The Indian Telecom market is amongst the largest in the world and 2nd among emerging economies in Asia with an estimated 5-6 million subscribers being added every month.

Indian telecom is more than 160 years old, beginning with commissioning of the first telegraph line between Kolkata and Diamond Harbour in 1839. Reforms in the Indian Telecom sector began in the 1980s when equipment manufacturing was opened to private players and the Centre for Development of Telecommunication (DOT) was established for the development of indigenous technologies. It was in 1986 that DOT was converted into two wholly owned Government bodies like Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up. In 1997, Telecom Regulatory Authority of India created.

With the coming into force of the National Telecom Policy (NTP) in 1994 and the New Telecom Policy in 1999, the telecom industry was heading towards a significant change. Now comes 2000, when DOT was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is today India�s leading telecommunications company and the largest public
sector undertaking. (more…)

India has seen a phenomenal growth in the automobile Industry. From the time Maruti 800 (a small car and nations favorite for a decade since 1990’s launch) or an Ambassador (big box shaped) to now when major car makers such as GM, Nissan and others have invested about a billion and a half USD in the car segment in India in the last 12 months or more, you can be assured that the Indian car market has arrived and its all set to get you!!

With increasing income levels and higher prosperity both in India and China their countrymen seem to be on a shopping spree � for cars!!

Market demand for passenger cars in China has captured the interest of several big international car makers who are planning to invest US$ 15 Billion in the sector by 2008, thanks to China�s mushrooming urban middle class. Due to the vast growth opportunities available, the car manufacturers worldwide have identified China as the potential market over the next decade.

Although the reports in dailies talk about the small car market as the upcoming mantra for the Chinese automobile Industry, but on the roads of Beijing and Shanghai you see a different picture. Small cars are few and mostly old models. The Chinese prefer the big ones, you name it and its available in �abundance� speaking volumes of the new money and growth in the economy. You would never see so many Audi’s or Volkswagen on Indian roads at a given point of time.

Small wins!

In India, on the contrary to China, you will find a large number of small cars flooding the markets. In New Delhi, roads are jammed with Wagon R�s, Indica�s and Alto�s. Considering their higher fuel efficiencies and low cost, they are the in thing and you will be surprised to know that about 50 or more distinct cars are ready to foray the Indian markets and about 75% of the share in the automobile sector belongs to the small car segment. These figures can be attributed to the rise in the middle class incomes in India and the reduction in duties on small cars from 24% to 16% in 2006 by the Indian Government in order to boost its manufacture (though taxes remain somewhat high compared to China).

India is soon to become the world�s factory for exporting small cars. Hyundai Motors has set up a plant in South India to make and exports to about 67 countries!
India�s own Tata Motors Ltd. plans to make a $2,500 car, setting new standards for the industry and Nissan and Renault are also exploring possibilities of cheap cars. The Society of Indian Automobile Manufacturers predicts car exports from India to rise more than five times to 1 million units by 2010

According to �Passenger Car Market: A Global Review (2006)�, growing incomes, increased buyer incentives, attractive finance packages, and low ownership costs in India will continue to drive the demand for cars. On the back of these favorable factors, the car sales in India are expected to average over 12.5% annually during 2007-08 and more than 11.2% in 2009-10.

To conclude: India’s entire automobile industry collectively manufactures about 1.4 million vehicles a year. However, it still will be light years behind China, which is on track to hit 10 million or so in 2007. Having said this, I believe that India could take it from China as far as the small car sector is concerned. Also the fact that in China a joint venture is required for domestic production for cars and in India 100% FDI is permitted, making India a more accessible location for investment in the automobile sector. Let me know your views on this�

Year 2006 saw Indian companies raised $7.23 billion from the domestic capital markets, making India the eighth-largest issuer of equity capital in the world while at the same time Chinese companies were on top and raised a huge $56.6 billion through 175 offerings, the highest amount globally. Industrial and Commercial Bank of China was the leader and raised a whooping $ 21.9 billion!!

The following article gives good insights into the IPO scene in BRIC countries lately:

timesofindia.indiatimes.com/Business/India_Business/India_is_worlds_8th_
largest_IPO_market/articleshow/2137588.cms

DLF Limited, the largest real estate development company in India raised $ 2.24 Billion from its IPO through a 100% book building process this year. The issue which constituted 10.26% of the fully diluted post-issue capital of the company was oversubscribed by 2.47 times.

We found an interesting article in Economic Times on DLF from the time the DLF�S IPO was conceived in May 2006 to its listing stage in June 2007. Though DLF, at the time of filing the Red Herring Prospects, wanted to fix the shares price at around 1000 Rs ($ 25) it did at Rs. 525 ($ 13 approx) eventually. Read on�

economictimes.indiatimes.com/DLF_IPO_The_untold_story/rssarticleshow/2209182.cms

(Red Herring Prospectus is a prospectus that does not contain information on the number of shares to be issued and issue price)

Continuing with my theme from last week, �A Paradox of Strategies�, we now discuss strategies of the two countries in the quest for Africa!

Whilst the Chinese move into Africa in an efficient methodical planned business like manner, India is moving in it�s slow, slightly chaotic way (reflective of it�s democracy) to improve its positioning in Africa. The ambitions of both countries may intersect; the approach though is a stark contrast!

China first came into contact with Africa when legendary explorer � conqueror Zheng returned from Kenya around 600 years ago with a Giraffe. In the 60s it was Africa�s leftwing revolutions that sparked interest while today it is Africa�s resources!

China is hungry for oil and other raw materials that Africa has, this is evident by the over 700 Chinese companies that have set up on the continent in the past few years. With the support and financial backing of the central government, these companies are investing time and money in infrastructure projects, building roads, railways, power plants & football stadia, often in places that the West has chosen to ignore or have been left neglected.

Chinese outlook: why they love Africa

1. Need more energy and resources to fuel their booming economy
2. New markets to export the products of the booming economy
3. Support from international organizations.
4. Support from allies helps counter U.S. influence in both the region and globally.

What made the two click?

African nations out of favor with the West are increasingly turning to China for material support. China�s policy of �not interfering in the internal affairs of other nations� is often more attractive than aid packages tied to anti-corruption requirements. Using their increasing wealth as leverage, China has increasingly wooed Africa by writing off large amounts of debt. In 2000, China wrote off US$1.2 billion in African debt; in 2003 it forgave another US$750 million.

China�s support, both politically and economically, of Zimbabwe and the Sudan makes it possible for the two world pariahs to survive despite heavy economic sanctions from the West. Another example is Angola, which refused to take a US$ 2 billion loan from the IMF for infrastructure development, preferring to go to China instead. The exchange: 10,000 barrels of oil daily!

China first established a presence in the unexploited the Muglad oilfields of southern Sudan 10 years ago, now it imports 50% of the region�s crude oil, and 13 of the 15 most important foreign companies operating in Sudan are Chinese. But it�s not just Sudan�s oil that is of interest, China has also become Sudan�s largest supplier of arms.

And the list doesn�t end with Zimbabwe or Sudan:

? China launched Nigeria�s first space satellite.

? Chinese exports to Ethiopia make up over 93 percent of the two nations’ bilateral trade.

? Chinese troops are part of the UN peacekeeping mission in Liberia

? China contributed to construction projects in Tanzania and Zambia

We discussed the Chinese model above, i.e., barter between money & diplomatic influence for unfettered access to mineral resources & black gold!

The Indian model (if we can call it that) is primarily hedged off its historical relations. Early contact & East Africa go back at least 2000 years. When Vasco Da Gama arrived in Mozambique, Mombasa & Lindi in 1497, he was surprised with the number of Arabs & Indians he found there. (www.asiansinafrica.com)
Indians have been trading & living in Africa for centuries. A sizeable number of Indians were also carried over by the British to East Africa for labour requirements. From India�s Freedom struggle, the Non � Aligned movement, to the commercial influence of the Indian Diaspora & the vibrant Indian democracy have all been positively enshrined in Africa�s aspirations. You would find India to be a cherished destination for African students till the early 90�s.

The difference being India is more an inspiration than a way to meet your materialistic requirements…

China though has forced India to start thinking differently. India�s big jolt came in 2004 when it lost out to an oil bid in Angola. China blew away India with a $2 billion vs. India�s measly $200 million offer to develop Angola�s railways.

Indian investments are largely driven by the private sector. They are also generally more equitable for the locals. To keep costs down Indian companies find it easier to employ locals whilst the Chinese government led investment brings with it Chinese labour.

Although India is also in Africa for economic reasons, there is an effort to humane-ness. India�s big push is to get Africa connected and educated. Ethiopia, South Africa, Ghana & Mauritius will be the initial countries for a $1 billion pan Africa e-network project, a joint project with the African Union. India also plans to export its Open University system, amongst the largest in the world, to Botswana & Uganda amongst others in Africa.

Africa is but one of the �fields� the two countries are approaching, a similar approach was witnessed in the Middle East & the next frontiers are closer home � South East Asia & in far away developing Latin America.

During the 2007 Cricket World Cup, India made �heavy weather� of building one cricket stadium in the Caribbean islands. China made SIX and it does NOT even play Cricket.

The future shall tell if India�s soft power � a more inclusive presence or China�s business like approach shall reap greater benefits.

The International Fiscal Association (IFA) the Netherlands based global organisation who monitor and advice governments on tax protocols, international treaties and taxation strategies(www.ifa.nl) are holding their Indian chapter annual conference in Chennai, from 20th-21st July, at the Accord Metropolitan. Speakers include myself and other notable tax law illuminaries as follows:

Global Business Models: International Tax Challenges and Opportunities - Steve Towers, Deloitte

Making International Acquisitions Tax Effective - Abhishek Goenka, BMR Associates

Foreign Direct Investment Challenges in Real Estate Investment in India - Ganesh Raj, E&Y

Outbound investment tax considerations and structures for Indian companies investing abroad - Pieter L.de Ridder, Loyens & Loeff

Tax Residency and related issues - Radhakishan Rawal, PWC

Overseas tax planning - some basic concepts - Roy Rohatgi, Professor in International tax

China’s 2008 Tax Unification & VAT rebate reductions on export of goods from China - Chris Devonshire-Ellis, Dezan Shira & Associates

Transfer Pricing of Intangibles: Cost Sharing Arrangements - Arindam Mitra, Deloitte

Brain Trust Session - Mr.Ajay Vohra, Vaish Associates, Advocates, Delhi & Mr.K.R.Sekar, Partner, Deloitte Haskins & Sells, Bangalore.

Tax Effective Supply Chain Management Systems - Sudhir Kapadia, KPMG

Cross Border Services and Supply - T P Ostwal, Ostwal, Desei & Kothari

That is quite a line up of tax experts there and Dezan Shira & Associates are honored to be speaking for the second year in succession. From personal experience, I can advise it is an excellent event and covers a lot of important cross-border issues. Registration can be obtained at the IFA India chapter website at :www.ifasrc.org
If you are attending - please come up and say hello, I’d be very happy to see you there.

According to news from the China Securities Regulatory Commission (CSRC), China is now willing to allow foreign bourses to establish Representative Offices in China. Not just limited to Indian exchanges, a global scramble is expected as some of the worlds biggest exchanges are expected to want a piece of the action, as China antipates some USD100 million being placed by Chinese companies in overseas markets. There are qualifying procedures. Other regulatory regimes are expected to sign an MOU with the CSRC which includes the sharing of cross-border investment data and transactions, and that such Representative Office must be from respected exchanges “with sound operational and financial conditions existing for ten years or more”. Likewise, the Chief Representatives of such offices must have a “minimum of three years experience in handling matters related to China within the past five years” and “possess knowledge of China’s financial laws and regulations”, although exactly how this is deemed a qualification is not clear. Tipsters from your local barfly would appear to enable him to fall into the melting pot for qualified personnel.

A typical lack of clarification and implementing rules from China’s regulatory bodies aside, it does mean that India’s Stock Exchanges are poised to open up Representation in China. Indeed, the Securities & Exchange Board of India has signed off on a CSRC MOU, and the National Stock Exchange and main Bombay Stock Exchange, as well as the smaller bourses in Delhi and Kolkota are expected to apply.

Such offices are to be restricted to marketing, and only to focus their promotional activities to business enterprises and not Chinese individuals. Public advertising will also be banned.

Sensex closed at an all time high of 15,039 last evening. We present to you a timeline of the Sensex story since it�s inception.

Established in 1875 as “The Native Share & Stock Brokers Association”, Bombay Stock Exchange is India�s first stock exchange to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956. Since 2005 BSE (earlier an Association of Persons) is a demutualised and corporatised entity incorporated under the provisions of the Indian Companies Act, 1956 and is now called the Bombay Stock Exchange Limited.

The bench mark index on the BSE is Sensex and is tracked worldwide. Sensex, the Sensitivity Index, is a basket of 30 constituent stocks representing large and liquid companies. First compiled in 1986 was calculated on a “Market Capitalization-Weighted” methodology. Now it�s the “Free-Float Market Capitalization-Weighted” method being used wherein the level of index indicates the Free-float market value of 30 stocks comprised in the basket relative to a base period. The base year of Sensex is 1978-79 and the base value is 100.

Lets have a look at the journey of Sensex from 1000 to 15,000 points (Source: www.rediff.com)

Analysts in India, including the big brokers feel that Sensex will cross 25,000 mark by 2010, a figure which was well predicted in 2005 itself. Morgan Stanley bank predicts its surge to 50,000 in 2020 and this seems quite possible with Brazil’s Sao Paulo Stock Exchange’s benchmark index Bovespa hitting 50,000 mark first time ever on May 3rd this year.

BSE in the picture above (source: www.india-picture.com) is located on the Dalal street in Mumbai. Dalal in Hindi means a broker.

Demand For India�s Free Trade Zones Heats Up
Foreign Investors Piling In As Zone Owners / Operators

The development nationally of India�s Free Trade Zones has heated up spectacularly as both domestic and international property development companies have taken advantage of generous tax breaks to help get private sector funding into the development of foreign direct investment into India. These breaks, which can halve the domestic tax rate, and defer much of it for up to ten years - are specifically designed to alleviate government burden in developing zones themselves � in sharp contrast to China, where private development of zones is still a rarity. At the ASSOCHAM meeting on development zones last Friday in Delhi, it emerged that some 800 projects are currently completed or awaiting development in India � the vast majority of these being private sector developments.

This has occasionally led to clashes, sometimes violent, with dispossessed locals and farmers apparently being forced off some land, with riots having broken out on a few occasions. Sound familiar ? Moves to bring local businesses and farmers into the free trade zone ventures as minority partners in order for them to continue to profit from the land use have been touted as an alternative � something again that China�s local governments � some of whom, in collusion with property developers there have stripped peasant farmers of everything - could probably learn from.

However, it�s private equity that is leading the way in terms of spending on necessary infrastructure, technology and know-how. Many of India�s largest private companies and families are now involved in getting the concept of Indian Free Trade Zones off the ground, again taking much of the financial burden off the government from doing so, and thus helping deflect criticism that government spending should be focused on much-needed rural education, water supply and basic health care than big business. There in lies the difference between the economic revolutions in China and India � China�s was government driven, lead by foreign direct investment, while India�s is funded by it�s own domestic private wealth.

For the foreign investor wishing to manufacture in India, Free Trade Zones offer an attractive alternative to India�s still rather high corporate income tax rate of @34%. Effective ten year tax breaks, at five years zero and five years 50% tax are making India a favored destination for international manufacturers, with such rates outstripping the benefits that China has offered. Additionally, as 2point6billion reported last week, India�s wages are significantly lower � a trend that is going to remain constant as China�s workforce ages.

For comparisons between Chinese and Indian Free Trade & Development Zones, Sheetal Guliani at the India Desk of Dezan Shira & Associates is there to assist.

Millions of Indians reside in the Middle East. They constitute the largest portion of the populations within the Arab Gulf � upwards of 50% in some country states. Spread across the economic divide, the Gulf is the cherished destination for a first time expat from India � a softer landing internationally & importantly cultural affinity which could be traced back to time.

It�s the Chinese though who are stepping in with a concerted investment strategy within the Middle East. Will leave the investments within the Oil & Gas industry to be a foregone conclusion and focus on the supposedly USD 300+ million investment by the Chinese government within Dubai, UAE for setting up the largest Chinese exhibition centre for goods manufactured within China in a country outside the Mainland.

Dragon Mart as is named is a 1.2 km long complex designed in the shape of a dragon. With over 4000 Chinese manufacturers representing the concept though still at it�s nascent stage after 2 years in operation is to �Fly to Dubai, place your order at the Dragon Mart & have them shipped out of China to your country.�

The exhibition centre is quite a shopping mall in itself & although supposedly not to facilitate retail transactions you can seek quite a bargain if you do visit the place. The infrastructure in/around is comparative to malls in Dubai.

Surrounding it is, as �supposedly being dubbed by the local Taxis� China Town (the first in the Arabian Persian Gulf) � where you have a number of Chinese residents coming to live into & you can find the flavor of China rising�..

Interesting though and part of the large landscape around the Dragon mart is the plans to construct a 240,000 sq meter replica of the iconic Forbidden City!

Now would you imagine the Indian government participating in a venture wherein a concerted investment is made to enhance the potentials of your trade and also to bring about a cultural exposure in a country with limited diaspora. For me � I cannot see them do it in Dubai wherein Indians do constitute to be the majority of the population spread across the economic divide from the humble construction worker to amongst the most affluent in town.

The strategy on the part of the Indians is to leave�it to�the citizens &�industry to�slug it out in the market�..whilst the Chinese seem to be providing a launch pad.

Starbucks, the American coffee giant will send a revised application for its entry into the Indian market after its earlier proposal for a franchise opertation was put on hold Reuters is reporting.

Starbucks had proposed to enter the fast-expanding Indian market through a franchise 51 percent owned by its Indonesian franchise V.P. Sharma, with the rest held by India’s Future Group CEO Kishore Biyani.

Starbucks is funneling more resources into�international markets and the coffee giant plans to increase the number of international stores by 20 percent per year over the next five years.

“The international business is one of our key growth drivers going forward, and one that investors have not fully recognized,” CFO Michael Casey said�on Thursday according to Reuters. (more…)