23 1.47
Window 0.72 0.86 1
Split 0.26 0.37 0.47
Washing Machines 1.36 1.6 1.84
VCR/ VCP 0.14 0.12 0.11
Microwave oven 0.36 0.43 0.5
Production Value (Value in Rs m)
Refrigerators 44,794 50925 55533
 Trends in Household Appliances
2003-04 2004-05 2005-06
Air Conditioners 41,260 47,860 56,000
Washing Machine 18,420 23,272 29,472
VCR/ VCP 690.57 676.59 669.6
Microwave Oven 4,320 4,730 5,000
Consumer
Electronics 7,518 8,360 9,361
Imports of
Consumer
Electronics 13,284.56 20,784.67 24,417.86
Exports of
Consumer
Electronics 5,247.66 6,136.26 8,188.46
Source: Elcina, Indiastat & Cygnus Research
Sub sector: Concrete Articles Production Machines

This segment includes products such as

• ‘Horizontal’ Concrete Batching/Mixing Plants. (45, 60, 80, 120m3/hr.
capacity)
• ‘Compact’ Concrete Batching/Mixing Plants. (20, 30 m3/hr. capacity)
‘Modular’ Concrete Batching/mixing Plant. (20, 30 ,45 m3/hr. capacity)
• ‘Mobile’ Concrete Batching/Mixing Plant. (12, 15, 18, 20, 25 m3/hr. capacity)
• ‘Reversible’ Mobile Concrete Mixer. (8, 10 m3/hr. capacity)
• ‘Stationary’ Concrete Mixer (10, 12 m3/hr. capacity)
• ‘MKM’ Concrete Kerbing Machine.
• Concrete Block making Machine (Stationary/Mobile)

This segment is dominated by few foreign players such as Schwing Stetter India Pvt
Ltd (a 100 per cent subsidiary of the German based Schwing group of companies).
The high demand for office and residential space in tier-II cities coupled with
emphasis on completion of construction projects within the schedule is set to enhance
the popularity and use of ready mix concrete which in turn would boost the prospects
of companies like Schwing Stetter L&T, Grasim, and ACC are the major players with
a pan-India presence and a market share of 75 to 80 per cent. As of 2006, the country
is dotted with around 140-150 commercial RMC units. This industry employs close to
30,000-35,000 people directly and around 50,000-60,000 people indirectly. The
nascent industry in India is pegged at approximately Rs 20-25 billion, growing
annually at a compound rate of around 25-35 per cent, over the past four to five years.
According to industry sources, the RMC segment churns out, on an average, 28,000-
30,000 cubic meters of concrete everyday..

Sub sector: Industrial Use Engines (Turbines and Generator Sets)

The capacity established for manufacture of various kinds of turbines such as steam
and hydro turbines including industrial turbines is more than 7,000MW per annum in
the country. Apart from BHEL, the public sector unit that has the largest installed
capacity, there are units in the private sector manufacturing steam and hydro turbines
for power generation and industrial use. The manufacturing range of BHEL includes
 steam turbines up to 660MW units rating; the facilities are available for 1,000MW
unit size. They have the capability to manufacture gas turbines up to 260MW (ISO)
rating and gas turbine based co-generation and combined cycle systems for the
industry and utility applications. Custom-built conventional hydro turbines of Kaplan,
Francis and Pelton types with matching generators are also available indigenously.

AC generators manufactured in India are on par with international ones and

consistently deliver high quality power with high performance. Domestic
manufacturers are capable of manufacturing AC generator right from 0.5KVA to
25,000KVA and above with specified voltage rating.

The imports and exports during 2004-05 were Rs16.76 billion and Rs5.9 billion
respectively.

End-user sub-sectors
Construction Industry

India is witnessing faster growth in its demand for infrastructure and construction
services. Since the existing infrastructure is far below requirement, to maintain the
existing growth rates, the Indian government is increasing its focus towards
developing a strong and sound infrastructure.

In India construction is the second largest economic activity after agriculture which is
estimated to be growing at an average rate of 9.5% during FY02 to FY06. The Indian
construction industry forms around 12.8% of the GDP and 52% of gross fixed capital
formation.

Earlier participation of the private sector in many infrastructural projects was minimal.
Government’s thrust for infrastructure has changed the scenario. It is now focusing on
a private public partnership model (PPP). This has seen a number of private sector
construction players investing in the sector. Infrastructure related construction
industry is centred around roads, ports, power, and real estates development.

Government is following the BOT (Build-Operate-Transfer) model for executing the

projects. This model describes the project is to be executed and operated by the
private players until they recover their investments and earn a profit. Another type of
BOT contract is based on annuity, where the private firm recovers its investments and
earns profits in the form of annuity paid by the government.

Opportunities

According to an industry estimate, India has the potential to absorb US$150 billion of
foreign direct investment in the next five years in infrastructure alone. And a large
part of investment is expected to be diverted towards construction activities.
Considering the present growth rate and demand for infrastructure, construction
sector is expected to register higher growth rates in future. Already in airports
(Greenfield and modernization) foreign companies are involved in a partnership with
local companies.

Household Appliances

Market size & growth: Indian household appliances (Consumer durables) can be
segregated into large and small household appliances. The consumer durable market
in India has started experiencing its real growth with the entry of multinationals like
LG Electronics, Samsung, Electrolux, etc. Consumer Durables and Electronics (used
as household appliances) was one of the largest industries in India, with annual sales
of US$5.8 billion in 2005. This industry sale has been growing at a compound annual
growth rate (CAGR) of over 8.3% during 2000-05. Growth in sales value is lower
than the sales volume which is the result of reduction in prices by the companies to
sustain the growth rate in a competitive market.

With a growth in production in the organized segment and domestic availability of

branded products due to lowering of import duties and other liberal economic
measures, the share of unorganized segment has come down sharply to only 8 to 10%
from the previous 40 to 50%.

Growth drivers: Growth in disposable income with the Indian consumer is one major
factor in demand creation where as volatility in prices and credit facilities are other
decisive factors in determining the sales of items. The Indian consumer’s higher
sensitivity to prices has resulted in companies making the pricing method their best
strategy.

Growing Opportunities: A major proportion of population in India though residing in

rural areas, their share of demand for consumer durables is so far only a quarter. The
recent trends of higher growth in demand in the rural areas is an encouraging scenario
for the manufacturers need to have a different strategy for rural areas in order to tap
this high potential market.

Large Household Appliances

Refrigerators
Refrigerators have been manufactured in India since 1950s. Until 1990’s over 90% of
the market was controlled by traditional players, this has changed with the entry of
multinationals after economic reforms in 1990’s. The refrigerators market in India has
been growing at an average rate of 15% for the past five years (FY02-FY06). The size
of the refrigerator market is estimated around 4.5m units in 2005-06. Domestic
penetration of refrigerator is 9%, where urban areas and rural areas account for 75%
and 25% of demand.

Air Conditioning Machines (AC)

The annual average growth rate of AC’s currently ranges around 20%. Analysts
expect the annual growth rate to register more than 25% in FY 2007 on the back of
strong sales of split ACs. An AC penetration level in Indian households is only 1%.
The competition in window AC and split AC segment has grown a lot more intense in
the past few years. Consequently, companies have stepped up their advertising and
promotional spends. Technology has also become a differentiating factor. The
reduction in the excise duty in the budget 2006-07, improved the competitiveness of
organised companies vis-à-vis small-scale players. Unorganised players selling
unbranded ACs (assembled) occupy a sizeable market in the household segment.
However, with air conditioners becoming affordable due to lowering in prices, the
size of branded ACs in the Indian market is set to grow.

The import of air-conditioners and refrigerators continues in small quantities mostly

for private use rather than for resale or distribution. Until recently, the importation of
refrigerators was restricted. But foreign firms now are allowed to establish joint
ventures, 100% owned operations to manufacture AC and refrigerator products.

Washing Machines & Microwave ovens

The washing machines market which is an estimated Rs200 billion (US$449m) in

FY06 has recorded an average growth rate of 15% for the last four years. With
growing investments in this market it is expected to register a higher growth in future.

The microwave oven market has been growing at a rate of 16-19%. In this market
both LG Electronics and Samsung, which together account for nearly 60% of the total
market are the market leaders.

Small Household Appliances

DVD Players

DVD player sales which have registered a 28% growth in 2005 is the segment which
has registered the highest growth rate among all other small household appliances.
This growth was achieved from new models introduced in the market which are
having advanced technology applications. Media industry is growing at 7%
compound annual growth rate (CAGR) pushing the demand for DVD players through
its products like movies and songs etc. The country currently is having over five
million home video and DVD subscribers. With the current demand scenario, the
home video segment offers ample growth opportunity. It is expected to grow over
30% in the next five years.

Watches & Clocks

Watch and clock with sales of 22.6mn and 28.4mn have registered a growth of 10 and
8% respectively in 2005. As only one-fourth of the population (currently over 1
billion) owns a watch, there is huge untapped potential. Around 40% of this market is
unorganized with most of the major players eyeing on the urban areas leaving the
rural areas for unbranded products. In Rural areas market is occupied mainly by
unorganized sector. Watches and clocks imported from China has main share in rural
market due to its cheaper price range compared to domestic brands. However,
domestic watch manufacturers are also now introducing low price watches targeting
rural markets. Quartz clocks are manufactured largely by unorganized players;
however a few of them could rise to top clock manufacturers and export also.
Opportunities

Large household appliances sector like refrigerators/ACs is having good growth

opportunities. However, Korean giants (LG and Samsung) have already established
themselves in this market. But still at a competitive price if products are offered in the
market with an international tag the scope for new comers still exist.

Commercial Refrigeration
According to Blue Star Ltd and Cygnus Research, commercial refrigeration market
size was in the range of Rs11894 m and Rs12000 m. The table given below gives the
trends for the years FY2004 to FY2006.

Commercial Refrigeration Market Sales (Rs. in

Millions):2003-06
2003-04 2004-05 2005-06 Growth % CAGR2 2002-03
2005-06 003-06
over 2004-
05
Commercial Refrigeration
Cold Storages
Halocarbon refrigeration 500 600 700 16.67 18.32 400
systems only*
Ammonia refrigeration 750 900 1080 20.00 20.00 600
systems only*
Coolers
Drinking water 1100 1300 1680 29.23 23.58 900
Bottled water 450 520 680 30.77 22.93 450
Visi (display type) 2400 3200 4500 40.63 36.93 1600
Bottle (chest type) 650 710 770 8.45 8.84 600
Reach-in refrigerators 23 24 30 25.00 14.21 20
Beverage / juice 115 121 135 11.57 8.35 100
dispensers
Display cases 55 57 60 5.26 4.45 50
Milk 160 168 195 16.07 10.40 150
Chocolate 10 15 20 33.33 41.42 10
Mortuary 25 30 35 16.67 18.32 20
Freezers
Deep (chest type) 900 1050 1150 9.52 13.04 750
Softy ice cream 32 34 58 70.59 34.63 30
Hard ice cream (batch 22 23 25 8.70 6.60 20
type)
Hard ice cream 42 45 50 11.11 9.11 40
(continuous)
Blast 108 119 126 5.88 8.01 100
Spiral 41 45 50 11.11 10.43 40
Transport Refrigeration & 300 400 550 37.50 35.40 200
Bus AC+
Total - Commercial 7685 9361 11894 27.06 24.41 6080
Refrigeration
Source: Cygnus Research & RAMA
Sector 3: Moulds
Type of Products

Mould is a container into which liquid is poured to create a given shape when it
hardens. Moulds can be broadly categorised into plastic injection moulds,
compression moulds, investment die casting moulds, blow moulds and pressure die
casting moulds.

Use of the Product

Moulds find usage in automobile, home-appliances, engineering, oil and paint,

refrigerator, irrigation and lighting applications.

Overview

Moulds industry can be broadly categorised into moulds for plastic products and
others.

Moulds for Plastic Products

The chart given below depicts the classification of plastic products by type of mould
processes used.

Approximate consumption of plastic in India according to various processes is as

follows:
Plastic Moulding by Process: 2005
Process % Share in Total Consumption in India
Extrusion 75.6
Injection Moulding 18.0
Blow Moulding 5.1
Rotomoulding 1.3
Total (‘000 tonnes) 4,070
Source: Cygnus Research
 Domestic

The Indian plastic processing industry is dominated by a large unorganised sector,

which gets excise exemption and other fiscal concessions. In the absence of these
fiscal concessions, the organised sector has not grown significantly and as a result, it
accounts for less than 15% share of the industry.

Exports and Imports

Though Indian exports of plastic products have increased over the past decade, it
continues to account for only a minuscule share in the world trade. The low presence
of the organised large-scale sector and consequently, low economies of scale prevent
Indian players from becoming cost competitive in the international market.

The key plastic products imported include plastic articles, films, sheets and plastic
products for packaging purpose.

Exports and Imports of Plastics and Linoleum products

Rs m 2003-04 2004-05 2005-06
Exports 7,985.24 13,189.09 11,708.21
Imports 4,875.95 6,213.57 8,963.4
Net Exports 3,109.29 6,975.52 2,744.81
Source: CSO

End-user Sub-sectors

Illumination Industry (Lamps and Luminaires)

The Indian lamp industry is estimated to have a turnover of Rs 4700 crore (US$1055m)
in FY06. This industry is experiencing a growth rate of nearly 20% per annum over the
last two to three years. Compact Fluorescent Lamp (CFL) and special kind of
illuminating lamps have registered a higher growth. This industry is having export
volumes that are around 15% of the total turnover. Growing interests of manufacturers
and government initiatives in encouraging exports is expected to increase its percentage
share. A recent surge in lifestyle has created a demand unseen so far for imported lamp
fittings in the upmarket urban areas.

The lamps industry is mainly dominated by MNCs with a market share upto 60% of lamp
production and 40% of luminaries and fittings. This industry is dominated by players like
Philips, GE, Wipro, Osram, Bajaj Electricals Ltd., Crompton and Indo-Asian ruling the
roost.

Electrification on the Indian villages through government schemes like Rajiv Gandhi
Grameen Vidyutikaran Yojana (RGGVY) has been increasing the number of villages that
are electrified; this will create a new demand for the lamp industry. Demand for lamps
that are having low power consumption (an example CFL) is increasing steadily since the
power consumed for illumination in India is more than 20% of the total power produced,
where as in developed countries like US it is less than 8% largely due to huge population.

Opportunities

Quite a lot of investment potential exists in this sector. Lamp and lamp fittings are still to
take off more due to a massive boom in retail industry and change in lifestyle and
corresponding investment. More growth prospects are observed in LED and CFL and
luminaries.

Sector 4: Mechanical Designing

Type of Products/Services

It includes mechanical designing, engineering designing, developing prototypes and

final products. This also comprises computer-aided designing and computer-aided
manufacturing.

Use of the Product

These products/services find usage in automobile, telecommunications and

engineering industries.

Overview

India is slowly but surely attracting mechanical designing outsourcing. India's

National Institute of Design churns out hundreds of highly-trained designers every
year. Design firms such as Elephant Design and Lopez get high-end work from their
clients.

As of 2005, India's contract industrial engineering revenue was estimated at

US$500m and by 2010, it is expected to grow to US$10 billion. If we include the
value of embedded software used, the current value of Indian design industry services
is around US$3.25 billion (with embedded software comprising 78% of the figure)
and is expected to grow to US$43 billion by 2015.

Share of VLSI Design, Hardware/board design and embedded software in overall

revenues (India): 2005
VLSI Design US$583m 18%
Hardware/ board design US$139.8m 4%
Embedded Software US$2,530m 78%
Total US$3.25bn 100%
Note: m stands for million and bn stands for billion
 In 2006, several marquee brands have invested in new design operations in India or
significantly expanded existing facilities. These companies include Agilent, Via, Dell,
Rambus, Windriver, Wolfson, Austria Microsystems, Tensilica and Sandisk. Not only
are the captive design units expanding at a furious pace, third-party outsourced design
service providers based in India are also on the go. Companies like Wipro have even
made overseas acquisitions to beef up their design service offerings.

End-user Sub-sectors
Optical Instruments

Optical instruments are used in industrial laboratories (like textile, steel, metallurgical
industries), educational Institutions (inclusive of medical and engineering colleges),
government run scientific research institutes and companies where R&D and testing
operations are performed like pharmaceuticals and biotechnology. The Indian Optical
instrument industry even though not new in India is controlled mainly by small &
medium enterprises. Presence of big brands in this industry is seen only in certain
products manufacturing.

Growing requirement for technically advanced optical instruments is forcing the end
users to import them because the instruments manufactured by Indian companies are not
meeting their technical requirements. Many Indian optical instrument manufacturers in
order to utilize the growing demand for advanced technical instruments are acquiring the
technology by forming joint ventures with some leading foreign companies. As a result
many Indian manufacturers in the recent years are increasing their product varieties and
efficiencies and increasingly becoming export oriented. Percentage of optical instruments
exported by Indian companies to the developing countries has increased from 5.3% in
1995 to 7.6% in 2004. There are big branded multinationals like Canon which are into
manufacturing, specific range of high end optical instrument products.

Demand for the optical instruments is increasing with growing quality norms- which are
making companies to have stringent testing facilities and growing educational
institutions- resulting in an increase in laboratory requirements. Increasing Investment in
healthcare services is creating a higher demand for optical instruments. But still the
Indian optical instrument manufacturing industry has to come up with more high end
products in Indian market.

Opportunities

Increasing number of modern laboratories in India evokes a requirement of improved

technology based optical instrument manufacturing base. Therein lies the opportunity for
foreign companies to come to India and invest in the industry.
Sector 5: Iron and Steel Industry
Overview

Indian iron and steel industry can be broadly divided on the basis of stages of production:
one being the iron ore miners and the rest being the steel producers who manufacture
steel from iron ore. Ore miners engage in mining activities while the steel producers are
further classified into primary producers and secondary producers. The primary
producers are further divided on the basis of method of production used for making steel.
They are Blast furnace method, Electric Arc furnace (EAF) and Corex method. The
secondary producers are re - rollers and stand alone producers. The stand alone producer
can further be segmented into pig iron and sponge iron manufacturing units.

Iron ore Industry

Iron ore is the main raw material used in steel production; growth in demand for steel is
increasing the demand for iron ore, whose prices in the recent times has shot up along
with other raw materials like coal. India's iron ore reserves are estimated to be at 24
billion tonnes, of which a major portion has a rich iron content of about 65% as compared
with Brazil's iron ore reserves which have 66% iron content. Iron ore production in
India has been increasing steadily from 2003-04 onwards and has shown an
estimated growth rate of 17.29% (CAGR) from 120.6mmt in 2003-04 to 165.9mmt in
2005-06. The demand for iron-ore is estimated to have increased by 12.9% (CAGR) from
52mmt in 2003-04 to 66.3mmt in 2005-06.

Sponge Iron: With the growing scarcity of scraps used in steel manufacturing largely by
secondary units lots of sponge iron manufacturing facilities have been installed in India
in the recent past. India is the world’s largest producer of sponge iron. The growth of
sponge iron production has been estimated to have increased by 18.4% from 10.30m
metric tonnes in 2004-05 to 12.2m metric tonnes in 2005-06. Presently there are 227
sponge iron units installed in the country having a capacity of 18.65m metric tonnes per
annum. Out of these, there are 204 coal-based units in operation with a capacity of
12.55m metric tonnes per annum. There are three gas-based units covering a capacity of
6.10m metric tonnes per annum.

Pig Iron: India is a net exporter of pig iron with exporting to countries like South Korea,
Thailand, Iran & Malaysia. Pig Iron has seen substantial growth during the past few years.
Post-liberalization production of pig iron has increased from 1.6m metric tonnes in 1991-
92 to 3.85m metric tonnes in 2005-06.

Production of Pig Iron (m tonnes)

Main Secondary Grand Production
Year
producers producers total Capacity
2000-01 0.96 2.15 3.11 4.5
2001-02 1.02 3.05 4.07 6.0
2002-03 1.11 4.18 5.29 6.0
2003-04 0.97 4.25 5.22 6.0
 2004-05 0.621 2.55 3.171 6.0
2005-06
(Apr-Oct) 0.173 0.425 0.598 6.0
Estimated
Source: Ministry of Steel, Government of India

Steel industry: This has been one of India’s oldest industries, contributing to the
country’s economy to a large extent. India with its 3.37% share in global steel production
in 2005 became the eighth largest producer of crude steel in the world. Its crude steel
production grew by 16.9% from 32.6m metric tonnes in 2004 to 38.1m metric tonnes in
2005 and finished carbon steel production grew by 10.66% over 2004 to 40.05m metric
tonnes in 2005. Consumption of finished carbon steel in 2005 stood at 34.39m metric
tonnes, which is an increase of 10.33% from 2004. The demand-supply gap remained
steady from 2003-04 to 2004-05 at around 5.6m metric tonnes but in 2005-06, it has been
estimated to have fallen by 24.8% to 4.26m metric tonnes The domestic demand for steel
is expected to grow at a CAGR of 4.04% during 2006-09. The main reasons for growth in
consumption of steel are the growth in infrastructure, construction, transportation and
consumer durables in which steel is consumed as a major raw material.

Steel is exported and imported by India since long. For the last three years, there has been
a rising trend in the imports, which grew from 1.51m metric tonnes in 2003 to 2.1m
metric tonnes in 2005, with a CAGR of 17.93%. India’s steel exports have declined by
16.1% from 5.22m metric tonnes in 2004 to 4.38m metric tonnes in 2005. The main
reason for an increase in steel import is a growth in the automobile sectors mainly by the
foreign manufacturers who produce vehicles and as a result import steel in huge
quantities.

The government plays a very crucial role in determining domestic steel prices. Although
it does not directly decide the prices and regulate the industry, it acts as an enabler of
prices.

SAIL is the largest steel producer in the country among the state owned companies. Other
large private players in integrated steel manufacturing are Essar Steel, JSW Steel Ltd., etc.
The performance of the domestic major players has been robust in the last three years.
The outlook for the coming years is equally positive. Growth prospects in the steel
industry are also attracting global steel manufacturers. Two global steel giants Mittal and
POSCO have signed a MoU with the Orissa state government to establish their
production facility that signifies an important step for the Indian steel industry.

Steel Products: Based on the shape and size, steel is classified into long products and flat
products. Long products include bars, wire rods, structural products and railroad sections.
They are used in construction and heavy engineering. Flat products include HR coils/
sheets, CR coils/ sheets and galvanised sheets. HR coils/sheets are primarily used for
making pipes. CR coils/sheets are used in automobiles (cars, scooters, and motorcycles),
white goods, and consumer durables. Galvanised sheets are used mainly in roofing,
panelling, automobile bodies and trunks/boxes.
Demand for flat and long steel products in India for 2005-06 is estimated to be around
21.83m metric tonnes and 16.28m metric tonnes. Production capacity for flat and long
steel products was 22m metric tonnes and 25m metric tonnes. Future demand for the steel
products is expected to increase because of the growth in economy which is resulting in
higher investments in sectors where steel products are used as raw materials.

Finished Carbon Steel

Production of Finished Carbon Steel (m tonnes)

Main Secondary Grand Capacity
Year
Producers Producers Total (Approx)
2000-01 12.51 17.19 29.7 35
2001-02 13.05 17.58 30.63 39
2002-03 14.39 19.28 33.67 39
2003-04 15.19 21.00 36.19 40
2004-05 15.575 22.825 38.400 42
2005-06 (Apr- 7.914 12.91 20.824 45
Oct)
Source: Ministry of Steel, Government of India

Steel products such as bars and rods, plates, hot rolled coil (HRC), cold rolled coil
(CRC) and GP/ GC fall in the finished steel category. The production of finished
carbon steel in the country totalled 29.7m tonnes in 2001-02, compared to 14.33m
tonnes in 1991-92.

Sales

The sales of finished carbon steel increased from 14.84m tonnes in 1991-92 to 27.35
tonnes in 2001-02. The table given below presents sales of finished steel during the
fiscal years 2000-06. The wide fluctuations in sales growth show that the demand for
steel in the country is erratic.

Sales of Finished Steel (m tonnes)

Month Bars and HR coils/ HR sheets CR coils/ GP/GC Finished steel
rods sheets sheets sheets
2000-01 10.53 9.50 0.52 4.54 1.78 26.87(7.44*)
2001-02 11.00 8.62 0.65 4.90 2.18 27.350 (3.1*)
2002-03 11.36 9.05 0.54 5.21 2.737 28.897 (5.6*)
2003-04 11.97 9.58 0.59 5.34 2.848 30.328 (5*)
2004-05 12.84 10.08 1.03 6.11 3.294 33.354 (9.97*)
2005-06 1.90 1.49 0.15 0.91 0.507 4.957
(Apr-May)
* Indicates percentage increase in production over previous year
Source: Ministry of Steel, Government of India
 Imports & Exports

Steel is classified in the international market mainly into two standards: American
Iron and Steel Institute (AISI) classification, and Unified Numbering System (UNS)
classification. Both these systems use a series of 4-5 digits to classify according to the
primary alloying element, the approximate content of the primary alloying element,
and the approximate carbon content. In addition, there is the American National
Standard Institute (ANSI) classification, which mainly deals with finished steel
products. As research indicated that carbon-free steel is non existent, low-carbon steel
is considered as carbon-free steel in this report.
Exports
Although steel exports began in 1964, substantial growth in export of finished steel was
witnessed only in the post-liberation period. Steel exports increased from 0.9m tonnes (Rs70
billion) in 1992-93 to 3.4m tonnes (Rs258 billion) in 1997-98, overtaking sectors such as
electronic goods and human-made fabrics. There has also been a qualitative change in the
export of steel items. Earlier, export consisted mainly of plates, bars and rods and structural.
Now steel exports comprise semis, hot-rolled coils, cold-rolled coils and galvanised sheets.

The prominent export destinations for steel include the US (16.34%), Italy (7%), Spain
(4.43%), South Africa (2.14%), Korea (2.7%), Iran (2.26%), Malaysia (2.06%), the
Philippines (1.55%) and the UK (1.29%).
Exports of Steel
Percentage Share of total value
Total Total
Year Steel Value High Low Finished
Pig Stainles
(m tonnes) (Rs bn) carbon Semis Carbon Carbon
Iron s Steel
Products Steel Steel
2000-2001 3.000 51.745 1.3 7.7 6.5 4.3 0.01 80.199
2001-2002 3.242 44.831 2.88 7.5 8.3 2.6 0.06 78.66
2002-2003 4.966 92.540 0.5 12.6 9.2 1.7 0.03 75.97
2003-04 5.922 1,19.068 8.99 9.2 11.8 1.7 0.17 68.14
2004-05 4.777 1,83.180 1.66 3.7 4.7 1.9 0.14 87.9
2005-06 4.637 1,77.811 - - - - - -
(Apr-
October)
Source: DGFT, Cygnus Research
 Imports
This sector has been freed from import licensing, and the import duty is lower. On an
average, India has imported 1.64m tonnes of steel every year in the last five years. Following
are some of the leading suppliers of iron and steel to India: Russia (11.19%), Japan (6.16%),
the US (5.9%), Germany (5.3%), China (3.7%), Romania (3.25%) and Belgium (2.7%). Steel
imports largely comprise sheets, bars and rods.
Import of Steel
Total Percentage Share
Total
Steel High Low Finished
Year Value Pig Stainless
(m carbon Semis carbon Carbon
(Rs bn) Iron Steel
tonnes ) Products Steel Steel
2000-01 1.632 436.960 0.007 0.12 0.12 0.78 0.10 97.97
2001-02 1.375 536.429 0.001 0.14 0.13 1.37 0.32 98.039
2002-03 1.510 536.542 0.002 0.07 0.20 0.88 0.40 98.448
2003-04 1.650 815.531 0.0003 0.12 0.21 1.42 0.54 97.707
2004-05 2.050 1,465.562 0.0001 0.34 0.64 0.9 0.48 97.639
2005-06 1.438 1,028.06 - - - - - -
(Apr-
Oct)
Source: Ministry of Steel & Cygnus Research

Opportunities

Indian steel industry has a good potential with low per capita consumption of 32kg. In
order to meet the growing domestic and international demand, the government has
formulated a National Steel Policy, which has a target of 100m metric tonnes of steel
production by 2020.
Entry barriers to steel industry include capital expenses, long gestation period,
unavailability of raw material, over supply situation and minimum economic size; each
one of them impacts the investment decision.
Looking to the current flow of foreign investment and upsurge in demand for automobile
and components along with white goods investment in either green field steel
manufacturing or steel related industries look really up.
 2. COMMON MISTAKES IN EXPORT TO INDIA
Mistakes occur at different stages while doing export business with the Indian importers.

We found that unsuccessful companies committed mistakes in the four key steps and
were negatively influenced by three important factors, as given below:

Steps Influencing Factors

Planning and Preparation Attributes
Entering the Market Representation
Developing and Sustaining the Business Connections
Thinking about the Future

Planning and Preparation Stage

Entering the Indian market requires a substantial amount of preparation and patience, and
takes a considerable period of time to accomplish. Time and other resources need to be
invested in developing knowledge of the institutional environment. Generating credibility
in the market before entry is also beneficial.

Tenders and competitive contracts require considerable background work, not only with
regard to the content of the tender request, but also on building relationships with key
decision-makers and people to understand the tender process.

Finding a partner who has knowledge of the local market and procedural issues is a must
for successful business development. For Italian business men, ideally, the Indian partner
should be conversant with the language and customs of Italy.

Appropriate and sufficient infrastructure must be in place in India to support the business.
In many cases, it is necessary to wait until the infrastructure has been developed, or else
invest in developing local infrastructure to a level sufficient enough to accommodate the
products or services being offered.

Success in India may take longer to achieve than in other international markets. It
requires a lot of preparation and investment before gains are realised, and there is
relatively a high level of risk.

Entering the Market

Decision-making in India is slow, particularly with the public and government sectors,
and it is important to assess the amount of time that obtaining an initial order is likely to
take. Decision-making blockages are sometimes overcome by drawing on the influence
of network links of Italian companies in India.
Some times companies have failed to understand the implications of licensing and tariffs
only to make a retreat. However, some of these companies made a re-entry when
restrictions on import licenses were partly or fully waived.

The importance of having other critical factors, such as initial relationships with
customers, solutions to bureaucratic barriers, and a period of time becoming familiar with
the Indian market, cannot be undermined.

Developing and Sustaining the Business in India

Pricing is the key to gaining orders, and there is little doubt that Indian customers will
negotiate prices aggressively.

Local labour is necessary for a number of Italian companies wanting to do business in

India, for tasks such as assembly, installation, and implementation. The companies
generally have to rely on their agents or distributors to assist with hiring and managing
local labour, in particular, with monitoring performance and dealing with local labour
laws.

Government involvement is considered to be both a help and a hindrance to doing

business in India. State- and nationally-funded projects have led to business opportunities
for many of Italian companies.

Thinking about the Future

Although the opportunities for future growth in India are well recognised by global
companies, not all of them anticipate this market becoming a substantial part of their
business, at least in the near future. At this stage, it is still considered relatively high risk
and uncertain, with considerable change needed in the country to encourage further
investment.

Attributes

Establishing credibility and reputation may involve a substantial initial investment

of time and money, often before any payback is realised.

Credibility and a strong reputation are achieved by the companies in a number of ways:
building links with large Indian corporation or government customer (for example, one
company has endorsement from one of the largest banks in India); using the links of a
credible or reputable agent (or distributor/partner) or opinion-leader; leveraging from an
international reputation (e.g. with world funding agencies); becoming part of a wide
professional network that provides legitimacy in the market; drawing on links with
international partners that conduct business in India; and leveraging from customers’
experiences with the product or service in Italy– such as professionals returning to India.
Representation

Getting the right agent for a company is critical to success. A key attribute of successful
agents or distributors is their connectedness with political representatives and officials, as
well as with potential customers and decision-makers. Agents’ are also instrumental in
sourcing skilled labour.

Power and size symmetry between company and agent can help engender trust.
Strengthening links with agents is best done gradually.

Connections

Being linked to a local network is critical for success in the Indian market. An Italian
company’s access networks through their agents, distributors or partners, and, over time,
build relationships and become part of the local network involved in their business. The
networks include a range of stakeholders, but of primary importance are the decision
makers (often policy officials) and customers.

Frequent visits to India are critical, in order to build relationships, and stay informed
about the business and customers in India. The frequency of visits for the New Zealand
company managers varies, ranging from 2 to 8 times per year, depending on the
particular needs at the time. At critical times during a tender process, for example, an
Italian manager may need to make numerous visits over a short period of time.

Working with large companies provides substantial opportunities for Italian companies.
These arise from a range of factors: the reputation of the large company, the opportunity
to tap into their business networks, including customers, and access to markets, and
technical and political knowledge. In many cases, large corporations have influence at
government level, and are able to lobby for industry-based regulatory changes, access
tender information, or negotiate with key decision-makers.

Survey feedback

Survey was conducted among a few members of Indo Italian Chamber of Commerce
taking a few industries and units and they are summarised below.

Generally for matured Italian companies exporting goods/services Indian

companies do not have much issues as far compliance with custom procedures
are concerned

New companies sometimes do not comply with export regulations (in terms of
adequate documents). They should get professional support if required

Price quoted is high and that spoils the market opportunities sometimes

Even free replacement is there in the contract clause but some principals charge
the courier cost and applicable duties on the parts to be supplied which causes
enough dissatisfaction amongst Indian customers
 3. OBSTACLES

Fiscal (FDI Policy)

Machine Tools
• 100% FDI allowed
• Machine tools manufacturers are exempt from obtaining an industrial license to
manufacture.
• Manufacturers are free to select the location of the project.
• Import duties have been reduced to promote import and increase usage of machine
tools.

Tax

According to Deloitte, India's top income tax rate is 33 % (a top rate of 30% plus a 10%
surcharge), up from the 30% reported in the 2005 Index. The top corporate tax rate has
been cut to 33% (a reduced top rate of 30% plus an increased surcharge of 10%) from the
36.8% reported in the 2005 Index. In 2003, according to the Asian Development Bank,
government expenditures as a share of GDP increased 1 percentage point to 29.1%,
compared to the 0.4 percentage point increase in 2002.

For the fiscal year ending March 31 2006 the basic corporate tax rate for domestic
companies was reduced to 30%, and the surcharge was increased to 10%. The effective
tax rate for domestic companies is 33.66 % (30 %, plus surcharge of 10% of the tax, plus
education cess of 2% on tax and surcharge). A minimum alternate tax. (MAT) is levied at
7.5% (plus a surcharge of 10% of the tax, plus an education cess of 2% on the tax plus
surcharge) of the adjusted profits of companies where the tax payable is less than 7.5% of
book profits. This adds up to an effective 8.415% minimum tax rate. Foreign companies
are taxed at 41.82% (40%, plus a surcharge of 2.5 % of the tax, plus education cess of 2%
on the tax and its surcharge). Income of domestic shipping companies can be computed
under the tonnage tax scheme. Non-residents and foreign companies engaged in
shipping/aviation, oil/gas and turnkey power projects are taxed on a deemed profit basis
of 7.5%, 5% and 10% respectively, resulting in effective tax rates for these companies,
including surcharge and education cess, of 3.1365%, 2.091% and 4.182% respectively.
Dividend Distribution Tax (DDT) is levied at 14.025% (12.5%, plus surcharge of 10% of
the tax, plus education cess of 2% of tax and surcharge) on dividends distributed by a
domestic company and by a domestic mutual fund to individual unit holders of non-
equity mutual funds. The DDT is levied at 22.44 % (20%, plus surcharge of 10% of the
tax, plus education cess of 2% on tax and surcharge) on the income distributed by
domestic mutual funds to corporate unit holders of non-equity mutual funds. Securities
Transaction Tax (STT) is levied at varying rates on the value of specified taxable
securities transactions through a recognized stock exchange, or on the sale of units of
equity-oriented mutual funds to the mutual fund. Fringe Benefit Tax (FBT) is levied on
certain fringe benefits provided to employees at 33.66% for domestic companies and
31.365 % for foreign companies. The budget proposing rates of tax effective from 1 April
2006 was issued on 28 February 2006.

Communication or bringing awareness

Over the years, the Indian economy has moved from being a controlled, sellers’ market to
a buyers’ market. For the sellers, media availability 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. (Ref Part 6)

Marketing

Italian exporters generally feel that institutional and cultural factors are the principal
deterrents to gaining market access in India. Obstacles to exporting include: time delays
in conducting business transactions, government bureaucracy, and corruption by other
government officials.

Distribution:

India has recently seen the emergence of mature channels of distribution and support for
products such as computer hardware, software, and peripherals, ranging from commodity
products to high-end IT equipment. The typical distribution structure has been two-tiered
with a distributor (for the entire country) servicing dealers and retailers. Improvements in
packaging technology have also had a significant influence on the models of distribution
adopted by companies in India for marketing perishable and processed food items.

There has been a significant expansion in distribution channels in India during the past
few years. The total number of retail distribution outlets in the country is estimated at
over 12 million. A firm can take its products to the user through a variety of channels. It
can use different types of marketing intermediaries. It can structure its channel into a
single-tier or a three-tier outfit. After deciding on the broad design of the distribution
channel and the number of tiers in the channel, the number of members required in each
tier and their locations, suitable dealers must then be selected.

India has eleven major seaports and 139 minor working ports along its two coasts, but in
terms of gross weight tonnage conveyed annually, Mumbai, Marmagao on the west coast,
and Vishakhapatnam and Chennai along the east coast are the most important ports in
India. Mumbai, the financial capital of the country is very important for the international
cargo trade.

Customs
Customs duties are levied in three ways:

• Specific rate: At the rate prescribed per unit of item i.e. weight or number of
length
• Ad-valorem: duty-levied on the value of the item
• Both of the above levied simultaneously

The Customs Act was formulated in 1962 to control the imports through preventing
illegal imports and exports of goods. The Customs Tariff Act specifies the tariffs rates
and provides for the imposition of anti-dumping and countervailing duties. With some
exceptions, most tariffs are ad-valorem. Tariff rates, excise duties, regulatory duties, and
countervailing duties are revised in each annual budget.

From February 1, 2003, Indian Customs uses the 8-digit customs classification code
based on Harmonized System of Nomenclature (HSN). Currently, Indian Customs, the
Directorate-General of Commercial Intelligence and Statistics, and the Directorate
General of Foreign Trade use different nomenclatures and codes for classification of
imports and exports.

While Customs use six-digit codes, DGCI&S uses eight-digit codes for statistical
purposes. The DGFT has broadly extended the eight-digit DGCI&S codes up to 10 digits.

TYPES & LEVY OF CUSTOMS DUTIES

Basic duty: All goods imported into India are chargeable to duty as prescribed in the 1st
Schedule of Customs Tariff Act. This Schedule is amended from time to time of
Customs Tariff Act. This duty can be levied either as a percentage of value of goods or
at a specified rate. Indian government assesses a one percent customs handling fee on all
imports in addition to the applied customs duty.

Surcharge: It is levied at the rate of 10 % of the basic rate on all commodities except
crude oil and petroleum products, GATT-bound items, gold and silver.

Additional Duty: Popularly known as the countervailing duty or CVD, is levied on the
cost of imported goods and is equivalent to the excise duty levied on like goods when
manufactured in India. The objective is to ensure that the protection provided by the
import duty to domestic industry is not eroded.

Education Cess: Effective July 2004, India introduced a new education cess (duty)
assessment at the rate of two % of the aggregate duty of customs (except safeguard duty,
countervailing duty, and anti-dumping duty) levied on such goods. Goods bound under
international commitments have been exempted from this cess.

Anti-dumping Duty: This is levied on specified goods imported from specified countries,
including Italy to protect indigenous industry from injury.
Safeguard Duty: The Indian government after conducting an enquiry if satisfied that
any article is imported into the country in such increased quantities and under such
conditions so as to cause or threatening to cause serious injury to domestic industry, then
it may by notification impose a safeguard duty on that article.

COMPUTATION OF TOTAL TARIFF

Total duty payable = Landed cost including CIF of the item concerned + Basic customs
duty under the Customs Tariff Act + Surcharge thereon + Additional duty + Education
cess.

In order to give a broad guide as to classification of goods for the purpose of duty
liability, the Central Board of Excises Customs (CBEC) periodically publishes a book
called the "Indian Customs Tariff Guide" which contains various tariff rulings issued by
the CBEC. The Act also contains detailed provisions for warehousing of the imported
goods and manufacture of goods is also possible in the warehouses.

The Indian government publishes customs tariffs rates on imports but there is no single
official publication that has all information on tariffs and tax rates on imports. Moreover,
each Indian State levies taxes on interstate trade and commerce, which creates confusion.
Effective April 2005, the Indian government implemented a Value-Added tax (VAT)
system meant to replace the inter-state taxes, but implementation is not yet universal in
all the States.

Duty exemption plan: The Duty Exemption Plan enables duty free import of inputs
required for export production. An advance license is issued under the duty exemption
plan. The Duty Remission Plan enables post export replenishment remission of duty on
inputs used in the export product. Duty Remission plan consists of (a) DFRC and (b)
DEPB. DFRC permits duty free import charges on inputs used in the export product. The
government has wide discretionary power to declare full or partial duty exemptions “in
the public interest” and to specify conditions such as end-use provisions. Almost half of
India’s total inputs enter under concessional tariffs, though the use of exemptions is
falling in tandem with the tariff-reduction program.

Industries that might benefit from reduced tariff rates include the following: consumer
products, processed food, footwear, toys and telecommunications products. Fertilizers,
mining equipment, wood products, jewellery, camera components, paper and paperboard,
ferrous waste and scrap, computers, office machines and spares, textile machinery and
spare parts, hand tools, soft drinks, cling peaches, vegetable juice and canned soup would
also benefit.
 4. PARAMETERS OF COMPETITION

Sector: Mechanical Components

• Inter-firm rivalry: Low-High – depending on product categories, the industry is

dominated by many small-scale units to only few niche players.
• Barriers to entry: Low-High – however, in certain product segments, building
brand image is important.
• Threat of substitutes: Low to medium depending on products.
• Bargaining power of suppliers: Medium to high – depending on size and image of
the supplier.
• Bargaining power of buyers: Medium to high

Global MNCs present in India: Makino, DMG, Haas, Trumpf, Daewoo, Agia,
Charmilles, Schuler, Cummins, Siemens, ABB Ltd are present in India either through
their marketing agents, technical centres, service centres or assembly centres.

Sub sector: Mechanical parts and sets

• Inter-firm rivalry: Medium-High – depending on product categories, the industry is

dominated by SMEs to only a few niche players.
• Barriers to entry: Low-High –however, in certain product segments, building
brand image is important.
• Threat of substitutes: Low to high depending on products.
• Bargaining power of suppliers: Medium to high – depending on size and image of
the supplier.
• Bargaining power of buyers: Medium to high

Castings and Forging Industry

Composition of the Indian forging industry: large (9-10), medium (30), small (70)
and tiny (220).

Major Companies
• Ahmednagar Forgings Limited
• Amforge Industries Limited
• Bharat Forge Limited
• Electrosteel Castings Limited
• Mahindra Forgings Limited
• Shree Ganesh Forgings Limited

• There are no foreign companies operating in forging industry in India.

 • Imports of forging and castings products, if any, are insignificant. Indian
industry is not only self sufficient but also exports to other countries. We
believe that foreign players cannot compete with Indian companies directly.
They can do so either by acquiring an Indian company or by merging with an
Indian company.
• Italian exporters can export forgings to the industry only if they can sell at
cheaper prices.
• There are opportunities for investing in Indian companies who want to increase
investment in R&D and technology upgradation.

Seamless Steel Pipes & Tubes

Composition of the Indian seamless steel pipes and tubes industry: Oligopoly with
Indian Seamless Metal Tubes Ltd (ISMT), Jindal Saw Limited (JSL) and
Maharashtra Seamless Limited (MSL) controlling around 80% and the rest by
others and imports.

Major Companies
• ISMT Limited
• JSL
• MSL
• Man Industries (India) Limited
• Surya Roshni Limited
• Welspun-Gujarat Stahl Rohren Limited

• Indian imports of seamless steel pipes and tubes (HS Code 7304) constitute a
sizeable portion of 10-20%. However, major players in this segment are trying
to capture market from exporters. China, Japan, France, Russia and Italy are
the top five exporting countries to India. The competition among these
exporters is high. Capturing the market is possible only by supplying quality
pipes at below the market prices.

Sector: Machines and Mechanical devices

• Inter-firm rivalry: Medium-High – depending on product categories, the industry is

dominated by many small-scale units to only few niche players.
• Barriers to entry: Low-High – however, in certain product segments, building
brand image is important.
• Threat of substitutes: Low to medium depending on products.
• Bargaining power of suppliers: Medium to high – depending on size and image of
the supplier.
• Bargaining power of buyers: Medium to high
Most of the companies operate in niche markets. For instance, Lakshmi Machine
Works and Textool manufacture the complete range of textile machinery; Manugraph
Industries has expertise in printing machinery; ITW Signode and Flex Engineering
are into packaging machinery; DGP Windsor and Electronica are into plastic
 machinery; Walchandnagar Industries is in cement machinery; Praj Industries in
brewery plants; and Ion Exchange in pollution-control equipment. However, a couple
of companies such as Thermax and Alfa Laval have a wide product range and their
products find applications across industries. The product range of the former includes
boilers, heat exchangers, chillers, environment equipment, and chemical and co-
generation equipment. The latter's product profile includes separators, decanters, flow
equipment, machinery for dairy, brewery and vegetable oil plants.

Thermo plumping and air conditioning: Competition

The Indian air-conditioning industry showed a healthy growth rate of 25-30% for 2005
according to data collected by the Refrigeration and Air-conditioning Manufacturer’s
Association. Worth approximately
1 billion, excluding the consumer refrigerator
segment, the market experienced impressive growth in the commercial AC segment,
which accounts for around
500m. Residential air conditioning has grown by around
25% to over
468m; the balance is accounted for by commercial refrigerator units,
including deep freezers, chillers and bottle-coolers.

Major Companies

• Blue Star
• Batliboi Ltd
• Carrier
• Kirloskar McQuay
• Thermax Ltd
• Voltas Ltd

Home Appliances (Dishwasher, washing machine, tumble dryer, etc)

Washing machine demand grew by an unprecedented 16.5% in 2004-05, owing to the

stupendous growth of fully-automatic washing machines. Production increased on
account of improved sales growth. However, raw material costs, which form 50-60% of
net sales, also shot up in the same year. As a result, player margins remained strained. We
expect the demand for washing machines to rise at a growth rate of 8-10% over the next
2-3 years. However, competitive pricing is expected to continue. Player margins are
expected to remain under pressure on account of limited pricing flexibility in the face of
escalating raw material costs.

As of 2005, the dishwasher market in India was small at just 8,000 units. However, with
more urban women balancing careers and homes, and domestic help becoming
uneconomical, marketers feel that demand for dishwashers is bound to grow. One factor
that might be inhibiting the growth is the price. Dishwashers are currently priced at
Rs22,000-60,000 (approx US$500-1,365), which is too high for most middle-income
households.
Tumble dryer market in India is at a very nascent stage. As of now, it is dispatched-to-
order type market.

Sector: Moulds
• Inter-firm rivalry: High – the industry is dominated by many small-scale units.
• Barriers to entry: Low – however, in certain product segments, building brand
image is important.
• Threat of substitutes: Low to medium depending on products. Environmental
concerns also persist.
• Bargaining power of suppliers: Medium to high – depending on size and image of
the supplier.
• Bargaining power of buyers: Medium to high

Sector: Mechanical Designing

• Inter-firm rivalry: Low – the industry is dominated by very few firms.
• Barriers to entry: Medium-High – depending on the value chain of the work they
process.
• Threat of substitutes: Virtually non existing
• Bargaining power of suppliers: Medium to high – being a knowledge-based
industry, it is much affected by attrition.
• Bargaining power of buyers: Medium to high

Automobile Designing
At TCS labs in India, engineers work on virtually every aspect of car design for an
array of foreign clients. In Bangalore, for example, engineers are tweaking the
designs of a drive train for a passenger car to be built by a Western auto maker. Using
virtual 3D prototypes, ergonomics experts run complex analyses of design changes to
the car's interior, helping determine whether the steering wheel or radio controls are
at an optimal distance from the driver. Bangalore-based Harita Infoserve Ltd is
developing interior parts and conducting computer tests on components for General
Motors Corp (GM). Plexion Technologies based in Bangalore has worked on the
interior design and windows for a DaimlerChrysler (DCX) bus.

Railway Coach Designing

Rail Coach Factory (RCF) in Kapurthala specialises in design and manufacturing of a
wide variety of air-conditioned, non-airconditioned and self-propelled coaches for
broad gauge and metre gauge. Since its inception, the factory has produced more than
15,000 coaches of 51 different types, with the coach manufacturing capacity
surpassing 1,000 coaches per year. The factory has successfully rolled out German
designed coaches for Rajdhani and Shatabdi express trains. So far the factory has
rolled out five Rajdhani rakes of German design, now running between Mumbai and
New Delhi. It has also rolled out German designed Shatabdi coaches for operation at
150 kilometres per hour, to be the fastest train of Indian Railways. RCF has the latest
computer-aided design and manufacturing facilities, besides in-house capabilities in
linear stress analysis of coach shell and bogie structure.
Sector: Iron & Steel: Competition

In the post-liberalisation era, the Indian steel industry is influenced by global factors. The
global steel demand is rising due to accelerated infrastructure activity in China, CIS
countries and India. In addition, there is housing boom in the US, and white goods
resurgence in Europe. In the past few years, the industry has consolidated in terms of
ownership as well as mothballing of inefficient capacities. Steel prices continue to firm
up. In India, China and other Asian countries, the demand is led by investment in
infrastructure. In addition, demand from automobiles and white goods industries is
increasing. Russia and other CIS nations are witnessing strong internal demand.

Higher demand has led to fresh capacity creation. On an average, the world is increasing
its capacity for steel production by about 60m tonnes per year. In India, the growth in
steel production has increased by 5.85% per year in the last five years.

The manufacturers with integrated production facilities such as Tata Steel and SAIL have
already built a strong brand image compared to the small manufacturers with mini-blast
furnaces. The small manufacturers are facing problems in selling products at a better
price. As a result, their profitability is low compared to the primary manufacturers. The
bulk of products of small manufacturers is consumed by small-time builders and low-cost
construction projects. Now small manufacturers in the country are in a bind.

Imports at subsidised rates, meanwhile, are posing a threat to the industry itself. Although
steel imports from China are currently low at 3.7% of total steel imports in the country,
there is a possibility that China will focus on exports after domestic demand reduces in
the next four to five years.
 5. 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 - Mechanical Components

• 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
Logistics (personnel and
exhibited items)
Power Connection
Compressor
Service Tax
Total costs excluding
logistics
Source: Cygnus Research
Two Side Open: 15 % Extra, Three Side
Open: 25 % Extra
Variable
US$450 per KVA
US$450 per Connection
12.24%
Two Side Open: US$1162
Three Side Open: US$1263
 6. PENETRATION IN THE MARKET

Various types of enterprises

Options for entering the Indian market include using a subsidiary relationship, a joint
venture with an Indian partner, or using a liaison, project, or branch office.

Structures typically used by foreign investors

Using an Agent or Distributor

A company choosing to sell its products or services in India prior to establishing a branch
office or a subsidiary can enter the market by appointing an agent, representative, or
distributor. If the product has a wide market appeal, it is advised that regional
representatives/distributors be appointed.

Establishing an Office

Overseas companies are required to obtain general or special permission of the Reserve
Bank of India (RBI) for carrying out any activity relating to agriculture or plantation.

A foreign company or individual planning to set up business operations in India, but

choosing not to establish a subsidiary or to form a joint venture with an Indian partner,
can do so by establishing liaison, project and branch offices in India. Approval from the
RBI is required for opening such offices. Application for setting up such offices may be
submitted to RBI in form FNC 1 (forms can be downloaded from
http://www.rbi.org.in/scripts/BS_ViewFemaForms.aspx). Such companies also have to
register themselves with the Registrar of Companies (ROC – for contact information log
on to http://www.namasthenri.com/shares/ROC.HTM) within 30 days of setting up a
place of business in India.

Liaison or representative office:

Many foreign companies initially establish their presence in India with a liaison or
representative office that is not directly engaged in commercial transactions in India.
Foreign companies usually open representative/liaison offices to oversee their networking
efforts, to promote awareness of their products and to explore further opportunities for
business and investment. A liaison office is not allowed to undertake any commercial
activity and cannot therefore earn any revenue in India. As no revenue is generated, there
are no tax implications to the office in India. Such offices are not allowed to charge any
commission or receive other income from Indian customers for providing liaison services.
All expenses are to be borne by remittances from the head office abroad. A foreign
company establishing a liaison office cannot repatriate money out of India.
India’s Foreign Exchange Management Act (FEMA) regulates the establishment and
operation of a liaison office. RBI’s permission to establish liaison offices is initially
granted for a period of three years and this may be extended. While registering with the
ROC, along with the application form, the foreign company is required to submit copies
of its memorandum and articles of association, its balance sheet and copies of any
contracts that it has entered into in India. Under now-eased accounting requirements of
the Department of Company Affairs, foreign companies with liaison offices in India will
not be required to file a full balance sheet and a profit and loss account with the ROC,
under section 594 of the Companies Act, 1956. Every year, a certificate from the auditors
must be submitted to the Regional Office of RBI. The certificate should state that the
liaison office has complied with the terms and conditions stipulated in the letter of
approval issued by the RBI, and that all expenses of the liaison office are met from
remittance funds.

Branch Office:

A branch office, like a liaison office, is not an incorporated company but an extension of
the foreign company in India. A branch of a foreign company is limited to the following
activities by the RBI: representing the parent company and acting as buying/selling agent;
conducting research for the parent company, carrying out import and export trading
activities; promoting technical and financial collaborations between Indian and foreign
companies, rendering professional or consulting services, rendering services in
Information Technology and development of software in India, and rendering technical
support to the products supplied by the parent/group companies. A branch office actually
does business in India and is subject to tax. However, a branch office is not allowed to
carry out manufacturing and processing activities directly although it can sub-contract
such activities to an Indian manufacturer. Under the Banking Regulation Act, 1949,
opening of branches in India by foreign banks requires RBI permission. Remittance of
net profits/surplus by Indian branches of such banks to their head offices abroad, however,
require prior approval of the Exchange Control Department of the Reserve Bank.

Also under the Indian Companies Act, prescribed documents need to be filed with the
ROC in the state where the branch is situated, and also with the main office in New Delhi.
After initial registration, every year, the accounts of the branch must be submitted to the
registrar of companies. The branch office is allowed to repatriate the profits generated
from the Indian operations to the parent company after payment of taxes.

Branch Offices on “Stand-alone Basis” in SEZ

Such Branch Offices would be isolated and restricted to the Special Economic Zone
(SEZ) alone and no business activity/transaction will be allowed outside the SEZs in
India, which include branches/subsidiaries of its parent office in India. No approval shall
be necessary from RBI for a company to establish a branch/unit in SEZs to undertake
manufacturing and service activities subject to specified conditions. Application for
setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1
(available at RBI website at www.rbi.org.in).

Project office:

Foreign companies sometimes set up a temporary project office to undertake projects in

India, awarded to the parent company. It is essentially a branch office set up for the
limited purpose of executing a specific project. Approval for project offices is generally
accorded for executing government-supported construction projects or where the projects
are financed by Indian and international financial institutions and multilateral
organisations. In exceptional cases, approval is also given for private projects. A project
office is allowed to return surplus funds to the foreign country upon completion of the
project.

None of these entities are permitted to acquire real estate without prior RBI approval.
However, they are allowed to lease property in India for a maximum period of 5 years.

Basic Guidelines:

There are some key practical guidelines that new companies should consider while
establishing offices in India: identify the right decision-makers; keep these decision-
makers and other key players briefed about their project; avoid getting into the land
acquisition process from private sources; handle local labour issues carefully because
Indian laws essentially prohibit firing workers.

Physical infrastructure, state government support and flexibility, cost and availability of
power, and the law and order situation are considered the most important parameters in
choosing a location in India. Other factors include labour availability and cost, labour
relations and work culture, and proximity to resources and/or markets. In the area of
labour law, an employer with more than 100 workers cannot fire them without permission
from a government labour commissioner.

Business centres are a viable option for new companies wanting to establish a physical
presence. Business centres are facilities that are ready to move in, wired for
communications, and air-conditioned. Billing is normally done on a monthly basis. For
long-term use, discounts are generally available. Many state governments are creating
special Technology Parks for selected industry sectors like software, biotechnology, and
automotive.

State governments eager to attract investments to such locations often provide special
support and incentives. While some foreign companies have ventured into smaller cities,
the numbers are increasing slowly.

Given their large size in terms of population and middle/high income households, many
foreign companies have traditionally focused on Mumbai and Delhi. During the past
decade or so, foreign companies have discovered other places to set up base, such as
Bangalore, Chennai and Hyderabad. Pune is also catching up fast, especially for software
companies.

Incorporation of a Company

For registration and incorporation, an application has to be filed with the ROC. Once a
company has been duly registered and incorporated as an Indian company, it is subject to
Indian laws and regulations as applicable to other domestic Indian companies. For details
please visit the website of Ministry of Company Affairs at http://dca.nic.in

Company’s Act 1956

The incorporation of a company in India is governed by the Companies Act, 1956. It
extends to the whole of India and Part II of the Act deals with the incorporation of a
company and matters related to.

Private Company
Private company means a company which has a minimum paid-up capital of one lakh
rupees or such higher paid-up capital as may be prescribed, and by its articles,
(a) restricts the rights to transfer its shares, if any;
(b) limits the number of its members to 50, not including
• persons who are in the employment of the company; and
• persons who, having been formerly in the employment of the company,
were members of the company while in that employment have continued
to be members after the employment ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or
debentures of, the company;
(d) prohibits any invitation or acceptance of deposits from persons other than its
members, directors or their relatives.

Public Company
A public company is a company which is not a private company and has a minimum
paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed; is
a private company which is a subsidiary of a company which is not a private company.

Formation of a Private Limited Company

A private company can be formed either by
i. incorporation of a new company for doing a new business,
or
ii. conversion of existing business of a sole proprietary
concern or partnership firm into a company.

Name of a Company
• The name of a corporation is the symbol of its personal existence. Any suitable
name may be selected, subject, however, to specified conditions
• The following guidelines would be followed while applying for registration of
name of the company:
 • The promoters should select three to four alternative names, quite distinct
from each other.
• The names should include, as far as possible, activity as per the main
objects of the proposed company.
• The names should not too closely resemble with the name of any other
registered company.
• The official guidelines issued by the Central Government should be
followed while selecting the names. Besides, the names so selected should not
violate the provisions of the Emblems and Names (Prevention of Improper Use)
Act, 1950. Apply in form 1-A to the Registrar of Companies having jurisdiction
along with a filing fee of Rs500.

Memorandum of Association
An important step in the formation of a company is to prepare a document called
Memorandum of Association. It is the charter of the company and contains the basic
conditions on which the company is incorporated.

The Memorandum contains the name, the state in which the registered office is to be
situated, main objects of the company to be pursued by the company on its incorporation
and objects incidental or ancillary to the attainment of the main objects, liability of the
members and the authorised capital of the company. The main purpose of the
memorandum is to state the scope of activities and powers of the company.

Articles of Association
Articles of Association of the company contain rules, regulation and bylaws for the
general management of the company. It is compulsory to get the Articles of Associations
registered along with the Memorandum of Association in case of a private company. The
Articles are subordinate to the Memorandum of Association. Therefore, the Articles
should not contain any regulation, which is contrary to provisions of the Memorandum or
the Companies Act. The Articles are binding on the members in relation to the company
as well as on the company in its relation to members.

Registration of a Company and Issue of Capital

After completion of the preliminaries as enumerated, the application with necessary
documents is required to be filed with the Registrar of Companies of the State in which
the company is proposed to be incorporated. These include:
• Memorandum of Association (duly stamped) and a duplicate thereof
• Articles of Association (duly stamped) and a duplicate thereof
• The agreement, if any, which the company proposes to enter into with any
individual for appointments as its managing or whole time director or manager.
• A copy of the letter of the Registrar of Companies intimating the availability of the
proper name
• Documents evidencing payment of prescribed registration and filing fee, ie a bank
draft or a treasury challan.
• Documents evidencing the directorship and situation of Registered Office in Form
32 and Form 18 respectively and declaration of compliance with requirements of
 the Companies Act in Form No 1 and Form 29 for giving consent to act as a
Director in case of public company should be given.

Registration Fee
The amount of registration fee payable is regulated with reference to the amount of
authorised capital of the proposed company.

Certificate of Incorporation
Once the company, as per the Companies Act and the relevant rules, has complied with
all requirements, the Registrar will register the company and issue a Certificate of
Incorporation of company, which confirms the compliance with the requirements of the
Companies Act in regard to registration of a company. It brings the company into
existence as a legal entity.

Issue of Share Capital

After obtaining registration, the company proceeds with its business for which it requires
funds. In case of a private company, the capital is to be raised by way of private
arrangements whereas a public limited company can raise funds from the public. First of
all, the company will issue shares to the subscribers to its memorandum and other
members of the company. The issued capital must not exceed the authorised capital of the
company.

It is necessary for a public limited company to obtain the Certificate of Commencement

of Business before commencing the business.

For more details please contact Ministry of Company Affairs at http://www.dca.nic.in.

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.

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.

Joint Ventures/Licensing

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.

Once a decision to go with a joint venture is made, the following practical tips will be of
use to US firms: define each partner's roles and expectations because equality and trust
will help keep partners together; experience is a key ingredient; there is no substitute for
thorough research; and look at the long term.

A foreign company invests in India either through automatic approval by the RBI or
through the Foreign Investment Promotion Board (FIPB). Automatic approval by the RBI
is available if the foreign direct investment in the equity of the joint venture company
does not exceed 51% in Annexure III and IIIB industries; 50% in Annexure IIIA
industries; and 74% in Annexure IIIC industries. FIPB approval is required for all
investment proposals that are not eligible for automatic approval. The rules regarding
equity limits are being constantly liberalised and revised.

High-priority (Annexure III) industries: India has identified 35 industries (called

Annexure III industries) where investment is sought on a priority basis. These 35
industries, as defined by the Government in Annexure III to its statement on Industrial
Policy of July 24, 1991, include the following: metallurgical industries; boilers and steam
generating plants; prime movers (other than electrical generators); electrical equipment;
transportation equipment; industrial machinery and equipment; agricultural machinery;
earth-moving machinery; industrial instruments; scientific instruments; fertilisers;
chemicals; drugs and pharmaceuticals; paper, pulp and paper products; heavy-duty
rubberised and plastic products; plate glass; ceramics for industrial use; cement; high-
technology reproduction equipment; carbon and carbon products; pre-tensioned high
pressure RCC pipes; rubber machinery; printing machinery; welding electrodes;
industrial synthetic diamonds; equipment for biotechnology applications; extraction and
upgrading of minor oils; prefabricated building materials; soya products; high-yield seeds
and live plants; food processing; food packaging; hotels and tourism; and software
development.

Annexure III Part A: The following is a list of industries and items where approval for
foreign equity up to 50% is automatic: mining of iron ore; mining of metal ores other
than iron ore and uranium ores; mining of non-metallic minerals not elsewhere classified.

Annexure III Part B industries: The following is a list of additional industries and items
where approval for foreign equity up to 51% is automatic. Manufacture of food products;
cotton textiles; wool, silk and human-made fibres; water-proof textile fabrics; basic
chemicals and chemical products except products of petroleum and coal; rubber, plastic,
petroleum and coal products; metal products and parts except machinery and equipment;
non-metallic mineral products; machinery and equipment other than transport equipment;
land and water transport support services and services incidental to transport not
elsewhere classified; renting and leasing; business services not elsewhere classified;
health and medical services; and tourism related industry.

Annexure III Part C industries: The following is a list of additional industries and items
where approval for foreign equity up to 74% is automatic: mining services; basic metals
and alloy industries; manufacture of medical, surgical, scientific and measuring
appliances and equipment; industrial process control equipment; meters for electricity,
water and gas; laboratory and scientific equipment; photographic, cinematographic and
optical goods; construction of electricity generation, transmission and distribution
projects; construction of hydroelectric power and industrial plants; non-conventional
energy generation and distribution; construction and maintenance of ocean and inland
and water transport; refrigerated cold-storage and warehousing of agricultural products.

Industries reserved for the small-scale sector: About 506 items are reserved for
manufacture by the small-scale sector (please log on to http://www.laghu-
udyog.com/publications/reserveditems/resvex.htm for the list). A small-scale unit is
defined by an investment limit of $222,222 (Rs10m) in plant and machinery. These
industries and investment requirements may be revised from time-to-time. Ice cream,
biscuits, farm tools, automobile component and corrugated paper and board are examples
of products, which have recently been de-reserved and opened up for manufacture by
non-small scale units.

Foreign equity in a small-scale undertaking is permissible up to 24%. However, there is

no bar on a higher foreign equity holding if the unit is willing to give up its small-scale
status. Non-small scale units can also manufacture items reserved for the small-scale
sector. In cases where (a) a non small-scale unit and (b) a small-scale unit with foreign
investment beyond the 24% manufactures small scale reserved item(s), an industrial
license carrying a mandatory export obligation of 50% of their production within a
specified time frame is required.

Industries subject to compulsory licensing: 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.

Industrial units exempt from obtaining an industrial license are required to file an
Industrial Entrepreneur Memoranda with the Secretariat of Industrial Assistance (SIA) in
the Ministry of Commerce and Industries.

Only five industries are subject to compulsory licensing in India. The need for licensing
is attributed to safety, environmental and defence related considerations. The licensing
authority in this case is the Ministry of Industrial Development and the industries are:
distillation and brewing of alcoholic drinks; cigars and cigarettes of tobacco and
manufactured tobacco substitutes; electronic aerospace and defence equipment of all
types; industrial explosives including detonating and safety fuses, gun powder,
nitrocellulose and matches and hazardous chemicals.

Industries reserved for the public sector: Some industries are reserved exclusively for the
public sector. The following industries are not available for private investment unless a
specific approval is obtained: arms and ammunition and allied items of defence
equipment, defence aircraft and warships, atomic energy, and railway transport.

Foreign Investment Promotion Board: The FIPB in the Ministry of Finance is a high-
level central agency that deals and clears proposals for investment in India. The chairman
of the Board is the Secretary of the Department of Economic Affairs. Other Board
members consist of the Secretaries in the Ministries of Commerce and Industries, and the
Economic Relations Secretary in the Ministry of External Affairs. Other members can be
co-opted from senior government officials, and professional experts from industry,
commerce and banks, as and when required.

Applications are received by the FIPB through the Secretaries for Industrial Assistance
(SIA). The SIA was established within the Department of Industrial Policy and
Promotion in the Ministry of Industry. It provides a single window for entrepreneurial
assistance, investor facilitation, processing of all applications that require Government
approval, assisting entrepreneurs and investors in setting up projects (including liaison
with other organisations and state governments) and monitoring the implementation of
projects. Applications can also be made with Indian missions abroad. Applications
received by SIA are placed before the FIPB within 15 days of receipt. The Board has the
flexibility to negotiate with investors. The FIPB's decisions are communicated by SIA,
normally within six weeks of receipt of the application.

Investment in the following areas is expected to be accorded priority in considering

investment applications: items listed in the automatic approval list, where conditions for
automatic approval are not met; infrastructure; items with export potential; projects with
large employment potential, particularly in rural areas; items which have a direct or
backward linkage with the agricultural sector; socially relevant projects such as hospitals
and life saving drugs; and projects which induct new technology or infuse capital. If the
US investor has written a comprehensive proposal, provided details, and the FIPB is fully
satisfied that the investment meets India's industrial development goals, approval can be
granted in as little as three weeks. Proposals that are badly formulated, do not meet FIPB
goals, and invite objections on political, environmental or public health or welfare
grounds are likely to be denied.
For more details please log on to: http://dipp.nic.in/manual/manual_11_05.pdf

Selling to the Government

Indian Government procurement practices and procedures often lack transparency, and
standardization, which can frustrate foreign suppliers. The process is improving under the
influence of fiscal reform policies such those set down in their newly-revised Defence
Procurement Procedure–2005 (Capitol Procurements) guidance.
(http://mod.nic.in/dpm/welcome.html). Specific price and quality preferences for local
suppliers were largely abolished in 1992. Recipients of preferential treatment are now
supposedly limited to the small-scale industrial and handicrafts sectors, which represent a
very small share of total government procurement. There are occasional reports of
government-owned companies calling in the performance bonds of foreign companies,
even when there was no dispute over performance. It is not unusual for negotiations to
drag on for months and be held up at more than one of the sundry levels within the Indian
bureaucracy for long periods with no discernible movement or reason given for lack of
progress. With this in mind, some firms seek out local representatives who are familiar
with the culture and customs of India, and are familiar with ways to expedite their
product or service through the maze of bureaucracy in Government ministries.

When foreign financing is involved, principal government procurement agencies tend to

follow multilateral development bank requirements for international tenders. However,
in other purchases, current procurement practices can result in discrimination against
foreign suppliers when goods or services of comparable quality and price are available
locally. The Government of India regularly advertises its requirements for the purchase
of supplies and new equipment. These foreign government tenders are reported by the US
Department of Commerce, which then publishes them in its Economic Bulletin Board
and in the National Trade Data Bank. For more information about these information
services, including subscription prices, please call the US Department of Commerce
Trade Information Centre at USA-TRADE, or 1-800-872-8723.

Defence Sales

While most of India’s defence equipment was previously purchased from non-US sources,
and largely still is, India has recently expressed increased interest in US weapons systems.
The Indian defence sales market today offers great potential for defence suppliers but US
businesses desiring to make defence related sales to India should be aware that the
process can be a daunting one.

US defence suppliers should assess the merits of having some representation in India to
assist in market assessments, logistical support, and after-sales contact. Those firms that
have used such personnel have often found them invaluable. This representation can
either be through the supplier’s own office presence in India (see above section
“Establishing an Office”), or through an authorised representative. Caution must be
exercised when seeking local expertise because unless strict guidelines are followed,
Indian law may be broken. In November 2001, the Government of India lifted the ban on
agents in defence purchases. Regulatory provisions were announced for Indian-authorised
representatives and agents, where permissible, in defence purchases. Details of these
provisions are given on the website of the Ministry of Defence:
http://mod.nic.in/newadditions/repagent.htm. The regulations require both the principal
as well as the potential local representative to meet the provisions stipulated – it is the
foreign supplier who has to make an application to the Ministry to register the
relationship reached with the agent. The regulations also call for complete disclosure of
the principal agent relationship in all its aspects.

The process for gaining clearance from the Government of India (GOI) to hire such a
representative can also be very slow. These requirements have discouraged many
established local representatives in the defence business from registering as agents for
new defence deals. The Office of Defence Cooperation (ODC) within the US Embassy in
New Delhi is a good point of contact for US defence firms. The ODC will assist by
providing contact details of Military Service offices that are the main purchasers of
foreign defence goods for India and offer advice on strategies for defence related sales.
ODC may also accompany US defence suppliers to an initial meeting with GOI officials
as an impartial observer. The offices of the US Commercial Service in New Delhi and
Chennai are also good points of contact for US defence firms initiating sales efforts in
India.

The tender process that the GOI uses to acquire new defence equipment is relatively slow
and complex, with the average time between initial release of a request for proposal and
the final contract award often taking several years. The most successful firms are those
with the endurance to follow the process through and the situational awareness that
comes from local representation or from contact with GOI officials. Tenders are not
generally posted to the Internet, but are instead provided to those firms that are registered
with the GOI. Selected tenders can be found at: http://mod.nic.in/tenders/welcome.html.
One way to get registered is to meet with a representative of the appropriate Ministry of
Defence office. Additional detail on the Indian acquisition process can be found in the
document located at:
http://mod.nic.in/newadditions/dpp02.pdf

Electronic Commerce

In addition to traditional selling techniques, the Internet is also gaining importance as a

selling method. As the number of Internet users continues to increase with the reduction
in cost of Internet access, the Indian e-tailing market also expands. E-commerce is
growing at a rapid pace in India. The latest data from the Internet and Mobile Association
of India (IAMAI) estimates e-commerce turnover at $268m (Rs11.8bn) in 2005, and this
number is expected to double to $522m (Rs23bn) in 2006. Over 440,000 business-to-
consumer (B2C) transactions are made per month through the internet. Besides buying
goods, these deals include booking hotels, net banking, bill payments, stock trading, job
searches and matrimonial searches.
According to IAMAI, e-ticketing for railways and airlines is the biggest contributor to
B2C transactions, followed by gift items like books and videos, flowers, jewellery,
watches and apparels. Other products traded through e-commerce include: Consumer
electronics including mp3 players, digital cameras, DVD players and home appliances.

The growth in e-commerce is due in part to the increasing number of broadband users.
According to the Telecom Regulatory Authority of India’s (TRAI) quarterly performance
indicators, the internet user base has grown 15% from 2004 to 2005, with private
operators accounting for 2.6m users. Broadband usage has, however, had slow growth
with just over 600,000 subscribers against a target of 3m by the end of 2005. TRAI
pointed out that the minimum monthly tariff for broadband had come down to that of
dial-up Internet charges for a month of similar usage. The demand for broadband services
had increased, but the supply was still a cause of concern.

The global technology research firm IDC is also upbeat on the potential for online
shopping in India. Similarly, industry experts believe that online business-to-business
commerce will increase substantially in India because it meets a genuine need and portals
offering such services are built on strong revenue models.

7.4 FORMS OF BUSINESS 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 Branch Joint-Venture or
Office Office Subsidiary
(LO) (BO) Company

PERMISSIBLE ACTIVITIES

Product/Corporate Promotion YES YES YES

Business Development YES YES YES

Technical Support YES YES YES

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

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 N.A. 41.82% 33.66%

Profit
Can It Repatriate Profit N.A. YES YES

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

Minimum Authorised Capital INR.100,000 for

Legally Required a private limited
Minimum Paid-up Capital Legally company
Required INR.500,000 for a
public limited
NIL NIL company
INR.100,000 for
both.

N.A. N.A. 100% (Subject

Maximum shareholding that a to applicable
foreign company can have regulations)

REGULATORY
PERMISSIONS/REGISTRATI
ONS

Permissions/Registrations Reserve Reserve Registrar of

Required From Bank of Bank of
India India Companies; Reserve
Bank of India;
Foreign
Investment
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.
7. 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

INDIAN TRADE PROMOTION ORGANISATIONS

Apex Chambers of Commerce

Federation of Indian Chambers of Commerce and Industry

Federation House, Tansen Marg,
New Delhi - 110 001, India
Tel: (91) - 11 - 23738760-70
Fax: (91) -11 - 23320714/23721504
E-mail: ficci@ficci.com
Website: www.ficci.com

Confederation of Indian Industry

23 Institutional Area, Lodi Road,
New Delhi 110003, India
Tel: (91) -11 - 24629994-7, 24626164/24625407
Fax: (91) -11 - 24626149/24633168
E-mail: ciico@ciionline.org
Website: www.ciionline.org

PHD Chamber of Commerce and Industry

PHD House, Asian Games Village
New Delhi - 110016
Tel: (91) -11 - 26863801-04
Fax: (91) -11 - 26863135 /2668392/26855450
E-mail: phdcci@del2.vsnl.net.in

The Associated Chambers of Commerce and Industry of India

147 B, Gautam Nagar,
Gulmohar Enclave, New Delhi 110 049, India
Tel: (91) - 11 - 26512477/78/79
Fax: (91) - 11 -26512154
E-mail: assocham@sansad.nic.in
Website: www.assocham.org

Bombay Chamber of Commerce & Industry

Mackinnon Mackenzie Building, 3rd Floor,
4, Shoorji Vallabhdas Road, Ballard Estate,
MUMBAI - 400 001.
INDIA
Tel.: (0091-22) 22614681-84
Fax : (0091-22) 22621213
E-mail : bcci@bombaychamber.com
The Indian Merchants' Chamber of Commerce
Head Office
IMC Bldg., IMC Marg,
Churchgate, Mumbai - 400 020 India.
Tel : 91-22-22046633
Fax : 91-22-22048508 / 22838281
E-Mail : imc@imcnet.org

Export Promotion Councils

The Federation of Indian Export Organizations
"Niryat Bhawan", Rao Tula Ram Marg, Opp. Army Hospital Research & Referral,
New Delhi -110057, INDIA
Phone: 91-11-26150101-04 Fax: 91-11-26150066/26150077
Email : fieo@nda.vsnl.net.in

Engineering Export Promotion Council

World Trade Centre, 14/IB, Ezra Street
Calcutta - 700 001
Tel: (91) - 33 - 263080/81/82/83/84/85
Fax: (91) - 33 - 2258968
E-Mail: eepc-ho@eepc.ho.cmc.net.in
Website: http://www.eepc.gov.in

Overseas Construction Council of India

H-118, Himalaya House, 11th Floor,
23, Kasturba Gandhi Marg, New Delhi - 110 001
Tel: (91) - 11 - 23312936/33277550
Fax: (91) - 11 - 23312936
Website: http://www.occi.org
Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council
Jhansi Castle, 4th Floor, 7 - Cooperage Road
Bombay - 400 001
Tel: (91) - 22 - 22021288/ 22021330/ 22026549
Fax: (91) - 22 - 22026684
Website: http://www.chemexcil.com

Chemicals and Allied Products Export Promotion Council

World Trade Centre, 14/IB, Ezra Street
Calcutta - 700 001
Tel: (91) 33 - 2267733/ 34/35, 2267082
Fax: (91) 33 - 22255070
E-Mail: capexilh@cal.vsnl.net.in
Website: http://www.capexil.com

Indian Chemical Manufacturers Association (ICMA)

Sir Vithaldas Chambers,
16 Mumbai Samachar Marg,
Mumbai - 400 023.
Tele : +91-22-22047649/ 22048043/ 22846852.
Fax : +91-22-22048057.
Website : http://www.icmaindia.com
E-mail : mail@icmaindia.com

Plastics & Linoleums Export Promotion Council

Centre-I, 11th Floor, World Trade Centre, Cuffee Parade,
Colaba, Mumbai - 400 005 - India
Tel: (91) 22 2184 4474/2218 4569
Fax : (91) 22 2218 4810
E-Mail: plexcon@giasbm01.vsnl.net.in, plexho@bom3.vsnl.net.in
Website: http://www.plexcon.com

Council for Leather Exports

Chairman
Leather Centre, 3rd & 4th Floor, 53, Sydenhams Road,I
Periameret, Chennai 600 003
Tel: 91 - 44 -2589098/2582041
Fax: 91 - 44 - 2588713/2587083
Cable : LEXPROCIL
E-Mail: cle@giasmdol.vsnl.net.in
Website: http://www.leatherindia.com
Sports Goods Export Promotion Council
1-E/6, Swami Ram Tirth Nagar
Jhandewalan Extension
New Delhi - 100 055
Tel: (91) 11 -2525695/ 2529255
Fax: (91) 11 - 27532147
Website: http://www.sportsgeepc.com

Gem and Jewellery Export Promotion Council

Chairman
Diamond Plaza, 5th Floor,
391-A, Dr. Dadasaheb Bhadkamkar Marg
Bombay - 400 004
Tel: (91)-22-23871135/23888004
Fax: (91)-22-23868752
E-mail: gjepc@vsnl.com
Website: http://www.gjepc.org

Shellac Export Promotion Council

World Trade Centre, 14/IB, Ezra Street
Calcutta - 700 001
Tel: (91) 33 - 22482070
Fax: (91) 33 - 22484046

Cashew Export Promotion Council

Post Box NO. 1709, Chittor Road
Ernakulam South, Cochin - 682 016
Tel: (91) 484 - 2351973/2361459
Fax: (91) 484 -2370973
E-Mail: cashew@vsnl.com
Website: http://www.cashewindia.org

Electronics and Computer Software Export Promotion Council

PHD House, Phase-II, 3rd Floor
Opp. Asian Game Village
New Delhi - 110 016
Tel: (91) 11 - 2696103/26960206/2654463
Fax: (91) 11 - 26853412
E-Mail: esc@giasdl01.vsnl.net.in
Website: http://www.indiansources.com
Apparel Export Promotion Council
15, NBCC Towers, Bhikaji Cama Place
New Delhi - 110 066
Tel: (91) 11 - 883351/26888505/26888656/26888300/26884578
Fax: (91) 11 - 26168584
E-mail: hodg@nda.vsnl.net.in
Website: http://www.aepc.com

Carpet Export Promotion Council

101-A/1, Krishna Nagar, Safdarjung Enclave
(Behind Govt. Sr. Sec. School)
New Delhi - 110 029
Tel: (91) 11 - 2602742/ 2601024
Fax: (91) 11 - 26115299/ 26847903
Website: http://www.indiancarpets.com

Cotton Textile Export Promotion Council

5th Floor, Engineering Centre,
9 Mathew Road, Mumbai - 400004 (INDIA)
Tel: (91)-22-23632910 to 23632913
Fax: (91)-22-23632914
Email: exprocil@bom3.vsnl.net.in
Website: http://www.texprocil.com
Export Promotion Council for Handcrafts
6, Community Centre, 2nd Floor, Basant Lok
Vasant Vihar, New Delhi - 110 057
Tel: (91) 11 - 2687537726860087
Fax: (91) 11 - 2606144
E-Mail: secy.epch@axcess.net.in
Website: http://www.epcd.asiansources.com

Handloom Export Promotion Council

18, Cathedral Garden Road
Nunagambakkam, Chennai - 600 034
Tel: (91) 44 - 28276043/ 28278879
Fax: (91) 44 - 28271761
E-Mail: hepccatp@vsnl.com
Website: http://www.hometextilesonline.com/index1.htm

The Indian Silk Export Promotion Council

62, Mittal Chambers, 6th Floor
Nariman Point, Mumbai
Tel: (91) 22 - 22025866, 22207662, 22049413
Fax: (91) 22 - 22874606
Website: http://www.silkepc.com
Synthetic & Rayon Textile Export Promotion Council
Resham Bhawan, 78, Veer Nariman Point Road
Mumbai - 400 020
Tel: (91) 22 - 22048797/ 22048690
Fax: (91) 22 - 22048358
E-Mail: srtepc@vsnl.com
Website: www.synthetictextiles.org

Wool & Woolens Export Promotion Council

312/714, Ashoka Estate, 24, Barakhamba Road, New Delhi-110001
Tel:91-11-23315512/23315205
Fax:91-11-23314626
Website: http://www.wwepc.com

Commodity Boards

Rubber Board
P.B.No.1122, Kottayam,
Kerela 686 002
Tel: (91)-481- 2571231,2571232, 2571235, 2571236, 2571361
Fax: (91)-481- 2571380
E-mail: rbedp@vsnl.com
Website: http://www.rubberboard.com
Coffee Board
1-Dr, Ambedkar Veedhi,
Bangalore-560 001
Tel: (91)-80- 2257890
Fax: (91)-80- 22255557
Website: http://indiacoffee.org

Tea Board
14, BTM Sarani, Brabourne Road,
P.B.No.2172, Calcutta-700 001
Tel: (91)-33- 2235-1411
Fax: (91)-33-2221-5715
E-Mail: teadevex@cal.vsnl.net.in
Website: http://tea.nic.in

Tobacco Board
P.B.No.322, G.T.Road,
Guntur-522 004
Tel: (91)-863- 2358399
Fax: (91)-863- 2354232
E-mail: tobboard@vsnl.com
Website: http://www.indiantobacco.com
Spices Board
Sugandha Bhavan, N.H. Bypass,
P.B.No.2277, Palarivattom.P.O.
Cochin-682025
Tel: (91)-484- 2333610, 2333616, 2347965
Fax: (91)-484- 2331429/ 2334429
E-mail: mail@indianspices.com
Website: http://www.indianspices.com

SERVICE INSTITUTIONS

India Trade Promotion Organisation (ITPO)

Pragati Bhawan, Pragati Maidan, New Delhi - 110 001
Phone: (91) - 11 - 23371540
Fax: (91) - 11 - 23318142/ 23317896
E-Mail: itpo@giasdl01.vsnl.net.in
Website: http://www.indiatradepromotion.org

National Centre for Trade Information (NCTI)

NCTI Complex, Pragati Maidan, New Delhi - 110 001
Phone: (91) - 11 - 23371980/81
Fax: (91) - 11 - 23371979
E-Mail: ncti@x400.nicgw.nic.in
Website: http://www.nic.in/ncti

Export Credit Guarantee Corporation (ECGC)

Express Tower, 10th Floor, Nariman Point, Mumbai - 400 021
Phone: (91) -22 2284 5452/2284 5463/2284 5471/ 2284 5472/
Fax: (91) - 22 - 22045253, 22023267
E-Mail: ecgcedp@bom2.vsnl.net.in
Website: http://www.ecgcindia.com

Export Import Bank

Centre one, Floor 21, World Trade Centre
Cuffe Parade, Mumbai- 400 005
Phone: (91) - 22 - 22185272
Fax: (91) - 22 - 22182572
E-Mail: eximcord@vsnl.com
Website: http://www.eximbankindia.com
Export Inspection Council
11th Floor, Pragati Tower
26, Rajendra Place, New Delhi - 110 056
Phone: (91) - 11 - 25730016,25712239

Indian Institute of Packaging

E-2, MIDC Area, Post Box No. 9432,
Andheri (East), Mumbai - 400 093
Phone: (91) - 22 - 28219803, 28216751
Fax: (91) - 22 -28375302
E-mail: iip@bom4.vsnl.net.in
Website: http://iip-in.com

Indian Council of Arbitration

Federation House, Tansen Marg,
New Delhi - 110 001
Phone: (91) - 11 - 23319251, 23719103
Fax: (91) - 11 - 23320714, 23721501
Website: http://www.ficci.com/icanet

Federation of Indian Export Organisations (FIEO)

PHD House, 3rd Floor,
Opp. Asian Games Village, New Delhi - 16
Phone: (91) -11 -2686 4524, 26851310/12/14/15
Fax: (91) - 11 - 2686 3087/2696 7859
Email:fieo@nda.vsnl.net.in
Website: http://www.fieo.com

Indian Diamond Institute

Katargam, GIDC, Post Box No. 508
Sumul Diary Road, Surat - 395008, Gujarat
Phone: (91) - 261 - 2480809
Fax: (91) - 261 - 2481110
E-Mail: info@diamondinstitute.net
Website: http://www.diamondinstitute.net

The State Trading Corporation of India Ltd.

Jawahar Vaypar Bhawan
Tolstoy Marg, NEW DELHI-110001.
Tel: (91)-11-23313177, (91) 11-23701177
Fax: (91) 11-23701123
E-mail: stcindia@vsnl.com
Website : http://www.stcindia.com
Indian Investment Centre
Jeevan Vihar,
Parliament Street, New Delhi - 110 001
(91)-11-23733673, 23733679, 23733693
(91)-11-23732245
E-mail: iic@giasdl01.vsnl.net.in
Website: http://iic.nic.in
Some Important Addresses
Joint Secretary (IPP),
Ministry of External Affairs,
South Block,
New Delhi-110011.
Tel.: 23014367/301 8709
Fax: 2379 2B14, 301 4367
http://www.meadev.nic.in/
Joint Secretary
Secretariat for Industrial Assistance
(SIA)
Department of Industrial Development
Ministry of Industry
Udyog Bhavan
New Delhi - 110 011
Tel.: 91-11-2301 1983
Fax: 91-11-2301 1034
http://indmin.nic.in/
Foreign Investment Promotion Board
(FIPB)
Ministry of Industry
New Delhi - 110 011.
Tel.: 91-11-2301 1815, 2301 1983
Fax: 91-11-2301 6298
http://indmin.nic.in/
Joint Secretary
Investment Promotion Cell
Ministry of Power
Shram Shakti Bhawan, Rafi Marg
New Delhi - 110 001..
Tel.: 91-11-23714842
Fax: 91 -11 –23717519
http://powermin.nic.in/
Joint Secretary
Department of Telecommunication
Sanchar Bhavan
New Delhi.
Tel.:2371 7413
Fax: 2371 1514
Joint Secretary (Refineries)
Ministry of Petroleum
Shastri Bhavan, New Delhi.
Tel.: 2338 1832
Fax: 2338 3585
http://petroleum.nic.in/
Joint Secretary (Exploration)
Ministry of Petroleum and Natural Gas
Shastri Bhavan
Dr. Rajendra Prasad Marg.
New Delhi - 110 001
Tel.: 23386935
Fax: 23386479
http://petroleum.nic.in/
Joint Secretary (Marketing)
Ministry of Petroleum and Natural Gas
Shastri Bhavan
Dr. Rajendra Prasad Marg
New Delhi - 110 001.
Tel.: 91-11-2381 052
Fax: 91-11-2384 787
http://petroleum.nic.in/
Joint Secretary(A)
Ministry of Civil Aviation
B Block, Rajiv Gandhi Bhavan
Safdarjung Airport
New Delhi - 110 003.
Tel.: 2461 0369
Fax: 2461 0354
http://civilaviation.nic.in/
Joint Secretary
Ministry of Steel & Mines
Deptt. of Mines, Udyog Bhavan
New Delhi.
Tel.: 2338 4741
Fax: 2338 6402
http://www.dotindia.com/
Director General (Roads)
Ministry of Surface Transport
Transport Bhavan
1, Sansad Marg,
New Delhi - 110 001.
Tel.: 91-11-2371 5159
Fax: 91-11-2371 0236
Joint Secretary (Ports)
Ministry of Surface Transport
Transport Bhavan
Sansad Marg,
New Delhi.
Tel.: 2371 1873
Fax: 2332 8549
http://shipping.nic.in/
http://dgshipping.nic.in/
Joint Secretary (Shipping)
Transport Bhavan
1, Sansad Marg,
New Delhi - 110 001.
Tel.: 91-11-2371 0189
Fax: 91-11-2372 2855
http://shipping.nic.in/
http://dgshipping.nic.in/
Additional Director General
Department of Tourism
Transport Bhawan
1, Sansad Marg
New Delhi - 110 001.
Tel.: 91-11-2371 5717
Fax: 91-11-2371 0518
http://www.tourismofindia.com/
Reserve Bank of India (RBI)
Exchange Control Department
Central Office Building
Shaheed Bhagat Singh Road
PB No. 1055
Mumbai - 400 023.
Tel.: 91-22-2266 3596
Fax: 91-22-2266 5330, 2266 2105, 2265
4121
http://www.rbi.org.in/
Chief Commissioner (Investment and
NRIs)
India Investment Centre (IIC)
Jeevan Vihar, Sansad Marg
New Delhi - 110 001.
Joint Secretary
Deptt. of Electronics
Electronic Niketan, CGO Complex
New Delhi - 110 003
Tel.: 2436 3078
Fax: 2436 3101
Joint Secretary (Pl)
Department of Chemicals
Shastri Bhavan
Dr. Rajendra Prasad Marg
New Delhi - 110 001.
Tel.: 91-11-23385131
Fax: 91-11-23382294
http://chemicals.nic.in/
Joint Secretary
Ministry of Food Processing
Panchsheel Bhawan
Khel Gaon Marg
New Delhi - 110 049
Tel.: 91-11-2694 2476, 649 2475
Fax: 91-11-2649 3228
http://mofpi.nic.in/
Export Import Bank of India (EXIM)
PB 16100, Centre One
World Trade Centre, Cuffe Parade
Mumbai - 400 005.
Tel.: 91-22-2218 5272, 2218 2255
Fax: 91-22-2218 2690
http://eximbankindia.com/
Director General, Foreign Trade
(DG FT)
Udyog Bhavan
New Delhi - 110 001.
Tel.: 91-11-2301 1777
Fax: 91 -11 -2301 1779
http://www.nic.in/eximpol
The Development Commissioner
Cochin Export Processing Zone
Kakkanad
Cochin 682 030
Tel.: 91-484-2422 571
 Tel.: 91-11-2373 3673, 2373 3679 Fax: 91-484-2422 530
Fax: 91-11-2373 3712, 2373 2245

The Development Commissioner

The Development Commissioner
Noida Export Processing Zone
Kandla Free Trade Zone
Noida Dadri Road
Kandla
Phase II
Gandhidham - 370 230.
Noida - 201 305
Tel.: 91-2836-52194, 52475, 52229
Tel.: 91-11-2856 7270--73 (4 lines)
Fax: 91-2836 52250
Fax: 91-11-2856 2314
The Development Commissioner The Development Commissioner
Madras Export Processing Zone Santa Cruz Export Processing Zone
GST Road, N.H. 45, Tambaram Andheri East
Chennai - 600 045 Mumbai - 400 096
Tel.: 91-44-2236 8232, 2236 8200 Tel.: 91-22-2836 7143
Fax: 91-44-2236 8218, 2236 8291 Fax: 91-22-2837 6856
The Development Commissioner
The Development Commissioner
Falta Export Processing Zone
Visakhapatnam Export Processing Zone
2nd MSO Building, Room No. 4
Udyog Bhawan Complex, Siripuram
Nizam Palace, 234/4
Junction
AJC Bose Road
Visakhapatnam - 530 003
Calcutta - 700 020
Tel.: 91-891-2575449, 2554577
Tel.: 91-33-22472263, 2404092
Fax: 91-891-2551259
Fax: 91-33-22477923

Other Trade Bodies

Trade Bodies URL
Association of Indian Forging www.indianforging.org
Industry
Indian Machine Tool Manufacturers' www.imtma.in
Association
Automotive Component www.acmainfo.com
Manufacturers Association of India
India Brand Equity Foundation www.ibef.org
Refrigeration & Airconditioning www.ramaindia.org
Manufacturers' Association
Design in India www.designinindia.net
Society of Indian Automobile www.siamindia.com
Manufacturers
American Case Management www.acmaweb.org
Association
Indian Boilers Manufacturers' www.ibmaindia.com
Association
Indiastat.com www.indiastat.com
Elcoma www.elcoma.com/
 8. IMPORT LEGISLATION
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.
Second Hand Goods
All second hand goods, except second hand capital goods, shall be restricted for
imports and may be imported only in accordance with the provisions of this
Policy, ITC(HS), Handbook (Vol.1), Public Notice or a Licence/certificate/
permission/Authorisation issued in this behalf.

Import of second hand capital goods, including refurbished/ re-conditioned spares

shall be allowed freely. However, second hand personal computers/laptops,
photocopier machines, air conditioners, diesel generating sets will only be
allowed against a license issued in this behalf. Import of re-manufactured goods
shall be allowed only against a licence issued in this behalf.

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.

Re-import of goods repaired abroad

Capital goods, equipments, components, parts and accessories, whether imported
or indigenous, except those restricted under ITC (HS) may be sent abroad for
repairs, testing, quality improvement or upgradation or standardization of
technology and re-imported without a Licence/certificate/permission/
Authorisation.

Import of goods used in projects abroad

After completion of the projects abroad, project contractors may import, without a
licence/ certificate/ permission, used goods including capital goods provided they
have been used for at least one year.

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.
Import under Lease Financing
Permission of licensing authority is not required for import of new capital goods
under lease financing.

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
 9A. BANKING SYSTEM AND EXCHANGE POLICIES
Reserve Bank of India
The Reserve Bank of India was established on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act, 1934.

Subsidiaries
Fully owned: National Housing Bank(NHB), National Bank for Agriculture and Rural
Development(NABARD), Deposit Insurance and Credit Guarantee Corporation of
India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
Majority stake: State Bank of India

Banking Structure

At present the number of nationalised banks is 20. Several Foreign banks were allowed to
operate as per the guidelines of RBI. At present the banking system can be classified in
following categories:

Public Sector Banks

• Reserve Bank of India

• State Bank of India and its 7 associate Banks
• Nationalised Banks (20 in number)
• Regional Rural Banks sponsored by Public sector Banks

Private Sector Banks

• Old Generation Private Banks

• New Generation Private Banks
• Foreign Banks in India
• Scheduled Co-operative Banks
• Non Scheduled Banks

Co-Operative Sector Banks

• State Co-operative Banks

• Central Co-operative Banks
• Primary agriculture Credit Societies
• Land Development Banks
• Urban Co-operative Banks
• State Land Development Banks
Development Banks

• Industrial Finance Corporation of India (IFCI)

• Industrial Development bank of India (IDBI)
• Industrial Credit & Investment corporation of India (ICICI)
• Industrial Investment Bank of India (IIBI)
• Small Industries Development Bank of India (SIDBI)
• National Bank for Agriculture & Rural Development (NABARD)
• Export-Import Bank of India

Acts governing Banking Operations

• Companies Act, 1956:Governs banks as companies

• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980:
Relates to nationalisation of banks
• Bankers' Books Evidence Act
• Banking Secrecy Act
• Negotiable Instruments Act, 1881
• Acts governing Individual Institutions
• State Bank of India Act, 1954
• The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
• The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act,
1993
• National Bank for Agriculture and Rural Development Act
• National Housing Bank Act
• Deposit Insurance and Credit Guarantee Corporation Act
List of Commercial Banks
S.No Names of Commercial Banks
1 ABN AMRO Bank N.V.
2 Abu Dhabi Commercial Bank Ltd.
3 American Express Bank Ltd.
4 Arab Bangladesh Bank Limited
5 Allahabad Bank
6 Andhra Bank
7 Antwerp Diamond Bank N.V.
8 Bank Internasional Indonesia
9 Bank of America N.A.
10 Bank of Bahrain & Kuwait BSC
11 Barclays Bank Plc
12 BNP PARIBAS
13 Bank of Ceylon
14 Bharat Overseas Bank Ltd.
15 Bank of Baroda
16 Bank of India
17 Bank of Maharashtra
18 Canara Bank
19 Central Bank of India
20 Calyon Bank
21 Citibank N.A.
22 Cho Hung Bank
23 Chinatrust Commercial Bank Ltd.
24 Centurion Bank of Punjab Limited
25 City Union Bank Ltd.
26 Coastal Local Area Bank Ltd.
27 Corporation Bank
28 Catholic Syrian Bank Ltd.
29 Deutsche Bank AG
30 Development Credit Bank Ltd.
31 Dena Bank
Type of Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Nationalized Bank
Nationalized Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Indian Private Bank
Nationalized Bank
Nationalized Bank
Nationalized Bank
Nationalized Bank
Nationalized Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Private Foreign Bank
Indian Private Bank
Indian Private Bank
Indian Private Bank
Nationalized Bank
Indian Private Bank
Private Foreign Bank
Indian Private 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
J P Morgan Chase Bank, National Private Foreign Bank
39 Association
Krung Thai Bank Public Company Private Foreign Bank
40 Limited
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
SBI Commercial and International wholly owned subsidiary of SBI
55 Bank Ltd.
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
The Development Bank of Singapore Private Foreign Bank
67 Ltd. (DBS Bank Ltd.)
The Hongkong & Shanghai Banking Private Foreign Bank
68 Corporation Ltd.
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
Currency

The Indian currency is called the Indian Rupee (INR) and the coins are called paise. One
Rupee consists of 100 paise.

Present denominations: At present, notes in India are issued in the denomination of Rs.5,
Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called bank notes as
they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the
denominations of Re.1 and Rs.2 has been discontinued as these denominations have been
coinised. However, such notes issued earlier are still in circulation. The printing of notes
in the denomination of Rs.5 had also been discontinued; however, it has been decided to
reintroduce these notes so as to meet the gap between the demand and supply of coins in
this denomination. The Reserve Bank can also issue notes in the denominations of one
thousand rupees, five thousand rupees and ten thousand rupees, or any other
denomination that the Central Government may specify. There cannot, though, be notes
in denominations higher than ten thousand rupees in terms of the current provisions of the
Reserve Bank of India Act, 1934. Coins can be issued up to the denomination of Rs.1000.

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.

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.

General Permission under FEMA

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).

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.

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.

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.

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.

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.

Current Account Transactions

Prior approval of the RBI is required for acquiring foreign currency above certain
limits for the following purposes:
• Holiday travel over USD 10,000 p.a.
• Gift / donation over USD 5,000 / USD 10,000 per beneficiary p.a.
• Business travel over USD 25,000 per person
• Foreign studies as per estimate of institution or USD 100,000 per academic
year
• Architectural / consultancy services procured from abroad over USD
1,000,000 per project
• Remittance for purchase of Trade Mark / Franchise
• Reimbursement of pre incorporation expenses over USD 100,000
• Remittances exceeding USD 25,000 p.a. (over and above ceilings
prescribed for other remittances mentioned above) by a resident individual
for any current account or capital account transaction.
In certain specified cases, prior approval of the Ministry concerned is needed for
withdrawal of foreign exchange, such as: -
• Remittance of freight of vessel chartered by a PSU,
• Payment of import through ocean transport by a Govt. Department or a
PSU on c.i.f basis,
• Multi-modal transport operators making remittance to their agents abroad.

Acquisition of Immovable Property by Non-Resident:

A person resident outside India, who has been permitted by Reserve Bank of India
to establish a branch, or office, or place of business in India ( excluding a Liaison
Office), has general permission of Reserve Bank of India to acquire immovable
property in India , which is necessary for, or incidental to, the activity. However,
in such cases a declaration, in prescribed form (IPI), is required to be filed with
the Reserve Bank, within 90 days of the acquisition of immovable property.
Foreign nationals of non-Indian origin who have acquired immovable property in
India with the specific approval of the Reserve Bank of India can not transfer such
property without prior permission from the Reserve Bank of India.
 9B.METHODS OF PAYMENT
Payment System
Since paper-based currency is such an important means of payment in India (19% of the
money supply), collections are typically time-consuming and have a high reliance on
manual processing. The clearing settlements for these payments are spread over 1,040
clearinghouses, which are local-based and confined to a specific jurisdiction. The
clearinghouses are managed by either the Reserve Bank of India (RBI) or the State Bank
of India (a large nationalized bank). The Reserve Bank of India (RBI), however, has been
a key driver of change within banking in India. Clearing and payment systems have been
gradually modernized due to the efforts of the RBI. The RBI has introduced numerous
new services: MICR (magnetic ink character recognition) based check clearing,
electronic clearing service (ECS), electronic funds transfer (EFT), special electronic
funds transfer (SEFT), real-time gross settlement (RTGS), centralized funds management
system (CFSM), and a centralized funds transfer system (CFTS). The benefits of these
new services include same-day inter- and intra-city funds transfers, greater efficiency,
less risk, and larger settlement capabilities.

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.

Letter of Credit vs Bank Guarantee

A letter of credit differs from a bank guarantee. An issuing or confirming 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.

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 credit, 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 documents 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.

Letter of Credit (L/C)

Parties to a Letter of Credit:

The following persons are generally parties, to a letter of Credit:

Beneficiary: The exporter of goods in whose favour the L/C has been established.

Customer/importer: The person we intend to import the goods and instruct the bank to
establish the Letter of Credit.

Issuing Bank: The Banker in the importers country who opens 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 conditions specified by the
importer on the exporter.

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 the beneficiary can get
payment without recourse from the Confirming bank. The Confirming bank may be a
correspondent bank itself or some other bank.

Generally following types of Letter of Credit are in operation.

• Revocable or Irrevocable Letters of Credit

• Confirmed Credit
• Transferable Credit
• With or without Recourse Credit
• Revolving Letter of Credit
• Transit Credit
• Back to Back Credit
• The Sight Credit
• The Credit available against Time Draft (Usance Credit)
• The Deferred payment Credit.

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 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.

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.
10. LOCAL JUDICIAL SYSTEM
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
 11. POTENTIAL BUSINESS PARTNERS

Machine Tools, Mechanical Components

Name Brief Description Web link
HMT Pioneer in machine tools www.hmtindia.com/
business in India. Leading
manufacturer of conventional
and CNC machines. Revenues
of Rs2902 million
BFW Largest machine tools www.bfwindia.com/
manufacturer in private sector.
Collaboration with German
Machine Tool manufacturing
company. Manufacturer of
CNC horizontal and vertical
machining centers and Special
Purpose Machines.
ACE Designers Ltd Is a leading manufacturer of http://acemicromatic.com/
CNC turning centers and Auto
lathes.
Jyoti Machine Tools Leading CNC machine tools
manufacturer. Recently tiedup
with French machine tools
manufacturer Hurron
Grafenstaden SAS to produce
special purpose machine tools
to be sold in Europe.
Batliboli The Batliboi Machine Tools www.batliboi.com/i
Group consists of four
divisions, Machine Tools,
Special Purpose Machines,
Crane Foundry and an
exclusive remanufacturing and
reconditioning center.
Lakshmi Machine Lakshmi Machine Works www.lakshmimach.com/
Works Limited, founded in 1962, is
today one of the three in the
world, who manufacture the
complete range of textile
spinning machinery. During
1988, LMW added to their
formidable manufacturing
resources, a new plant to
produce CNC Machine Tools
 in technical collaboration with
M/s. Mori Seiki Co.Ltd., of
Japan. A plant that is one of its
kind in India. A state-of-art
foundry was added to the
facility during 1993.
Kennametal India Kennametal Inc. is a leading www.kennametal.com/
global supplier of tooling,
engineered components and
advanced materials that are
consumed in production
processes. Around the world,
Kennametal's metal cutting
tools are first or second in
market share in every market it
serves.
Other leading players in Machine Tools industry: Heavy Engineering Corporation, Motor
Industries Company Ltd, Lokesh Machine Ltd, Premier Ltd, TAL Manufacturing
Solutions Ltd, Godrej & Boyce Manufacturing Ltd, Mysore Kirloskar Ltd
Industrial Moulds
Om Enterprises The company is a leading www.omenterprisemould.com
manufacturer of plastic
injection moulds, compression
moulds, investment die casting
moulds, blow moulds and
pressure die casting moulds for
automobile, home-appliances,
engineering, oil and paint,
refrigerator, irrigation and
lighting applications.
Alfa Plast Mould The company is a leading www.alfamould.co.in/
manufacturer of Plastic
Injection Moulds, Compression
Moulds, Blow Moulds, hot
runner mould, Injection syringe
moulds, Cap Moulds, Pet
Preform moulds, PVC Pipe
fitting moulds, Bottle moulds,
electronic items mould,
surgical mould, pharmaceutical
products mould, automobile
parts mould, plastic test
specimen moulds, Diagnostic
industries products mould, etc.
Mechanical Designing
Elephant Deign Multidisciplinary design www.elephantdesign.com/
 company
Lopezdesign Leading design firm www.lopezdesign.com/
TCS labs Leading design & consulting www.tcs.com
firm
Iron & Steel
Steel Authority of Largest & Public Sector www.sail.co.in/
India Limited Company
Tata Steel Largest & Private Sector www.tatasteel.com/
Company
Rashtriya Ispat Leading Public Sector www.vizagsteel.com
Nigam Limited Company
JSW Steel Ltd Leading Private Sector www.jsw.in/
Company
Essar Steel Leading Private Sector www.essar.com/steel/
Company
 12. RISK ANALYSIS

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 478.3 506.1 600.7 694.7 797.6e 880.3 f

current prices,
US$ bn)
GDP Growth 5.8 3.8 8.5 7.5 8.4e 8.0**
(at constant
prices, %)
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 3.6 3.4 5.4 6.4 4.0 5.26(Oct

(WPI, avg. %) 14)

Gross Fiscal 6.1 5.9 4.5 4.0 4.1 3.8

Deficit (% of
GDP)

Exchange Rate 47.69 48.40 45.95 44.93 44.62 44.93 (Nov

(Rs/US$ 02)
Exchange Rate 42.18 48.09 53.99 56.51 55.20 57.34 (Nov
(Rs/Euro 02)

Exports 43.83 52.72 63.84 83.54 102.73 59.3 (Ap-

(US$ bn) Sep)
% change -1.7 20.3 21.1 30.8 23.0 37.3
Imports 51.41 61.41 78.15 111.52 142.42 83.9 (Ap-
(US$ bn) Sep)
% change 1.7 19.5 27.3 42.7 27.7 32.1
Trade Deficit -7.58 -8.69 -14.31 -27.98 -39.69 -24.6 (Ap-
(US $ bn) Sep)

Services 17.1 20.8 26.9 46.0 60.6 16.6 (end

Exports
(US$ bn)
Software 7.6 9.9 13.3 17.7 23.6 6.4 (end
Exports
(US$ bn)
Services 13.8 17.1 16.7 31.83 38.3 8.9 (end
Imports
(US$ bn)

Current 3.40 6.35 14.08 -5.40 -10.61 -6.1 (end-

Account June 06)
Balance
(US$ bn)
Current 0.7 1.3 2.3 -0.78 -1.33 -
Account
Balance (% of
GDP)
Forex 54.11 76.1 113.0 141.51 151.62 166.15
Reserves (Oct 20)
(US$ bn) #

External Debt 98.84 104.96 111.72 123.2 125.18 132.13

(US $ bn) # (end
External Debt 21.1 20.4 17.8 17.3 15.8
to GDP Ratio
(%) #
Short Term 2.8 4.5 4.0 6.1 7.0 7.0 (end
Debt / Total
Debt (%) #

Foreign 8.15 6.01 15.7 15.37 20.24 2.55(Apr-

Investment Jul)
Inflows
(US$ bn)
Of which:
FDI (US$ bn) 6.13 5.04 4.32 6051 7.75 3.39 (Apr
GDRs/ADRs 0.48 0.6 0.46 0.61 2.55 1.55 (Apr
(US$ bn)
FIIs (net) 1.51 0.38 10.92 8.69 9.93
(US$ bn)
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 Terrorist Total
Personnel
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 Currency Banking Political Economi
Risk risk sector risk risk c
structure
risk
May-06 BBB BBB BB BB BBB
Source: Economist Intelligence Unit 2006

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/
 13. LEGISLATION ON INTELLECTUAL PROPERTY
RIGHTS

Intellectual Property Rights

The importance of intellectual property in India is well established at all levels- statutory,
administrative and judicial. India ratified the agreement establishing the World Trade
Organisation (WTO) that came into force from 1st January 1995. This Agreement, inter-
alia, contains an Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS).

The Agreement provides for norms and standards in respect of following areas of
intellectual property

Copyrights and related rights

Trade Marks

Geographical Indications

Industrial Designs

Patents

Copyrights and related rights

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 a party. Additionally, India is party to the Geneva Convention for the
Protection of rights of Producers of Phonograms and to the Universal Copyright
Convention. India is also an active member of the World Intellectual Property
Organisation (WIPO), Geneva and UNESCO.

The copyright law has been amended periodically to keep pace with changing
requirements. The recent amendment to the copyright law, which came into force in May
1995, has ushered in comprehensive changes and brought the copyright law in line with
the developments in satellite broadcasting, computer software and digital technology. The
amended law has made provisions for the first time, to protect performer’s rights as
envisaged in the Rome Convention.

The Indian copyrights law, laid down in the Indian Copyright Act, 1957, fully
reflects the Berne Convention on Copyrights, to which India is a party. India is
also an active member of the World Intellectual Property Organization, Geneva.

The Act protects literary, artistic works and performance rights by making it
unlawful to reproduce such works without the owner's permission.

The author of the work is the first owner of the copyright in the work.

Registration of the copyright is not compulsory either for acquiring copyright or

for enforcing by way of suit against the infringement of the copyright.

The Copyrights Act protects the following classes of work:

Original literary, dramatic, musical and artistic works

Cinematography films

Sound recording

Trademarks
Trademarks have been defined as any sign, or any combination of signs capable of
distinguishing the goods or services of one undertaking from those of other undertakings.
Such distinguishing marks constitute protectable subject matter under the provisions of
the TRIPS Agreement. The Agreement provides that initial registration and each renewal
of registration shall be for a term of not less than 7 years and the registration shall be
renewable indefinitely. Compulsory licensing of trade marks is not permitted.

The Trade Marks Act, 1999 has been enacted to amend and consolidate the law
relating to trade marks, but the said Act has not come into force yet, thus the
Trade and Merchandise Marks Act, 1958 remains the Act currently in force. The
Trade Marks Act, 1999 is more compliant with the Trade Related Intellectual
Property Rights (TRIPS) Agreement. The new Act will bring many changes,
some of which are as below-

providing for registration of trade marks for services, in addition to goods

providing an Appellate board for speedy disposal of appeals

providing enhanced punishment for the offences relating to trade marks

filing of a single application for registration in more than one class of
goods or services

increasing the period of registration and renewal from 7 to 10 years

The person claiming to be the owner of the trade mark must apply to the Registrar
in the prescribed manner. The application has to be made to the Trade Mark
Registry within whose territorial limits the principal place of business of the
applicant is located.

An application shall not be made in respect of goods comprised in more than one
prescribed class of goods.

On filing of the application, the authorities conduct a search to ensure that the
proposed trademark is not similar or deceptively similar to existing and registered
trademarks.

Thereafter, the Registrar may refuse the application or may accept it, subject to
any amendment / modification / condition / limitation, as the Registrar may deem
necessary.

Upon receipt and acceptance of the registration application, the Registrar shall
cause the application advertised in the prescribed manner.

If no opposition to the application is received (within generally three months from

the date of the application), or if the opposition is decided in favour of the
applicant, the Registrar shall register the Trade mark.

Registration of the Trade mark is not compulsory. However, without the

registration the owner of the Trade mark cannot bring an action for infringement
of trade mark if it is copied by others.

Geographical Indications

The Agreement contains a general obligation that parties shall provide the legal means
for interested parties to prevent the use of any means in the designation or presentation of
a good that indicates or suggests that the good in question originates in a geographical
area other than the true place of origin in a manner which misleads the public as to the
geographical origin of the goods. There is no obligation under the Agreement to protect
geographical indications which are not protected in their country or origin or which have
fall en into disuse in that country.

A new law for the protection of geographical indications, viz. the Geographical
Indications of Goods (Registration and the Protection) Act, 1999 has also been passed by
the Parliament and notified on 30.12.1999.

Industrial Designs

Industrial designs refer to creative activity which result in the ornamental or formal
appearance of a product and design right refers to a novel or original design that is
accorded to the proprietor of a validly registered design. Industrial designs are an element
of intellectual property. Under the TRIPS Agreement, minimum standards of protection
of industrial designs have been provided for. As a developing country, India has already
amended its national legislation to provide for these minimal standards.

The essential purpose of design law it to promote and protect the design element of
industrial production. It is also intended to promote innovative activity in the field of
industries. The existing legislation on industrial designs in India is contained in the New
Designs Act, 2000 and this Act will serve its purpose well in the rapid changes in
technology and international developments. India has also achieved a mature status in the
field of industrial designs and in view of globalization of the economy, the present
legislation is aligned with the changed technical and commercial scenario and made to
conform to international trends in design administration.

A new designs law repealing and replacing the Designs Act, 1911 has been passed by
Parliament in the Budget Session, 2000. This Act has been brought into force from
11.5.2001. Designs Act, 2000 is the new law relating to Industrial Designs, which repeals
and replaces the earlier Designs Act, 1911.

A 'design' is defined to mean only the features of shape, configuration, pattern

ornament or composition of lines or colours applied to any two or three
dimensional article by any manual, mechanical or chemical, industrial process or
means, which in the finished article appeal to and are judged solely by the eye;
but does not include any mode or principle of construction or anything which is in
substance a mere mechanical device and does not include any trade mark or
property mark or artistic work. Unlike the trademark, a design covers the whole
body of the goods and is part and parcel of the goods themselves.

A proprietor of new and original design can apply for registration. Functional
designs are not registrable.

There are certain designs which can qualify for registration both under the
Designs Act and the Copyright Act, and they cannot be applied at the same time
for protection of the same subject matter.

Registration of rights gives the following rights:

Right to exclusive use of the design

Right to protect the design from piracy

Usage of rights even against the Government

The Controller-General of Patents Designs and Trade Marks administers the

registration of designs.

Patents

The basic obligation in the area of patents is that, invention in all branches of
technology whether products or processes shall be patentable if they meet the three
tests of being new involving an inventive step and being capable of industrial
application. In addition to the general security exemption which applied to the entire
TRIPS Agreement, specific exclusions are permissible from the scope of patentability
of inventions, the prevention of whose commercial exploitation is necessary to protect
public order or morality, human, animal, plant life or health or to avoid serious
prejudice to the environment. Further, members may also exclude from patentability
of diagnostic, therapeutic and surgical methods of the treatment of human and
animals and plants and animal other than micro-organisms and essentially biological
processes for the production of plants and animals.

The TRIPS Agreement provides for a minimum term of protection of 20 years

counted from the date of filing.

India had already implemented its obligations under Articles 70.8 and 70.9 of TRIP
Agreement.
A comprehensive review of the Patents Act, 1970 was also made and a bill to amend the
Patents Act, 1970 was introduced in Parliament on 20 December, 1999 and notified on
25-6-2002 to make the patent law TRIPS compatible.

Highlights of Amended Indian Patent Act

a. Conditional grant of patent [Section 47]: This empowers the Government to

import, make or use any patent for its own purpose. For drugs, it also empowers
import for public health distribution.
b. Revocation of patent in public interest [Section 66]: This empowers the
Government to revoke a patent where it is found to be mischievous to the State or
prejudicial to the public.
c. Grant of compulsory licence [Sections 82 to 94]: Chapter XVI deals with the
general principles and circumstances for grant of compulsory licences in order to
protect public interest particularly public health and nutrition. These provisions
check the abuse of patent rights. They can be invoked if the reasonable
requirements of the public with respect to patented inventions have not been
satisfied, and the patented invention is not available for public at a reasonably
affordable price, and if the patented invention is not worked in the territory of
India.

Note : [Section 92]: This provides for action in case of national emergency,
extreme urgency and public non-commercial use, and can be invoked without
the grace period of 3 years from grant of patent.
d. Use of invention for the purpose of Government [Sections 100 & 101]: This
complements section 47.
e. Acquisition of invention and patent for public purpose [Section 102]: This
empowers the Government to acquire a patent to meet national requirements.
f. Bolar provision [Section 107 (A) (a)]: This facilitates production and marketing
of patented products immediately after expiry of term of patent protection by
permitting preparatory action by non-patentees during life of patent.

Parallel import [Section 107(A) (b)]: This provides for import so that patented product
can become available at the lowest international price.
 14. LABELLING AND PACKAGING RULES
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
 15. MAIN EXHIBITIONS

Events:2005 & 2006

Show Name Event Description Dates Location
Engimach 2005 Machinery & Machine Tools Jan 5-9, Ahmedabad, India
2005
PhotoImaging “PhotoImaging Asia 2005” was Jan 6–9, New Delhi, India
Asia 2005 billed as the largest and most 2005
comprehensive photography
and imaging exhibition in South
Asia.
SAARC Trade Promote trade between SAARC Jan 6–10, New Delhi, India
Fair countries. 2005
Auto Expo The show featured new models, Jan 15-20, New Delhi, India
components and ancillaries. 2005
Petrotech-2005 Manufacturers/operators/service Jan 16-19, New Delhi, India
companies displayed products 2005
and service systems such as
process control, refining and
pipeline services, systems,
products, oil field hardware,
software, analytical instruments
and technical literature.
Print Pack India International exhibition on Jan 18-23, New Delhi, India
printing and packaging is 2005
showcased new technologies.
Packers, packaging material
suppliers, packaging machine
manufacturers and suppliers
visited this exhibition.
Garment This edition of Expo exhibited Jan 21-24, New Delhi, India
Technology Expo products and services related to 2005
CAD/CAM, cutting &
spreading, sewing, embroidery,
fusing, Laundry,
steam finishing, dyeing,
knitting, accessories and trims,
fashion fabrics.
Build-Hardware Building & construction Jan 25-28, New Delhi, India
Show 2005
Amtex 2005 Technology & Tools, Jan 26-30, Bangalore, India
Machinery and Machine Tool, 2005
Material
Handling Equipments and
 Information Technology.
Tooltech 2005 International Exhibition of Feb 3-5, Mumbai, India
Cutting Tools, Tooling 2005
Systems, Machine Tool
Accessories, Metrology &
CAD/CAM.
IMAT-2005 IMAT-2005 provided exposure Jan 20-23, Mumbai, India
to the latest innovations in 2005
technologies, equipment and
services in machine tools and
automation
sector.
Tube India Tube & Pipe industry Feb 18-20, Hyderabad, India
International 2005
2005
International Healthcare Feb 25-26, Bangalore, India
Conference & 2005
Exhibition on
Healthcare
Sciences
Citytech It was the first professionally Mar 17-20, Chennai, India
International organized event on city 2005
management
technology and services. The
main buyers were from the
private sector,
public sector, municipalities
and waste generators, waste
processors,
equipment manufacturers. The
organizer of the even is Zak
Trade Fairs and
Exhibitions Private Limited.
Busworld India major international bus Mar 18-20, New Delhi, India
manufacturers and suppliers of 2005
accessories participated
Inoptics 2005 The exhibition showcased April 3-5, New Delhi, India
machinery for manufacture of 2005
frames, minerals and plastic
optalmic lenses, contact lenses,
lense edgers, sports goggles,
safety glasses, artificial eyes
and raw
material.
Roof India 2005 Showcased the emerging trends May 19-21, Mumbai, India
in Roofing and Facade 2005
 Engineering.
Toy Biz B2B Toys July 10-11, New Delhi, India
Exhibition 2005
Asian Printing and Printing and August 26- Bangalore, India
Packaging Packaging 30, 2005
Exhibition 2005

Garmentech Garment Technology Seo 22-25, Bangalore, India

South-2005 2005
Pharmaceutical Pharmaceutical Machinery & Oct 6-8, Hyderabad, India
Machinery India Technology 2005
Chemtec India Chemical Palants snd Oct 6-8, Hyderabad, India
Machinery 2005
Engineering Expo Engineering goods December Ahmedabad, India
15 -19,
2005
Zak Glasstech Glass technology and Ded 8-11, Mumbai, India
International 2005 machinery 2005
Chemical World Chemicals December Ahmedabad, India
15 -19,
2005
AME-Apparel Apparel Jan 5-7, New Delhi, India
Machinery 2005
Exposition
Glass India Glass technology and Jan 10-11, Mumbai, India
machinery 2006
International Mining technology & Jan 16-18, Kolkata, India
Mining Exhibition machinery 2006
International Machine Tools Jan 19-22, Chennai, India
Machine Tools 2006
Expo
ToolTech Machine Tools Feb 1-5, Gurgaon, India
2006
Mega Tech Engineering Feb 2-6, Pune, India
2006
Mumbai Motor Automobiole Feb 9-12, Mumbai, India
Show 2006
Plast India Plastics Feb 9-14, Mumbai, India
2006
Meditec India Healthcare Feb 19-21 Hyderabad, India
India Sugar and Sugar and Rice Technology and Feb 23-26, Hyderabad, India
Rice Tech-2006 machinery 2006
Global Bearing Bearing Feb 23-26, Jaipur, India
Conclave 2006
Machtech Heavy Engineering Feb 24-27, Vadodara, India
2006
ACMEE 2006 Industrial Machinery Jun 10-14, Chennai, India
2006
Photo Expo & Photography Sep 1-3, Hyderabad, India
Sign Show 2006
India Oil & Gas Oil & Gas Sep 4-5, Mumbai, India
Review Expo 2006
Texworld India Textile Oct 10-13, Mumbai, India
2006
Screen Print India Screen Printing Technology Oct 12-14, Mumbai, India
2006
Buildtech Expo Construction Technology Oct 26-29, Pune, India
2006
India Chem Chmeical Nov 8-10, Mumbai, India
2006
Autoserv Automobile Nov 11-13, Chennai, India
2006
Techmart SME Engineerring Nov 4-27, New Delhi, India
2006
Rajkot Machine Machine Tools Nov 16-19, Rajkot, India
Tools Show 2006
International Mining & Machinery Nov 22-25, Kolkata, India
Mining & 2006
Machinery
Exhibition
International Packaging Technology Nov 23-25, Mumbai, India
Packtech India 2006
Auto Show India Automobile Nov 24-27, Ahmedabad, india
2006
Indplas Plastics Nov 24-27, Kolkata, India
2006
Engineering Expo Engineering Nov 30 – Ahmedabad, india
Dec 4, 2006
Food and Food and Beverages Dec 1-4, Mumbai, India
Beverages India 2006
India International Hardware and Tools Dec 15-17, Chennai, India
Hardware and 2006
Tools (IIHT) Expo
2006
AUTO- Indian Automobile Dec 20-24, Pune, India
Automobile Trade 2006
Fair
Upcoming Events: 2007
Show Name Event Description Dates Location
Foundrex India Foundry Feb-08 2007 Pune, India
Technology

Glasstechnology Glass Machinery December 8-10, Mumbai, India

Show India and Equipment 2007
India Construction Machine Tools and February, 2007 New Delhi, India
& Hardware Show Hardware
2007
Summer Fair Cooling systems 8 -12 March 2007 New Delhi, India
 16. LOGISTICS
Robust logistics facility is the sine qua non for facilitating export-import trade. During
1991-2005, India’s imports went up by an average 8.8%, whereas exports registered a
growth rate of about 9.27%. This would not have been possible but for the continual
upgradation of logistics facilities.

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.

Indian Seaports

India has more than 6,000km of natural peninsular coastline with over 12 major ports and
187 minor/intermediate ports, which link international supply chain network. These ports,
the gateways to India’s foreign trade, handle 90% of seaborne trade in the country. There
has been a dramatic change in India’s maritime trade since the removal of trade barriers.
Previously, Indian ports used to handle only bulk cargos like oil, fertilisers and food
grains. But abolishment of trade barriers has changed the entire maritime trade scenario.
Trade in consumer goods, machinery, auto components, textiles and processed foods is
on the rise and there is a growing trend towards containerisation in the country.

Major ports handle over 70% of India’s total port traffic

The major ports in India handle over 70% of total port traffic and these ports are
governed by a port trust appointed by the Government of India and tariffs are regulated
by the Tariff Authority of Major Ports. In 2005-06, the major ports together have handled
423.41m tonnes of cargo traffic out of the total 604.58m tonnes of cargo from all ports in
the country. In the same year, Visakhapatnam port handled 56m tonnes of cargo against
50m tonnes in 2004-05, the highest in the country. Kolkata port ranked second with 53m
tonnes of cargo against 46m tonnes in 2004-05. However, in terms of port traffic growth
rate, Mumbai topped with a growth rate of 25% to 44m tonnes of cargo in 2005-06
against 35m tonnes in 2004-05. Both Kolkata and Jawaharlal Nehru Port Trust (JNPT)
share the second position in terms of growth rate in port traffic at 15% each.
The average output per ship berth day shot up to 9,298 tonnes in 2004-05 from 9,079
tonnes in 2003-04, while pre-berthing time at major ports has increased to six hours in
2004-05, from 4.9 hours in 2003-04. In 2004-05, the average turnaround time at major
ports has improved to 3.41 days from 3.45 days in 2003-04. Ennore port recorded the
lowest average turnaround time in 2004-05 with 1.68 days from 1.94 in 2003-04, while
JNPT ranked second in terms of average turnaround time in 2004-05 at 1.84 days from
2.04 days in 2003-04.

Air Cargo

The cargo handled at Indian airports has gone up at a CAGR of 7.8% from 0.65m tonnes
in 1995-96 to 1.3m tonnes in 2004-05. However, international cargo handled at Indian
airports has increased at 6.8% per annum, while domestic cargo has increased at 9.9% per
annum. The five major airports have accounted for about 90% of the total cargo handled
in the country. During April-January 2005-06, all airports together handled 1,130,833
tonnes of cargo, which registered a growth rate of 9.4% against 1,031,224 tonnes of cargo
during the same period in the previous year. However, international freight traffic has
registered a growth rate of 11.4% to 754,647 tonnes against 677,460 tonnes during the
same period in the previous year. Domestic freight traffic has registered a growth rate of
5.7% at 376,186 tonnes against 353,765 tonnes in same period in the previous year.
Mumbai airport, the biggest of all the Indian airports, has handled around 31% of the
total cargo.

At present, about 50 carriers operate cargo and passenger services to and from India. The
growth in airfreight cargo has improved the infrastructural facilities at many airports as
there is better connectivity with many low-cost airline service providers starting
operations in the domestic sector. Higher economic growth, open sky policy, higher
number of export promotion zones and better infrastructural facilities have attributed to
the higher growth in air cargo industry in the country.

In India, cargo terminals are managed by Air India and Indian Airlines at most of the
airports. However, at some airports, cargo terminals are managed by the State Trading
Corporations. But new cargo terminals, which are under construction, are managed by the
airports themselves, like Cochin and Chennai airports.

In view of the growing air cargo and its projected growth in the country, Airport
Authority of India (AAI) plans to set up cargo complexes at various airports in India. The
AAI manages cargo terminals in the following airports in the country—Kolkata, Mumbai,
Chennai, Nagpur, Guwahati, Lucknow and Coimbatore. Following are the various
problems faced in the cargo terminals of India:

• Poor quality warehousing

• Complex procedure
• Participation of various intermediaries in cargo processing
• Improper implementation of Electronic Data Interchange
 • Varying levels of documentation and handling between airlines and shipping
companies
• Uncoordinated procedures without technology interface among ground-handling
agencies
• Outdated handling equipment
• Absence of efficient storage systems and quick clearance of cargo
• Absence of improved inventory systems
• Inadequate X-ray facilities and absence of improved access to the cargo terminals.

Inland Waterways

India has over 15,544km of navigated waterways including rivers, backwaters and canals,
out of which only 5,200km of rivers and 485km of canals are suitable for mechanised
transportation. Despite the lower cost of moving cargo by inland waterways, the share of
inland waterways remains quite low. According to Inland Waterways Authority of India,
about 20m tonnes of cargo is moved using the Inland Waterways Transport system,
which accounts for just 0.15% of cargo transported by all inland transportation systems.

At present, there are three classified national waterways: Allahabad-Haldia (Ganga-

Bhagirathi-Hoogly River), Sadiya-Dhubri (Bhramaputra) and Kollam-Kottapuram
(Champakara canal and Udyogmahal canal). In addition, under the Tenth Plan (2002-07)
period, the Government is planning to extend the national waterway system by declaring
another five waterways as national waterways. These are: Barak River, Kakinada-
Mercaunam Canal integrated with Godavari and Krishna Rivers, East Coast Canal
integrated with Brahmani River system, Extension of National Waterways 3, and
Damodar Valley Canal.

The Central Inland Water Transport Corporation was established as a public sector
undertaking in May 1967. It manages running of services from Kolkata to Bangladesh
and to Assam as well as lighterage services in the River Hooghly and services from
Kolkata to Allahabad. It also carries out the construction and repair of small and medium
sized vessels as well as repairs of ocean-moving vessels.

Road Transportation

India, with its 3.3m km road network, has one of the largest road networks in the world,
comprising 65,569km of national highways, 128,000km of state highways and
470,000km of major district roads and the rural and other district roads of 2.65m km.
Roads and railways are the two major modes of surface transportation in the country.
Roads have dominated railways both in terms of passenger numbers and in terms of
freight traffic. In India, road transport accounts for about 85% of passenger traffic
(surface transport) and 70% of freight traffic, while railways constitute only about 15% of
passenger traffic and 30% of freight traffic in the country. There has been a phenomenal
growth in the registered goods vehicle from 82,000 in 1950-51 to 3,045,000 in 2001-02.
The revenue generated by road transport has gone up from Rs47 crore in 1950-51 to
Rs45,000 crore in 2001-02.

Road Development Projects

The Government of India and the state governments are implementing various road
development projects and a lot of construction activities are going on in this sector. The
5,846km Golden Quadrilateral ( National Highways connecting four metropolitan cities
i.e. Delhi, Mumbai, Chennai & Kolkata having an aggregate length of 5846 Km. ) (Phase
I of NHDP) is expected to be completed by Dec 2006, and the Phase II North-South-East-
West corridor (7,300km) project is scheduled to be completed by the end of 2008. The
Phase III, which involves upgradation of 10,000km of national highways, is expected to
be completed by December 2009. In addition, the scope of NHDP has been enhanced to
cover four additional phases by covering 27,500km.

In the Union Budget of 2006-07, a new project known as the Special Accelerated Road
Development Programme covering 7,639km of road has been approved for the North-
Eastern region.

Railways

Indian Railways is one of the largest and busiest rail networks in the world. It is divided
into passenger and freight transport. Freight constitutes over 65% of its total revenue.
Indian Railways handled around 602m tonnes of freight (bulk commodities) in 2004-05.
In the freight segment, 95% of revenue comes from the bulk commodities such as iron
ore, cement, fertilisers, coal and food grains; coal alone constitutes about 50% of the
revenue from the bulk commodities. Indian Railways covers almost all parts of the
country, with routes covering a total length of 63,940km. As of 2005, Indian Railways
owned a total of 216,717 wagons, 39,936 coaches and 7,339 locomotives, running a total
of 14,244 trains daily. In 2004-05, coal constituted about 45% ie 271.4m tonnes of total
bulk cargo handled by Indian Railways; food grains contributed 8% with 46.52m tonnes,
iron and steel contributed 8% with 44.26m tonnes and cement contributed 9% with
53.77m tonnes.

Warehousing

In 2005, major ports in India had throughputs of 423.41m tonnes of cargo, while major
airports in the country handled around 1.5m tonnes of cargo. On the other hand, road
transportation in India handled over 77% of cargo, accounting for over 1,176 billion
tonnes in the same year. Total costs of warehousing and material handling in India was
estimated to be over Rs37,500 crore, which was more than 9% of total logistics costs in
the country.

In India, public as well as private sector organisations are involved in developing

warehousing and storage facilities. In the public sector, there are two agencies engaged in
providing large-scale warehousing/storage capacities for industrial products in the
country. They are Central Warehousing Corporation (CWC), Food Corporation of India
(FCI) and 17 State Warehousing Corporations (SWC).

CWC

CWC is operating 517 warehouses across the country, with a storage capacity of 10.3m
tonnes. It provides warehousing services for different kinds of products ranging from
agricultural produce to sophisticated industrial products. Warehousing activities of CWC
include food grain warehouses, industrial warehouses, custom-bonded warehouses,
container freight stations, inland clearance depots and air cargo complexes.

Apart from storage and handling, CWC also offers services in the area of clearing and
forwarding, handling and transportation, procurement and distribution, disinfestations
services, fumigation services and other ancillary activities.