BRIC - May 14th, 2007

PEST ANALYSIS
Political
The current ruling government is the United Progressive Alliance. The UPA government is committed
to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor
and boost economic performance. Government had reduced its controls on foreign trade and
investment in some areas and has indicated more liberalization in civil aviation, telecom and
insurance sector in the future.
The UPA government completed one year in office on May 22, 2005. The UPA government took
office after the people rejected the BJP-led government in the 14th Lok Sabha election held in May
2004. The people of India had voted for a government which upholds the secular principle, rejects
the communal forces and charts a path of development which meets the needs of millions of people
who were deprived of the benefits of growth during the six years of BJP rule. They wanted India to
play an independent role in world affairs in line with our traditional non-aligned policy without giving
into imperialist pressures. The UPA adopted a Common Minimum Programme. The CPI(M) and the
Congress have basic differences on policy matters stemming from our differing class perspectives.
Notwithstanding this, the CPI(M) and the Left parties endorsed the CMP while expressing our
differences on certain aspects of the programme. If the UPA implements the pro-people measures in
the CMP, correctives can be applied to the harmful policies of the previous Bharitiya Janata Party.
The UPA government has undertaken certain steps which are necessary to strengthen democratic
rights. It has abolished the POTA and adopted the right to information act. The government has
taken some steps to detoxify the educational and research institutions and restore the history
textbooks scrapped by the BJP-led government. In the changed political situation, the minorities
feel more secure. There has been some increase in social sector expenditure though it falls far short
of the requirements. The education budget has received more funds though the 2 per cent
education cess which is to go to the Prathamik Shiksha Kosh is yet to be set up. There has been an
expansion of the mid-day meal scheme and the anganwadi worker programme. The rural
employment guarantee bill, which could not be taken up in parliament due to the BJP boycott, is an
important piece of legislation. However, the bill prepared has diluted some of the key provisions
contained in the original commitment in the CMP. The bill needs to be strengthened before
adoption. The food-for-work programme initiated in November 2004 needs to be monitored to see
that the funds and foodgrains stocks are being utilized properly. There has been no substantial
increase in the investments in agriculture and there has to be a step up in the flow of rural credit. In
the foreign policy sphere, the UPA government has taken commendable steps to further dialogue
with Pakistan and initiate confidence-building measures and promote people to people contacts. The
visit of the Chinese Prime Minister, Wen Jiabo, has led to upgrading of India-China relations. The
Indian government is taking some steps to develop the trilateral cooperation between India, Russia
and China. However, the UPA government is reluctant to undo some of the harmful steps taken by
the Vajpayee government in developing close strategic security and military cooperation with the
United States. It has uncritically continued to view Israel as a major supplier of military equipment
without seeing the harm it does to India’s standing in the Arab world and in relation to the
Palestinian cause.

A fundamental concern of the CPI(M) is that hardly any legislation which addresses the needs of the
vast masses of the poorer sections in our country has been moved in parliament in this one year by
the UPA government. It is true that the disruptive role of the BJP alliance has circumscribed the
work of parliament. However, the alacrity with which the government has moved legislations to
push forward policies within the neo-liberal framework is in disquieting contrast with its failure to
address some of the basic needs of the people. To illustrate:
A crucial issue for vast masses of our people, which sometimes mean the difference between life
and death, is that of the public distribution system (PDS) and access to cheap foodgrains. Nothing
has been done, in spite of the CMP assurance, to reverse the collapse of the PDS under the NDA
regime. There have been no steps towards universalisation of the PDS and to lower the prices of
foodgrains in the rationing system.

Economical
The fundamentals of the Indian economy have become strong and sustainable. The macro-economic
indicators are at present the best in the history of independent India with high growth, foreign
exchange reserves, and foreign investment and robust increase in exports and low inflation and
interest rates.
Developing nation
GDP is 688.7 billion dollars
India is the second fastest growing economy of the world at present.
The target of the 10th Five Year Plan (2002-07) is 8%. While the agricultural and industrial sectors
have continued to grow, the services sector has grown at a significantly higher pace, and is
currently contributing to nearly half of the total
India is the sixth largest foreign exchange holder in the world with $119.5 billion in kitty at end of
June 2004, India held the fifth largest stock of reserves among the emerging market economies and
sixth largest in the world. Given the large foreign exchange reserves, the Government has made
premature repayment of US$ 3 billion of 'high-cost' loans to World Bank and Asian Development
Bank and is considering further premature payment of other loans.
The Government has decided to (i) discontinue receiving aid from other countries except the
following five: Japan, UK, Germany, USA, EU, and the Russian Federation and (ii) to make pre-
payment of all bilateral debt owed to all the countries except the five mentioned above.
After reaching an all-time low of Rs.49.06 per US dollar in May, 2002, the rupee has strengthened
against the dollar reaching a rate of US$ 1 = Rs.43.07 in August 2005.
Large and growing market of 1 billion people of which 300 million are middle class consumers.

Taxation
India has a range of taxes structure covering business income, capital gains, wealth formation and
trade/ commercial transactions. India has the highest tariff structures in Asia, especially on imports.
However, because taxes account for 66% of the Govt.’s revenues, the scope for any drastic
reduction in tariffs and tax rates is rather limited. Indian taxes can be grouped in two categories:
Direct taxes: Income tax, Wealth tax and Gift tax, applying on income
Indirect taxes: Customs duties, Excise duty, Sales tax, Service tax, Octroi/entry tax, applying on
commercial transactions
The Central Government levies all direct taxes and some indirect taxes. The States Governments
levy local taxes such as land revenue and municipal taxes (property tax, octroi/entry tax and local
sales tax)
Taxation of Business
Indian tax laws distinguish between domestic and foreign companies in administering tax rates:
Indian Companies are taxed on their worldwide income
Foreign companies are taxed only on the income that arises from Indian operations.
On royalties and fees for technical services, interest on foreign currency loans, dividend and income
from specified on mutual funds, tax is levied on the gross income.

Export Incentives
The most important incentives available presently are:
• 100% export- oriented units: Industrial and service units engaged in exports of all their
production, software/ Electronic Hardware Export units. And units in Software Technology Parks and
Free Trade Zones are fully exempt from income tax on all their business profits until April 2010.
• Units that commence production in year 2000-01 shall have a ten-year tax holiday
• Units that commence production in year 2004-05 shall only have a six-year tax holiday.
• Exporters are entitled to a post-shipment replenishment to offset or neutralize customs duties
paid on import content of the exported goods. The credit, known as Duty Entitlement Pass Book
(DEPB) applies at a specified percentage (ranges between 4% and 22% of FOB value) of export
value, and is freely transferable to other entities.
• Duty remissions in respect of domestically sourced goods are available in the form of ‘duty
drawback’. However, drawback is not available to exports in which DEPB credit is claimed.
• Supplies from domestic units made to export units are exempt from sales tax and excise duties,
but they often involve a long process to obtain refunds.
Taxation of Foreign Entities
Foreign companies - branch offices, project offices, and non-resident investors/promoter companies
are taxed on their Indian income, when it arises in India or arises out of Indian operations. Even
wholly owned and subsidiary companies are assessed separately under Indian Tax Laws. Indian
income includes royalties, technical service fees, dividends, and capital gains on sale of Indian
company shares, besides business income originating from branch or project operations. Liaison
offices are not taxable in India, as they are not allowed to undertake any business/commercial
activity.
Double Tax Avoidance Agreements
Foreign companies are taxed under the withholding provisions of bilateral Double Taxation
Avoidance Treaties, which India has signed with many countries, including the Netherlands. The
bilateral treaties provide tax credit for taxes withheld or paid in India that correspond to Indian
income tax. The tax credit is limited to the lower of the tax paid abroad and the Indian tax on the
foreign company.
Expatriate taxes
Individuals are required to pay tax on remuneration, income from property, professional and
business income, capital gains and other sources. A foreign national in regular employment/service
contract in India in a foreign company or in an Indian Company is taxable on his earnings in India,
including on income received outside India relating to employment in India
Income tax liabilities are calculated on the basis of a slab structure, providing for standard
deductions, and special tax saving schemes. Deductions include premium paid for insurance,
contributions to public provident funds, etc.
Individual Income tax structures
Income Slab Rates of Income Tax
Up to Rs.50.000 nil
50 - 60.000 10% of income over Rs.50.000
60 - 150.000 Rs.1.000 + 20% of income over Rs.60.000
Above 150.000 Rs.19.000 + 30% of income over Rs.150.000
Above 850.000 A 10% surcharge on the tax value

Source: Internal compilation

Wealth Tax
Certain non-productive assets like any building or land, jeweler, aircraft, cars, urban land etc.,
valued beyond Rs. 1.5 million are taxable at 1% for the amount exceeding this limit under the
wealth tax.
Indirect Taxes
Central excise and Customs duties are the main indirect taxes levied and collected by the Central
Government.
Custom Duties: Customs duties are collected by the central Government on goods imported into
India. Duties consist of three parts: a basic, additional and special additional duty, applying in a
cascading manner. As a result, the final duties are much higher than the basic duties, which are
also called border tariffs by the WTO. In line with commitments to the WTO, India has reduced basic
tariffs of nearly all-industrial goods below 40%. Still, India’s basic duties are six times European
levels and thrice the ASEAN levels.
Export duties India applies export duties on a list of 26 items including animal skins, certain
agriculture commodities. The tariff ranges from 0.5% to 10% and, in several cases, a floor price is
set for export FOB prices.
Central Excise Duty A two-part excise duty structure applies on all goods manufactured in India.
The first component is a fixed VAT (CENVAT) is fixed at a uniform rate of 16% and is eligible for
credit on excise-duty paid inputs; and The second component is a special excise duty applying at
8%, 16% or 24% depending on the classification of the product in the excise tariff schedule, with no
duty credit applicable on this component.
Central Sales Tax Governs the sale of goods involving the movement and transfer of goods from
one state to another. The rate of tax depends upon class of goods sold and is normally 4%
Octroi Is an entry tax on goods levied in the state of destination of the goods.
Service Tax A Service Tax of 8% on the value of invoices levied on nearly all business.
Economy of India
Currency
1 Indian Rupee (INR) (₨) = 100 Paise = 0.0230415 US dollar = 0.0180005 Euro

Fiscal year
April 1—March 31

Current Fiscal year (2005—2006)

Current Five-Year Plan

10th (2002—2007)

Central bank
Reserve Bank of India (RBI)
Trade Organisations and Treaties
SAFTA, ASEAN, WIPO and WTO

Union Budget
$67.3 billion (revenue)
$104 billion (expenditure)
Inflation rate
3.84% (2005)

People
Prime Minister
(Chairman of the Planning Commission)
Manmohan Singh

Finance Minister
P. Chidambaram

Commerce Minister
Kamal Nath

RBI Governor
Y. Venugopal Reddy

SEBI Chairman
M. Damodaran

Indices

Corruption Perceptions Index

90th

Index of Economic Freedom

118th (mostly unfree)

UN Human Development Index

127th

Gross Domestic Product (GDP)

GDP at PPP
$3,362,960 million(4th)

GDP at Exchange rate

$679,674 million(10th)

GDP real growth rate (at PPP) 6.2% (43rd)

GDP per Capita $3,100 (155th)

GDP by sector agriculture (23.6%), industry (28.4%), services(2002 est) (48%)

Demographics

Population below poverty line

25% (2002 est.)
Labour force 482.2 million
Labour force by occupation (1999)
agriculture (57%), industry (17%), services (23%)

Unemployment rate 7.32% (1999-2000)

Production
Agricultural products rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water
buffalo, sheep, goats, poultry, fish

Main Industries textiles, chemicals, food processing, steel, transport equipment, cement, mining,
petroleum, machinery, software

External Trade

Imports (2003)
$89.33 billion f.o.b (25th)

Major Imported commodities crude oil, machinery, gems, fertilizer, chemicals

Main Import Partners USA 7.0%, Belgium 6.1%, China 5.9%, Singapore 4.8%, UK 4.6%, Australia
4.6%, Germany 4.5% (2004)

Exports
$69.18 billion f.o.b (35th)

Major Exported Commodities textile goods, gems and jewellery, engineering goods, chemicals,
leather manufactures

Main Export Partners (2003) USA 18.4%, China 7.8%, UAE 6.7%, UK 4.8%, Hong Kong 4.3%,
Germany 4.0%

Overall balance of payments (2003) $31,421

Socio cultural
The 2004 estimate of India’s total population was 1,065,070,607.
Age structure: 0-14 years: 34% (male 175,228,164; female 165,190,951) 15-64 years: 62% (male
324,699,562; female 301,821,383) 65 years and over: 4% (male 23,925,371; female 23,138,386)
Population growth rate: 1.58% Birth rate: 24.79 births/1,000 population
Death rate: 8.88 deaths/1,000 population
Net migration rate: -0.08 migrant(s)/1,000 population
Sex ratio: at birth: 1.05 male(s)/female under 15 years: 1.06 male(s)/female 15-64 years: 1.08
male(s)/female 65 years and over: 1.03 male(s)/female total population: 1.07 male(s)/female
Infant mortality rate: 64.9 deaths/1,000 live births
In 2004 India’s median age was estimated to be 24.4. From 1992 to 1996, overall life expectancy at
birth was 60.7 years (60.1 years for males and 61.4 years for females) and was estimated to be 64
years in 2004 (63.3 for males and 64.8 for females).
Total fertility rate: 3.11 children born/woman
Nationality: noun: Indian(s) adjective: Indian
Ethnic groups: Indo-Aryan 72%, Dravidian 25%, Mongoloid and other 3%
Religions: Hindu 80%, Muslim 14%, Christian 2.4%, Sikh 2%, Buddhist 0.7%, Jains 0.5%, other
0.4%
The most commonly spoken languages are Hindi (40.2 percent of the population), Bengali (8.3
percent), Telugu (7.9 percent), Marathi (7.5 percent), and Tamil (6.3 percent).
Literacy: definition: age 15 and over can read and write total population: 62.50%, male: 70.2%
female: 48.25%
Well-organized educational system, with internationally recognized excellence in some areas of
higher education. 250 universities and over 10000 higher educational institutions producing a
million graduates including 200,000 engineers per year.
Foreign universities and business schools have started thinking about opening branches and
research centers in India. Michigan Business School of Economics in exploring possibility of offering
courses in India in collaboration with our Indian institutions.
TECHNOLOGY
India has the different innovative capabilities, that is, different degrees of technology accumulation
and different efficiencies in the innovative search process” Once firm-level technological change is
understood as a continuous process to absorb or create technical knowledge, determined partly by
external inputs and partly by past accumulation of skills and knowledge, it is evident that”
innovation” can be defined much more broadly to cover all types of search and improvement effort.
From the foreign firm’s point of view, there is increasing technological mastery, to adapt technology
to new conditions, to improve it slightly or to improve it very significantly- though in terms of
detailed strategies, degrees of risk and potential rewards these efforts will certainly be different.
India encourages foreign technology agreements in all industries. The Reserve Bank of India (the
apex exchange control authority in India) grants automatic approval to foreign companies for
transfer of technology subject to the following limits:
• Lumpsum technology fee upto USD 2 million;
• Royalty payments upto 5 percent on domestic sales
• Special grants are given for conducting R&D in India.
INFORMATION TECHNOLOGY
The IT manufacturing sector is growing at an average rate of 28-30% annually over the past
decade. Software industry continues to contribute a major portion of Indian IT industry's revenues.
The Small Office Home Office (SOHO) segment and high-end certifications contributed a significant
portion of total IT training industry's revenues.
More than 203 of Fortune 1000 companies outsourced their software requirements to Indian
software houses .The major sectors which are witnessing a special thrust on adoption of IT are
Central/State Administrations, Insurance, Banks, Energy, Financial Institutions, Defense Public Tax
system, Ports, Custom, Telecom, Education and SOHO/Individuals. Southern and Western states as
Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka in their drive to emerge as coveted Silicon
Valleys in India and recognised as role models the world over, contributed a large portion to total
domestic IT spending. Other states, Gujarat, Kerala, Orissa, Delhi, Goa, HP, WB, UP, MP and
Rajasthan too are providing a significant thrust to the drive towards computerization.
The Government of India on its part has done its bit to boost the IT sector. It has initiated various
measures to give boost to the information technology business in India. Prime Minister Manmohan
Singh government has set up an information technology ministry. The new ministry will increase the
penetration of information technology, promote applications of IT in various sectors like healthcare,
education, e-governance and will quicken the pace of putting together internet infrastructure.

INDIAN STEEL INDUSTRY:

India is the largest producer of sponge iron and the ninth largest producer of steel in the world,
employing over half a million people directly with a cumulative capital investment of around Rs. One
lakh crore. It is a core sector essential for economic and social development of the country and
crucial for its defence. The Indian iron and steel industry contributes about Rs.8,000 crore to the
national exchequer in the form of excise and custom duties, apart from earning foreign exchange of
approximately Rs. 3,000 crore through exports. Consumption of finished steel grew by 5.9 percent
and increased to 24.9 million tonnes, during the same period.

The last two years have seen the deregulated Indian steel industry performing at its peak level in
almost all spheres. The total production of finished steel from April 2004 to March 2005 has been
estimated to be about 383.25 lakh tonnes as against the production of 369.57 lakh tonnes during
the same period last year showing an increase of 3.7 per cent. The most spectacular achievement
has, however, been recorded in export performance. Exports of finished steel from India increased
by a whopping 37per cent. All these favorable trends have been reflected in the improved
profitability of the major steel makers in both the public and the private sectors.
ROLE OF THE GOVERNMENT:
The role of the Ministry of Steel has also changed significantly. The economic reforms have brought
with it immense opportunities for market-led growth of this industry – once a bastion of state
control. On the supply side, deregulation meant access to domestic private capital and low cost
overseas funds, advanced technology and cheap inputs. On the demand side, the new policy regime
meant opportunities to sell steel in an expanding domestic market and, most importantly, to the
large global market.

STEEL POLICY:
The Government has formulated a draft National Steel Policy (NSP), which targets production of
over 100 million tonnes of steel by 2020. The basic objective of the NSP is to achieve global
competitiveness not only in terms of cost, quality and product-wise but also in terms of global
benchmarks of efficiency and productivity.
The major steps taken by the government are:
MERGER OF IISCO WITH SAIL:
The Government has taken initiative to merge IISCO with SAIL. SAIL and IISCO Boards have
already given in-principle approval. Initiatives have also been taken for reorganisation of companies
of the Bird Group, which, though not Government Companies are under the administrative control
of the Ministry of Steel. The initiatives have been taken in view of good financial performance of
Orissa Minerals Development Company Limited. The Ministry of Steel has recommended removal of
iron and steel from the list of commodities classified as essential under Essential Commodities Act
1955.
Interaction with Stakeholders:
The Ministry of Steel interacted with Stakeholders for reviewing export policy of chrome ore and
manganese ore. Based on views expressed by stakeholders, recommendations have been made to
the Department of Commerce for maintaining status quo in the export policy for chrome ore and
manganese ore and putting export ceiling of seven lakh tonnes on export of chrome concentrate.
Iron Ore Pricing:
A study has been made in April 2005 to rationalise iron ore pricing by the three public sector iron
ore companies, viz. National Mineral Development Corporation, Kudremukh iron ore company
Limited and Orissa Mineral Development Corporation. The study is being examined. An expert group
has been constituted in April 2005 to suggest guidelines to be followed by State Governments in
recommending to the Government of India mining leases for iron ore, chrome ore, and manganese
ore.
Problems faced by the industry:
In the post-WTO scenario issues related to trade actions and non-tariff barriers have assumed
immense importance. The steel industry worldwide has been subjected to wide-ranging non-tariff
barriers – both fair and unfair. As a matter of fact, steel as an internationally traded commodity has
attracted the second highest number of such punitive measures – next only to chemicals. The
manifold benefits of an open, democratic and rule-based multilateral trading arrangement such as
the WTO cannot be underrated by any means. But such advantages apart, the Indian steel industry
has suffered in 2 ways:
1) In the domestic market it has faced a relentless pressure from the potential and actual imports at
abnormally low prices from the steel-surplus regions like Russia and the CIS countries, especially in
the aftermath of the Asian financial meltdown and the subsequent collapse of the global steel prices.
Although the worst appears to be over now, the endemic excess supply conditions in the world steel
market may result in such price depressions periodically.

2) The Indian steel exporters have faced numerous non-tariff barriers in the foreign markets. In
cases where such trade actions are unjustified, the Ministry has initiated steps to take the issues to
the relevant authorities including the highest Dispute Settlement Bodies in the WTO.

World steel prices:

World steel prices rose from December 2001 onwards. The price increase of hot-rolled (HR) coils,
during January 2002 to December 2004 was from US$ 140 - 175 per tonne to about US$ 550 - 600
per tonne. The prices of steel melting scrap rose from a low of US$ 93 - 94 per tonne to US$ 275 -
285 per tonne.

Joint Venture:
SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce.

NTPC SAIL Power Company Pvt. Ltd:

Set up in March 2001; this 50:50 joint venture between SAIL and the National Thermal Power
Corporation (NTPC) operates and manages the Captive Power Plants-II of the Durgapur and
Rourkela Steel Plants which have a combined capacity of 240 MW.

Romelt-SAIL (India) Ltd:

A joint venture between SAIL, National Mineral Development Corporation (NMDC) and Russian
promoters for marketing Romelt Technology developed by Russia for reducing of iron bearing
materials, which is carried out with carbon in single stage reactor with the use of oxygen.
UEC SAIL Information Technology Limited:

This 40:60 joint venture between SAIL and USX Engineers & Consultants, a subsidiary of the US
Steel Corporation, promotes information technology in the steel sector.

Others major steel producers are:

• Tisco (Tata Iron and Steel Corporation ltd)
• Essar Steel
• Jindal Vijaynagar Steels Ltd
• Jindal Strips Ltd
• Uttam Steels Ltd
• Ispat Industries Ltd
• Mahindra Ugine Steel Company Ltd
• Tata SSL Ltd
• Usha Ispat Ltd
• NMDC
• Lloyds SteeI Industries Ltd

WHAT IS FURTHER NEEDED:

While the increase in the domestic prices of steel because of an increase in international demand
cannot be avoided, attention needs to be paid to the problem of adequate and reliable supply of
coal to the steel industry. Efforts are required for securing assured linkages of coking coal from
overseas sources. Furthermore, cross-border investment in captive coal mines, especially for coking
coal, in major source countries as well as investment for developing coal mines in India needs to be
encouraged. Further, the movement of raw materials and finished steel would need good rail and
road network as well as substantial improvement in port handling, storage and haulage facilities.

Automobile
PRODUCTION
Flash Report on Production for the month of March 2000
CARS PRODUCTION (March 2000)
98 99 2000
Daewoo Motors India Ltd. NA NA NA
Fiat India Automobiles Ltd. 0 1,512 NA
Ford India Ltd. NA NA NA
General Motors Ltd. 272 295 800
Hindustan Motors Ltd. 1,896 2,371 3,245
Honda Siel Cars India Ltd. NA NA NA
Hyundai Motor India Ltd. 0 3,261 8,235
Maruti Udyog Ltd. 32,491 33,071 37,633
Mercedes Benz India Ltd. 87 23 77
PAL - Peugeot Ltd. 48 0 0
Premier Automobiles Ltd. 689 28 0
Telco 216 2,383 7,224
Total 35,699 42,944 57,214
Automobile industries in India
Automobile Industry in India is still in its infancy but growing rapidly. The opportunities in the
automobile industry in India are attracting big names with the big purse and they are investing
vigorously in infrastructure, design and development, and marketing. Automobile industry in India is
today poised for the big leap.
Automobile industry Contributes 17% of the total indirect taxes collected by the exchequer & is a
driver of product and process technologies, and has become a excellent manufacturing base for
global players, because of its
• high machine tool capabilities
• Extremely capable component industry
• Most of the raw material locally produced
• Low cost manufacturing base
• Highly skilled manpower
• Special capability in supplying large volumes
So much so that Major players have started sourcing components from India, such as
• Fiat Plans To Source US $200 mn. Worth Of Components From India Per Annum
• Mercedes Benz (Daimler Chrysler) Has Set Up 7 Component JVs In India For Global Sourcing Of
Parts
• Cummins USA Is Already Sourcing Engine Parts From India For Cummins Global Operations
Indian Automobile Industry Performance

♣ Key Players ♣ 402

US $ 2.3 billion♣ Investment ♣
US $ 4 billion♣ Output ♣
Exports♣ US $ 417 million♣
250,000♣ Employment ♣ persons

Achievements
• India is the 2nd largest two wheeler manufacturer in the world
• Second largest tractor manufacturer in the world
• 5th largest commercial manufacturer in the world
• 3rd largest car market in Asia, surpassing China in the process
Automobile Dealers Network in India

In terms of Car dealer networks and authorized service stations, Maruti leads the pack with Dealer
networks and workshops across the country. The other leading automobile manufactures are also
trying to cope up and are opening their service stations and dealer workshops in all the metros and
major cities of the country. Dealers India offer variety of services varying from the customer
education to finance providing to the customers. Dealers offer varying kind of discount of finances
who in tern pass it on to the customers in the form of reduced interest rates.

Major Manufacturers of Automobiles in India

General Motors India♣ Maruti Udyog Ltd. ♣

♣ Ford India Ltd. ♣ Eicher Motors
Daewoo Motors India♣ Bajaj Auto ♣
Hindustan♣ Hero Motors ♣ Motors
Royal Enfield Motors♣ Hyundai Motor India Ltd. ♣
TVS♣ Telco ♣ Motors
Swaraj Mazda Ltd.♣ DC Designs ♣

Automobile Components in India

India has a good network of manufacturers of Auto components and spares spread all over the
country. These component manufactures also manufacture all kinds of parts for all Indian vehicles
apart from Japanese, German & Continental Vehicles. They have the capability to design as per
client's specification / drawing to provide them quality service.
International standards are also kept in mind while producing these products. Best quality materials
are used so as to meet the international standards. The list varies from Alternator Assemblies,
Alternator Stators Coils, Alternator Rotors/Coils, Alternator Rectifiers, Alternator Regulators,
Alternator Carbon Brushes, Alternator Vaccum Pump, Blades, Alternator Plastic Insulators, Starter
Assemblies, Starter Armatures, Starter Components, Electronic Relays, Timer Relays, Signal
Flashers, Heater Glow Plugs, Tie Rod Ends & Ball Joints, Engine Mounting, Suspension Rubber
Bushing, Clutch Plate & Covers Assy, Gaskets, Radiators, Universal Cross Assembly, Couplings,
Propeller Shaft Assy, Fly Wheel Ring Gears, Brake Parts, Nut & Bolts, Jacks, Bearings, Plastic Gears,
Bearing Housings, Wheel Spanners, Filters (Oil, Air, Fuel), Diesel Pump Parts, Automobile Acessories
like Wheel Caps, Car Speakers, Fog Lights, Car Care Products, CAR AC PARTS, Car AC Condenser,
Car Cooling Coil, Car AC Hoses, Car Reciver Drier, FLCD Kit and Car Batteries.
Automobile Tyres in India

Tyres are one of the most important part of the vehicle which keeps it going. MRF, Ceat Tyres,
Apollo Tyres Ltd, Birla Tyres, Good Year India Ltd, J.K. Tyres, Modi Rubber Ltd are some of the well
known Tyre manufactures in India. They manufacture tyres for both four wheeler and two wheeler
segments.

Automobile Exports in India

Indian Automotive industry has become more competitive in the export market due to its
technological and quality advances, so much so that in quality conscious markets such as Europe
and America, Indian automotive industry is emerging as a major player judging by its performance.
India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats,
suspension & braking parts among others.

Export Performance

Total Exports: 417 million US$

America 27%
Europe 36%
Asia 16%
Africa 13%
Others 8%

Automobile Insurance in India

Taking insurance cover for your vehicle is a must especially in Indian roads. There is danger at
every corner when it comes to Indian roads. There is always the chance of your brand new vehicle
hit by someone who mistakes a highway for space. Insurance can pay for your financial loss. There
are various insurance schemes available in India. Major Insurance companies in India offering Auto
insurance include The Oriental Insurance Company Ltd and New India Assurance Company.

Automobile Finance in India

The availability of finance at lower interest rates, have made car purchase an affordable option for
even young executives The new schemes available in the market has made it possible for salaried
individual to realize their aspirations to won a Car in India, early in Life. Businessmen and
professionals can treat the interest amount as a business expense and avail tax deductions against
the depreciation of the Car. Companies can also acquire cars for eligible employees without affecting
cash flows. The interest amount can be claimed as business expense

Petrol Stations

The State owned Oil companies, namely Indian Oil, Hindustan Petroleum Corp., Bharat Petroleum
and IBP have network of more than 18,000 retail outlets across the country. These firms have
petrol stations in remote areas too where business many not be as lucrative as in big cities. They
Supply quality Petrol both un-leaded and pre mix (ie mixture of lubricant and petrol) for two stroke
engines.
Automobile Lubricants in India
Major lubricant manufactures in India are Castrol India Ltd, Bharat Petroleum Corporation, Indian
Oil Corporation, Mobil, Hindustan Petroleum Corporation, Shell, Exxon.

Automotive lubes can be further sub classified on the basis of use, like
• 2/3 wheelers, cars, and commercial vehicles; or
• engine oils, brake oils, etc.
Growth rate
The country's two-wheeler industry is already the largest in the world and is expected to continue to
maintain robust growth in the coming years. The growth rate of all commercial vehicles in 2004-05
was 36.5 per cent; while the medium and heavy vehicle segment 39.5 per cent, the LCV segment
logged a growth of 32 per cent.
The total production of all types of vehicles in India rose from 4.2 million units in 1998-99 to 7.3
million units in 2004-05. Over this period, commercial vehicles output grew 2.8 times compared to
2.2 times for passenger cars. However, it is the two-wheeler output, which continues to dominate
the sector.
In 2004-05, for instance, for every passenger car produced in the country, seven two-wheelers
were turned out. In 2004-05, the country produced 842,437 passenger cars, 146,103 MUVs,
275,224 commercial vehicles, 5,624,950 two-wheelers and 340,729 three-wheelers. According to
analysts, the auto component industry could emerge as the next success story after software,
pharmaceuticals, BPO and textiles.
FUTURE PROSPECTS
NEGATIVES
Concerning income growth: The per capita income in the country has been growing at a slow rate.
Since the auto industry growth has a strong correlation with the same, the momentum has to
continue to ensure robust automobiles demand. Reforms need to be accelerated.
Competition from imports: With India coming under the WTO purview, competition is expected to
rise multifold. Indian companies also have to contend with imports in the future. Already a number
of companies are introducing vehicles in the CKD route.
Taxation anomalies: Duties on some select and key raw materials including steel and components
are still pretty high and are thus hurting profit margins of the companies. Also, multiple tax rules
that exist in different states are eroding the comparative advantage of a large domestic market thus
making it important to implement VAT (Value Added Tax) as soon as possible.
The risk of an increase in the interest rates, the impact of delayed monsoons on rural demand, and
increase in the costs of inputs such as steel are the key concerns for the players in the industry. As
the players continue to introduce new models and variants, the competition may intensify further.
The ability of the players to contain costs and focus on exports will be critical for the performance of
their respective companies. However, rising fuel prices and hike in interest rates might throw a
spanner in the wheels.
POSITIVES
Tractor manufacturers will benefit from increased demand for tractors once they pass on the
benefits of excise duty exemption to the end consumers. The industry has just come out of a three-
year slump, having registered a volume growth of 10% in FY04. Thus, the current exemption is
likely to give a further boost to demand
With major auto companies spending sizeable amount on product development and in-house R&D
expenditure in recent times, deduction of 150% allowed on the same will encourage further R&D
investments. With cost efficiency no longer the domain of any single player, future survival will
depend upon the capability to offer more technologically competent products. From this perspective,
the current move is a step in the right direction.

In view of a couple of positive measures such as the excise duty exemption on tractors and 150%
deduction on R&D expenditure, we remain positive on the future prospects of the industry. Also,
with government pressing for improvement in road infrastructure, the position of railways as the
main carriers of goods such as food grains and cement has come under significant threat. On the
two-wheeler industry front, since most manufacturers have a technology tie-up with a foreign
major, the incentive to do R&D with the Indian counterpart has increased

Auto
FY04 turned out to be one of the best years for the Indian auto industry. Attractive finance schemes
and buoyant economic growth helped both the passenger and commercial vehicle industry notch up
growth in excess of 30%. With government committed to continue with infrastructure spending and
economic growth likely to remain robust the industry seems to be headed in the right direction.
Banking
Innovations in the Banking Industry in India
Abstract
In the 1990s, the banking sector in India saw greater emphasis being placed on technology and
innovation. Banks began to use technology to provide better quality of services at greater speed.
Internet banking and mobile banking made it convenient for customers to do their banking from
geographically diverse places. Banks also sharpened their focus on rural markets and introduced a
variety of services geared to the special needs of their rural customers. Banking activities also
transcended their traditional scope and new concepts like personal banking, retailing and banc
assurance were introduced. The sector was also moving rapidly towards universal banking and
electronic transactions, which were expected to change the way banking would be perceived in the
future.
BACKGROUND NOTE

While the history of banking in India can be traced back several centuries, banking in the modern
sense of the word actually began towards the end of the 1700s. The Bank of Hindustan, set up in
1770, by the British rulers in India was the earliest bank in the country. Over the years, the British
set up several other banks, notable among which were the three Presidency Banks in the
Presidencies of Bengal (in 1809), Bombay (in 1840) and Madras (in 1843). These three banks were
very powerful in their respective Presidencies and functioned as quasi-central banks, having even
the power to issue currency notes. Joint stock banking companies with limited liability began to
make their appearance in the early-1860s. Allahabad Bank Ltd. was the first joint stock bank
established in India. The Swadeshi Movement in the early-1900s provided an impetus to the setting
up of banks owned by Indians. In 1920, the British government in India passed the Imperial Bank of
India Act and amalgamated the three Presidency banks. The Imperial Bank then began to operate
as the central bank of the country. In 1934, the government passed the Reserve Bank of India Act,
creating the RBI, which took over the functions of a central bank.

INNOVATIONS IN BANKING IN INDIA

TECHNOLOGY FOR VALUE CREATION

Internet Banking
Mobile Banking
Payment Systems
Benefits of Technology in Banking
RURAL INDIA CATCHING UP
Micro Finance and Self Help Groups
BANKING BEYOND BANKING
Personal Banking
Retail Banking
NRI Services
Bancassurance
Any Branch Banking
THE CHANGING FACE OF BANKING
Universal Banks
Smart Cards
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew rapidly in
commercial banking and asset management business. With the openings in the insurance sector for
these institutions, they started making debt in the market.

Competition among financial intermediaries gradually helped the interest rates to decline.
Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high
price while depositors had incentives to save. It was something between the nominal rate of interest
and the expected rate of inflation.

Regulators

The Finance Ministry continuously formulated major policies in the field of financial sector of the
country. The Government accepted the important role of regulators. The Reserve Bank of India
(RBI) has become more independant. Securities and Exchange Board of India (SEBI) and the
Insurance Regulatory and Development Authority (IRDA) became important institutions. Opinions
are also there that there should be a super-regulator for the financial services sector instead of
multiplicity of regulators.

The banking system

Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still
dominating the commercial banking system. Shares of the leading PSBs are already listed on the
stock exchanges.

The RBI has given licences to new private sector banks as part of the liberalisation process. The RBI
has also been granting licences to industrial houses. Many banks are successfully running in the
retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small
business and agricultural finance.

The PSBs will play an important role in the industry due to its number of branches and foreign
banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient
banking system, the onus is on the Government to encourage the PSBs to be run on professional
lines.

Development finance institutions

FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and
equity funds.

Convertibility clause no longer obligatory for assistance to corporates sanctioned by term-lending

institutions.

Capital adequacy norms extended to financial institutions.

DFIs such as IDBI and ICICI have entered other segments of financial services such as commercial
banking, asset management and insurance through separate ventures. The move to universal
banking has started.

Non-banking finance companies

In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net owned
funds, has been raised to Rs.2 crores.

Until recently, the money market in India was narrow and circumscribed by tight regulations over
interest rates and participants. The secondary market was underdeveloped and lacked liquidity.
Several measures have been initiated and include new money market instruments, strengthening of
existing instruments and setting up of the Discount and Finance House of India (DFHI).

The RBI conducts its sales of dated securities and treasury bills through its open market operations
(OMO) window. Primary dealers bid for these securities and also trade in them. The DFHI is the
principal agency for developing a secondary market for money market instruments and Government
of India treasury bills. The RBI has introduced a liquidity adjustment facility (LAF) in which liquidity
is injected through reverse repo auctions and liquidity is sucked out through repo auctions.

On account of the substantial issue of government debt, the gilt- edged market occupies an
important position in the financial set- up. The Securities Trading Corporation of India (STCI), which
started operations in June 1994 has a mandate to develop the secondary market in government
securities.

Long-term debt market: The development of a long-term debt market is crucial to the financing of
infrastructure. After bringing some order to the equity market, the SEBI has now decided to
concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of
dematerialisation of debt instruments in order to encourage paperless trading.

The capital market

The number of shareholders in India is estimated at 25 million. However, only an estimated two
lakh persons actively trade in stocks. There has been a dramatic improvement in the country's stock
market trading infrastructure during the last few years. Expectations are that India will be an
attractive emerging market with tremendous potential. Unfortunately, during recent times the stock
markets have been constrained by some unsavoury developments, which has led to retail investors
deserting the stock markets.

Mutual funds

The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996 and
amendments thereto. With the issuance of SEBI guidelines, the industry had a framework for the
establishment of many more players, both Indian and foreign players.

The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly
Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry during
recent times was the insecurity generated in the minds of investors regarding the US 64 scheme.
With the growth in the securities markets and tax advantages granted for investment in mutual
fund units, mutual funds started becoming popular.

The foreign owned AMCs are the ones which are now setting the pace for the industry. They are
introducing new products, setting new standards of customer service, improving disclosure
standards and experimenting with new types of distribution.

The insurance industry is the latest to be thrown open to competition from the private sector
including foreign players. Foreign companies can only enter joint ventures with Indian companies,
with participation restricted to 26 per cent of equity. It is too early to conclude whether the
erstwhile public sector monopolies will successfully be able to face up to the competition posed by
the new players, but it can be expected that the customer will gain from improved service.

The new players will need to bring in innovative products as well as fresh ideas on marketing and
distribution, in order to improve the low per capita insurance coverage. Good regulation will, of
course, be essential.

Overall approach to reforms

The last ten years have seen major improvements in the working of various financial market
participants. The government and the regulatory authorities have followed a step-by-step approach,
not a big bang one. The entry of foreign players has assisted in the introduction of international
practices and systems. Technology developments have improved customer service. Some gaps
however remain (for example: lack of an inter-bank interest rate benchmark, an active corporate
debt market and a developed derivatives market). On the whole, the cumulative effect of the
developments since 1991 has been quite encouraging. An indication of the strength of the reformed
Indian financial system can be seen from the way India was not affected by the Southeast Asian
crisis.

However, financial liberalisation alone will not ensure stable economic growth. Some tough
decisions still need to be taken. Without fiscal control, financial stability cannot be ensured. The fate
of the Fiscal Responsibility Bill remains unknown and high fiscal deficits continue. In the case of
financial institutions, the political and legal structures hve to ensure that borrowers repay on time
the loans they have taken. The phenomenon of rich industrialists and bankrupt companies
continues. Further, frauds cannot be totally prevented, even with the best of regulation. However,
punishment has to follow crime, which is often not the case in India.

Deregulation of banking system

Prudential norms were introduced for income recognition, asset classification, provisioning for
delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms,
substantial capital were provided by the Government to PSBs.

Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash
reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost
entirely were deregulated.

New private sector banks allowed to promote and encourage competition. PSBs were encouraged to
approach the public for raising resources. Recovery of debts due to banks and the Financial
Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker
recovery of loan arrears.

Bank lending norms liberalised and a loan system to ensure better control over credit introduced.
Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk
management systems in banks encompassing credit, market and operational risks.

A credit information bureau being established to identify bad risks. Derivative products such as
forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced.

Capital market developments

The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues were
abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was
established in 1992.

Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after
registration with the SEBI. Indian companies were permitted to access international capital markets
through euro issues.

The National Stock Exchange (NSE), with nationwide stock trading and electronic display, clearing
and settlement facilities was established. Several local stock exchanges changed over from floor
based trading to screen based trading.

Private mutual funds permitted

The Depositories Act had given a legal framework for the establishment of depositories to record
ownership deals in book entry form. Dematerialisation of stocks encouraged paperless trading.
Companies were required to disclose all material facts and specific risk factors associated with their
projects while making public issues.

To reduce the cost of issue, underwriting by the issuer were made optional, subject to conditions.
The practice of making preferential allotment of shares at prices unrelated to the prevailing market
prices stopped and fresh guidelines were issued by SEBI.

SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy norms for
brokers, and made rules for making client or broker relationship more transparent which included
separation of client and broker accounts.

Buy back of shares allowed

The SEBI started insisting on greater corporate disclosures. Steps were taken to improve corporate
governance based on the report of a committee.
SEBI issued detailed employee stock option scheme and employee stock purchase scheme for listed
companies.

Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies given
the freedom to issue dematerialised shares in any denomination.

Derivatives trading starts with index options and futures. A system of rolling settlements
introduced. SEBI empowered to register and regulate venture capital funds.

The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating
agencies as well as introducing a code of conduct for all credit rating agencies operating in India.

Consolidation imperative

Another aspect of the financial sector reforms in India is the consolidation of existing institutions
which is especially applicable to the commercial banks. In India the banks are in huge quantity.
First, there is no need for 27 PSBs with branches all over India. A number of them can be merged.
The merger of Punjab National Bank and New Bank of India was a difficult one, but the situation is
different now. No one expected so many employees to take voluntary retirement from PSBs, which
at one time were much sought after jobs. Private sector banks will be self consolidated while co-
operative and rural banks will be encouraged for consolidation, and anyway play only a niche role.

In the case of insurance, the Life Insurance Corporation of India is a behemoth, while the four
public sector general insurance companies will probably move towards consolidation with a bit of
nudging. The UTI is yet again a big institution, even though facing difficult times, and most other
public sector players are already exiting the mutual fund business. There are a number of small
mutual fund players in the private sector, but the business being comparatively new for the private
players, it will take some time.

We finally come to convergence in the financial sector, the new buzzword internationally. Hi-tech
and the need to meet increasing consumer needs is encouraging convergence, even though it has
not always been a success till date. In India organisations such as IDBI, ICICI, HDFC and SBI are
already trying to offer various services to the customer under one umbrella. This phenomenon is
expected to grow rapidly in the coming years. Where mergers may not be possible, alliances
between organisations may be effective. Various forms of bancassurance are being introduced, with
the RBI having already come out with detailed guidelines for entry of banks into insurance. The LIC
has bought into Corporation Bank in order to spread its insurance distribution network. Both banks
and insurance companies have started entering the asset management business, as there is a great
deal of synergy among these businesses. The pensions market is expected to open up fresh
opportunities for insurance companies and mutual funds.

It is not possible to play the role of the Oracle of Delphi when a vast nation like India is involved.
However, a few trends are evident, and the coming decade should be as interesting as the last one.

RBI:
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935
with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young
Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely
owned by private shareholders in the begining. The Government held shares of nominal value of Rs.
2,20,000.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction
of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy
Governors, one Government official from the Ministry of Finance, ten nominated Directors by the
Government to give representation to important elements in the economic life of the country, and
four nominated Directors by the Central Government to represent the four local Boards with the
headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members
each Central Government appointed for a term of four years to represent territorial and economic
interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934)
provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:

• To regulate the issue of banknotes
• To maintain reserves with a view to securing monetary stability and
• To operate the credit and currency system of the country to its advantage