Doing Business in India: Business Climate

Table of Content

I t is important for India to continue with its structural reforms to sustain its high growth. The fact that even seven per cent growth is spoken of as not being good proves that the Indian economy has set high bench mark. India and the World Bank Group have been exceptionally good partners during a time India should take its priorities forward to meet the challenges and opportunities lying ahead. This would ensure continuance of the momentum of the Bank’s successful engagement with India. Robert B. Zoellick, President, World Bank Group, March 2012 P Chidambaram Finance Minister, India “D espite challenging economic conditions, India continues to be among the fastest growing economies in the world.

The growth might have climbed down to 7% from its normal trajectory of 8. 5%–9. %; nevertheless, it continues to be impressive in the midst of anxiety all around. A large domestic market led by the emergence of a important middle class population, investor-friendly policies, rising foreign exchange reserves, availability of skills and demographic prospects are some of the strong positives that are behind the Indian growth story. ” Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII), 2012 “T oday, India has global responsibilities of a kind that it did not have earlier. Our presence at the high table of global economic policy makers is a matter of some satisfaction.

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If India can continue to build on its economic strength, it can be a source of stability for the world economy and provide a safe destination for restless global capital. ” Pranab Mukherjee President and Former Finance Minister, India (March 2012) This book has been prepared by Ernst & Young Pvt. Ltd. (EYPL) to provide busy executives a quick overview of the investment climate, taxation, forms of business organizations, and business and accounting practices in India. This publication should be used as a research tool only.

However, the information contained here is in a summary form, and should not be ubstituted for the tax professional’s own work in relation to client matters. In those circumstances, reference should always be made to the original reference material quoted against the related information to ensure added accuracy. The information presented in this book has been validated as of 15 July 2012. Neither EYPL nor any other member of the Global EY organization accepts any responsibility for loss occasioned to any persons acting or refraining from action as result of any material in this publication. This book is prepared for use by Ernst & Young’s clients and professional staff.

The country’s GDP has been growing at an average economy is amongst the largest in the world on the basis of Purchasing Power Parity. It is today one of the most attractive destinations for business and natural resources and strong macroeconomic fundamentals. In FY2011 – 12, the country attracted FDI of around US$46. b in various sectors. India’s demographics are very attractive with approximately 65% of the total population falling in the age group of 15 to 64 years. A comparatively stable government, an open democratic set-up, and a strong and reliable judiciary system, add further advantage to the Indian economy. The country’s strong fundamentals such as a growing middle class population, cost competitiveness and strong domestic consumption, coupled with its resilience to counter the challenges of the global economic turbulence, has made it a preferred destination for MNCs from across the world.

With the above perspective in mind, we have developed this guide that will help MNCs simplify the complex decision-making process involved in undertaking foreign operations, which requires an intimate knowledge of a country’s commercial climate, as well as recognition of the fact that this climate is continuously evolving. The companies that are doing business in India, or planning to do so, would be well advised to obtain current and detailed information from our experienced professionals.

India is a secular state and the largest democracy in the world with a parliamentary form of government. The Government of India (GoI), Constitution of India in 1950. The GoI is divided into three distinct but interrelated branches — the legislative, executive and judiciary. Government of India Legislative Rajya Sabha (250 seats) Lok Sabha (545 seats) Executive President Vice President Prime Minister Judiciary Supreme Court High Courts District Courts Doing business in India 9 Legislative branch: At the central level, India has a bicameral parliament comprising the Rajya Sabha (Council of States) and the Lok Sabha (House of the People).

The primary function of the Parliament jurisdiction. At the state level, some states operate through a single Legislative Assembly while others have a bicameral structure and operate through a Legislative Assembly and a Legislative Council. Executive branch: The Executive arm comprises the President, the Vice President and the Council of Ministers headed by the Prime Minister. The President: The President of India is the Head of the State and the Commander-in-Chief of the armed forces. The role of the President is primarily ceremonial in nature and he/she acts in accordance with the advice of the Council of Ministers.

The current President of India is Shri. Pranab K. Mukherjee. The Vice President: the Rajya Sabha and acts as the President when the latter is unable to discharge his/her duties. The current Vice President of India is Mohammad Hamid Ansari. The Prime Minister: The real executive power of running the Central Government lies with the Council of Ministers led by the Prime Minister of India (collectively known as the Union Cabinet). The Prime Minister is appointed by the President after the Lok Sabha elections, which Manmohan Singh.

Judiciary branch: The Indian judiciary is independent of the Executive. The Supreme Court is the apex body in the judiciary branch and comprises the Chief Justice of India and 25 associate judges. Apart from the Supreme Court, the judiciary consists of high courts at the state level and district courts at the district level. Political parties of India: Major political parties in India include the Indian National Congress, the Bhartiya Janata Party, Janata Dal, Nationalist Congress Party, The All India Trinamool Congress, the Communist Party of India and the Samajwadi Party.

Doing business in India 4 India has seen a systematic transition from being a closed door economy to an open economy since the beginning of economic reforms in the country in 1991. These reforms have had a far-reaching impact and have helped India unleash its enormous growth potential. Today, the Indian economy is characterized by a liberalized foreign investment and deregulation. India has grown to become a trillion dollar economy with a largely self- India now ranks as the tenth-largest economy in the world and third largest in terms of GDP on PPP basis.

Domestic consumption fuelling economic growth: India continues whose consumption is driving the formation of the expanding middle consuming country from its twelfth position in 2010. As compared to other countries, India has been and continues to be relatively insulated from external shocks due to its strong domestic consumption pattern and savings culture. Savings as a percentage of GDP increased to 32. 3% in FY11 from 23. 5% in FY02. Increasing urbanization and modern technology: Urbanization and innovation have brought about a remarkable change in the lifestyles and consumption pattern of Indians.

The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the premier stock exchanges of the country. The BSE is the world’s largest stock exchange in terms of number of listed companies with more than 5,000 companies. The NSE is the world‘s third largest stock exchange in terms of number of transactions. Doing business in India 17 Recent interventions and outlook: In the past few years, the GoI and the RBI have taken various measures to check excess liquidity/slow growth using its monetary policy. In October 2011, the RBI increased the repo rate by 25 basis points (bps) to 8. %. However, it reduced the repo rate to 8% in April hit by high credit costs and weakening global demand. in January 2012 and 75 bps in March 2012) to infuse liquidity into the banking system. RBI sounded a bit cautious on the timing and magnitude of rate depreciation. The RBI has not changed its policy repo rate and CRR Outlook: The GoI has also outlined key action points to propel India on to a high growth trajectory Target of doubling the merchandise exports by FY14 taking it to US$500 billion Provision of INR159 billion in the Union Budget FY13 for banks’

Setting up of an Investment Tracking System to ensure speedy implementation of projects that have been delayed on account of various reasons including security clearances, environmental clearances, and land-related matters. B Key sectors: an overview Doing business in India 19 Did you know ! The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the premier stock exchanges of India. The BSE is the world’s largest stock exchange in terms of number of listed companies with more than 5000 companies. NSE is the world‘s third largest stock exchange in terms of number of transactions.

India is the largest importer of conventional defence equipment in the world. About 65%–70% of India’s defence requirement is imported from global aerospace and defence companies. India’s defence spend has been increasing over time in the light of volatile neighborhood, internal security issues and the need for upgrading/replacement of legacy Russian origin equipment. Currently, India’s national budget for 2012–13 pegged the defence outlay at US$35. 16b.

Of this, capital expenditure, which primarily caters to acquisition of defence hardware and modernization requirements of defence services, accounts for US$14. 7b. Of this, the Indian army has the largest share — of more than 50% — followed by the Indian Air Force and the Indian Navy. Capital expenditure is positive as compared to other global economies. The revenue expenditure, which mainly accounts for the “operating expenditure,” is pegged at US$–20. 70b. The Indian aerospace and defence industry is witnessing an unprecedented growth with the industry sector on the threshold of entering a new era where it will assume increased responsibility to make the nation self-reliant in defence production.

With the shortlist announced, India is fast developing into a manufacturing hub for global aerospace corporations wanting to leverage India’s proven skills competitiveness. Doing business in India 21 Regulatory scenario a. Foreign direct investment wherein the defence industry was opened up to 100% for Indian private sector participation, with FDI permissible up to 26% — both subject to licensing and GoI approval. b.

Defence procurement procedures The Defence Procurement Procedures (DPP) essentially lays down the procurement procedure of all capital acquisitions (except medical equipment) undertaken by the Ministry of Defence, the Defence Services and Indian Coast Guard both from indigenous sources and imports. The DPP ensures expeditious procurement of the approved requirements of the Indian Armed Forces in terms of capabilities sought and time frame prescribed by optimally utilizing the allocated budgetary resources. The current version is DPP2011,which was released on 7 January 2011. c.

Offset policy In its quest for self reliance in defence production, the GoI has been continuing its efforts to indigenize the production of defence equipment. One of the major initiatives by the GoI in this regard was the introduction of the “offset policy” as part of DPP-2005. The offset policy provides for a minimum offset of 30% in case of contract with foreign company where the contract is valued at more than INR3 billion (US$55m). The Defence Acquisition Council may, after due deliberation, also prescribe varying percentages above 30% or waive off the requirement for offset obligations in very special cases.

Offset Policy is applicable for all capital acquisitions categorized as: “Buy (Global)”,i. e. , outright purchase from foreign or Indian vendor. Procurement offset is not applicable in case of a bid (with at least 50% of indigenous content in the product); “‘Buy and Make with Transfer of Technology”,i. e. , purchase from foreign vendor followed by licensed production. 22 Doing business in India Offset obligations can be discharged by direct purchase of, or executing export orders for, eligible products and components manufactured by, or services provided by, Indian industries.

Offset obligations can also be discharged through direct foreign investment in Indian industries for industrial infrastructure for services, co-development, joint ventures, and co-production of eligible products and components. The ambit of the offset policy has been enlarged vide DPP in 2011 by including civil aerospace, internal security and bringing training in the list of eligible products and services. Further, the defence procurement policy also allows banking of offset credits. If the vendor is able to create more offsets than his obligations under a particular contract, surplus offset credits can be banked.

Industrial licensing The defence sector is also subject to an industrial license (IL) of an IL, which require, inter alia,  that the applicant should be an Indian company/partnership  the majority of the Board of Directors and CEO should be resident Indians clearance through background checks for foreign collaborators and domestic promoters. License applications are considered and licenses provided by the Department of Industrial Policy and Promotion, Ministry of Commerce, in consultation with the Ministry of Defence. Recent developments and industry outlook

The Indian defence budget is growing in double digits and India has emerged as one of the most promising markets for global aerospace and defence companies. There has been an increasing focus on moving on from a buyer-seller to a collaborator, joint developer etc. The GoI now wants to ensure that its spending power leads to India gradually becoming a net exporter of defence equipment. Doing business in India 23 B. 2 Automotive The Indian automobile industry is estimated to have a total turnover of US$74b for the 12 month period ending 31 March 2012.

Despite global economic slowdown, the Indian automotive sector continued on an upward trajectory with a double-digit growth in FY12. Staying among the top-three markets across a number of vehicle segments, India is the world’s largest three-wheeler, second-largest two-wheeler and heavy commercial vehicle and the third-largest light commercial vehicle market.

The country is rapidly being established as a small vehicle product development hub enabled by the large volumes needed for the domestic market and the ability to reduce costs through frugal engineering and manufacturing. There are as many as 12 ultinational players in the original equipment manufacturer (OEM) segment in the Indian market, and a number of expansion or new projects have been announced during 2011–12. Further its proximity to the South East Asian and African markets and well connected ports makes it an ideal location to develop as a small vehicle manufacturing hub. Exports of vehicles have grown at a CAGR of 25% over the period 2007–12 with 2. 9m units exported in FY12, with more than half a million PVs and 1. 95m two wheelers being exported to various parts of the world in FY12. Regulatory scenario FDI of up to 100% is allowed under the automatic route.

The GoI permits 200% weighted deduction on R&D expenditure. Moreover, most state governments offer additional incentives to vehicle manufacturers, given the large investments and employment generation capacity of this industry, in order to encourage them to set up units in their respective states. Among policy drafts, on the anvil is India’s Science, Technology & Innovation Policy 2013, in which, amidst other things, contributions are being sought for focus on engineering and advanced manufacturing for the automotive manufacturing industry to help in fueling and sustaining future growth.

At the beginning of FY13, GoI unveiled a seven-point strategy to boost exports, including extension of import-tax waiver and interest subsidy, aimed at incentivizing domestic manufacturing while encouraging import substitution. It also extended the interest subsidy scheme on automotive vehicle and component companies across India. Among alternate technologies, electric vehicle sales in India took a hefty subsidy scheme offered by the Ministry of New and Renewable Energy has lapsed six months before the rollout of a new, improved policy drafted by the National Council of Electric Mobility (expected somewhere around October 2012).

The impact was felt across twowheeler and four-wheeler segments, with sales dropping by as much as 50%. India’s New Manufacturing Policy announced in 2011 aims to increase the share of manufacturing to 25% of the GDP from its current level of with competitive advantage. Recent developments and industry outlook The entry level, sub-1500cc segment continues to form the largest share of passenger vehicle sales, selling more than 1. 1m vehicles for the year. Being one of the most price-sensitive segments, the growth was lower due to increasing petrol prices and interest rates.

The year also saw rapidly shifting consumer preference toward diesel vehicles, leading to OEMs introducing diesel products across product segments. The demand for diesel vehicles grew to the extent of creating long waiting periods for diesel vehicles, as well as create idle inventory for petrol models. In the face of slowing demand, overcapacity was seen building up across the industry; however, given the emerging dual focus on servicing the domestic market and at the same time building export capabilities, near term excess capacity was seen as unavoidable.

For a price aggressive market such as India, exports enabled scale for automotive manufacturers to compete effectively. India’s emergence as a vehicle and component development continued to be on the automotive industry’s priority list for the year FY12 with emphasis on co-designing and co-development.

Source: ACMA – EY Vision 2020 Study, EY analysis According to the industry forecasts, India is poised to become one of production is set to treble from the levels in 2011–12 and the size of the component sector is set to grow from US$42b to US$110b. The passenger car segment in India is expected to grow at upwards of 12% in FY13. After producing more than 3. 1m passenger cars in FY12, the Indian market is looking forward to the launch of almost 50 new models in the coming year across sub-segments. Society of Indian Automotive Manufacturer’s (SIAM) predicts the commercial vehicle (CV) segment to grow between 9% and 11% in FY13.

The CV growth is expected to be propelled by strong demand in the Light Commercial Vehicle segment with the increasing acceptability of the hub-and-spoke model and inter-city transportation. 26 Doing business in India The largest contributor to the automobile sales, the two-wheeler segment in India is expected to grow at the rate of 11% to 13% in the year FY13. Led by motor cycles, the segment witnessed more than 15. 4m two-wheelers being produced in India in FY12. B. 3 Banking Financial markets in India have acquired enhanced depth and liquidity over the years.

Steady reforms since 1991 have led to growing rought about a complete overhaul of the Indian banking sector, which was hitherto a highly regulated and administered sector. These reforms encouraged new market entrants, being private players and foreign banks, making the banking sector a more market-driven one with However, in the recent times, weak global economic prospects and their impact on the emerging market economies leading to constraints in availability funding for banks and corporate entities. In India, reforms system. this, more stringent capital and liquidity measures for commercial banks have been implemented and steps have been taken to build provision buffers.

The Indian commercial banks have prescribed Basel III capital and liquidity standards for banks and adopted new prudential compensation practices. In addition to this, various institutional mechanisms and tools to monitor systemic risks have been put in place. Efforts are being made to develop effective macro prudential supervision. The Indian banking sector broadly comprises three types of commercial banking entities, based on the nature of their ownership. These are public sector banks, private sector banks and foreign banks.

The public sector banks still continue to dominate the banking space with a Doing business in India 27 eposit market share of more than 75%. Despite all efforts undertaken post-1990s to boost banking in India, the banking sector penetration remains low. Apart from commercial banks, measures have been taken to The banking sector intermediation, as measured by the total loans as a Regulatory scenario Regulator: The sector is regulated by the RBI. Key enactments governing this sector include the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; and the Companies Act, 1956 (“the supervisory policies to enable a strong capital base, effective risk management and best corporate governance standards in the banking sector.

In recent times, the focus has also been on improving credit delivery, increased vigilance, monitoring salaries of key personnel, FDI policy in banking: The total aggregate foreign investment in private banks from all sources (FDI, FII and NRI) is limited to 74% with a limit of 10% for individual foreign institutional investors (FIIs) with the aggregate limit for all FIIs restricted to 24%, which can be raised to 49% with the approval of the board/general body. The FDI norms are not applicable to public sector banks where the FDI ceiling is still capped at 20%.

Capital requirements: Basel III stipulates that all banks should attain capital to risk (weighted) assets ratio (CRAR) [inclusive of Capital Conservation Buffer (CCB)] of 11. 50% and common equity tier-1 CRAR (inclusive of CCB) of 8% by 31 March 2018 [CRAR (inclusive of CCB) of 9. 625% and common equity tier-1 CRAR (inclusive of CCB) of 6. 125% to be achieved by 31 March 2015]. Domestic and foreign banks have been allowed by RBI to augment their capital funds by issuing certain hybrid instruments. 28 Doing business in India Developments in the banking sector and industry outlook

Financial inclusion to drive banking growth: In pursuance of the announcement made in the Monetary Policy Statement of April certain unbanked villages with a population of 2,000. Under this policy, banks have been able to cover 99. 7% of the unbanked policy, has now mandated SLBCs to prepare a roadmap to cover all unbanked villages with a population of less than 2,000. The RBI extended the scope of the business correspondent (BC) model to allow listed companies with large distribution network in rural areas to act as BCs, which marked the entry of telecom operators and large FMCG companies in the BC model.

Focus on mobile banking to drive penetration of banking services in India: Since only 40% of the adult population in India has access to banking services, while approximately 70% own a mobile commercial banks. Several leading banks have tied up with telecom operators and handset manufacturers to provide mobile banking facility. In order to further augment the facility, the RBI recently removed the ceiling of INR 50,000 per customer per day mandated in 2009 under the guidelines on mobile banking. Given this, banks are now free to place per transaction limits based on their own risk perception with the approval of its Board.

Granting of additional banking licenses: During the Union Budget of 2010–11, the GoI, in consultation with the RBI, announced that it may consider granting additional banking licences to private sector players. Pursuant to this announcement, the RBI issued a discussion paper requesting public comments on minimum capital requirements of new banks, promoter’s participation, foreign shareholding, eligibility of industrial houses and NBFCs. Doing business in India 29 Detailed discussions on the above issues have been held by various industry bodies.

Based on the comments provided, the GoI released the revised draft guidelines for granting banking licenses. Setting up of electronic payments systems: National Payments Corporation of India has set up an Inter-bank Mobile Payment Service (IMPS) and is in the process of rolling out an indigenous payments network, “RuPay”. These initiatives are likely to reduce process of payment transfer quicker. Revision in rules to set up foreign banks in India: In 2005, the RBI announced a roadmap for the set up of foreign banks in India.

The roadmap inter alia proposed two phases to achieve a wholly owned phase, foreign banks were permitted to establish presence in India by way of setting up a WOS or conversion of the existing branches into a WOS. The second phase proposed to accord full national acceptance to WOS structures set up by foreign banks in India. As a key step toward implementing the roadmap, the RBI issued a discussion paper in January 2011. The discussion paper lays down the intent behind adopting WOS as the preferred structure, proposed framework to make this structure operational along with incentives to existing/new banks to set up a WOS vis-a-vis a branch.

Banking Laws Amendment Bill, 2011: The Banking Laws Amendment Bill, 2011 (Bill) was recently cleared by the Cabinet Committee on Economic Affairs (CCEA). The key changes proposed by the Bill are: rights from 10% to 26%. 30 Doing business in India B. 4 Capital markets Capital markets the last decade, which spans several dimensions of development such as accessibility, regulatory framework, market infrastructure, transparency, liquidity and the types of instruments available. All these factors have culminated in the emergence of a much deeper and resilient primary as well as secondary capital markets in India.

Regulatory scenario SEBI was established as a statutory body in 1992 to achieve the following: Regulate and promote the development of the securities market and protect the interest of investors Regulate the functioning of capital markets and issue detailed guidelines relating to capital markets, disclosures by public companies, and investor protection Formulate regulations to govern various intermediaries and investors The SEBI has proactively introduced measures to improve the integrity of the secondary as well as primary markets through better governance.

Additionally, the SEBI has introduced reporting requirements for various capital market participants to enable increased transparency. Dealings in securities are also governed by the provisions of The Securities Contracts (Regulation) Act, 1956. Mutual funds The entry of private sector mutual funds in 1993 has given the Indian retail/corporate investors a wide choice of fund houses. The number of SEBI registered asset management companies in India stood at 51.

In order to widen the class of investors, attract more foreign funds, reduce market volatility and to deepen the Indian capital markets, the invest in Indian equity markets and corporate bonds, in addition to allowing them to invest in equity and debt schemes of SEBI-registered Mutual Funds (subject o prescribed conditions and limits). QFI denotes a person who is resident in a country, other than India, that is a member of Financial Action Task Force (FATF) or a member of a group, which is a member of FATF and is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (MMU) or a signatory of a bilateral Memorandum of Understanding with SEBI. Mar-12 587,217 Movement in AUM 32 Doing business in India Foreign Institutional Investors markets.

In addition, the sustained nature of FII investments has reiterated their belief in India’s growth story, thus sending strong positive signals about the prospects of India as an investment destination to the global investment community. The number of SEBI registered FIIs and sub-accounts stood at 1,767 and 6,278 respectively at the end of December 2011. Net FII investment in 2011–12 amounted to approximately INR 937b (US$17b approx) as compared to INR1464b (US$26. 56b approx) in 2010–11. The Indian regulatory regime has adopted a cautious approach toward allowing foreign institutions to invest in the country.

Over the years, the regulations have been liberalized gradually across several dimensions such as investment limits, eligibility criteria and the instruments permitted for FII investments. Of late, infrastructure is one sector where the regulations pertaining to foreign investment have been notably relaxed. The overall limit for foreign investments in long-term infrastructure debt is US$25b. Of the same, US$22b is for FII investments and the balance US$3b pertains to QFI investments. Venture Capital Funds (VCF) The visibility of VCF has increased over the last couple of years with several large funds looking actively at investments in India.

The number of SEBI registered VCFs and Foreign Venture Capital Investors (FVCIs) stood at 205 and 164, respectively during 2011–12. Investments by VCFs and FVCIs in venture capital undertakings stood at approximately US$10. 78b as at 31 March 2011. latter’s contribution of an amount aggregating to at least US$1m at the time of registration with the SEBI. Doing business in India 33 Alternative Investment Funds (AIF) Investment Funds) Regulations, 2011 (AIF Regulations). AIFs are segregated into Category I, II and III. All AIFs are required to mandatorily seek registration in one of the categories.

The existing Regulations. The funds registered as venture capital funds under the VCF Regulations will continue to be regulated by the said regulations till the existing fund/scheme is wound up. Such funds/schemes will not be allowed to launch any new scheme or increase the targeted corpus Commodities markets The commodities market is another rapidly growing market in India. commodity derivatives exchange, National Multi Commodity Exchange of India, was permitted to commence operations. Currently, there are Forward Market Commission website – www. fmc. gov. in). nd sale of commodity are: Multi-Commodity Exchange of India Ltd. National Commodities and Derivatives Exchange Ltd. National Multi-Commodity Exchange of India Ltd.

Indian Commodity Exchange Limited Ace Derivatives and Commodities Exchange Ltd. Indian commodity derivative markets are regulated under the Forward Contracts (Regulation) Act, 1952 (FCRA). The Act proposes a threetier regulatory structure for the industry, including: Government of India, which is the primary regulator Forward Markets Commission (FMC), which acts as an intermediary between the government and the exchanges The exchanges 4 Doing business in India Key functions of the FMC include providing limits on speculative open positions, placing price limits for all commodities and providing directives for margin requirements. Foreign investment is permitted in commodity exchanges, subject to a composite ceiling of 49%, with a FDI limit of 26% and FII limit of 23%. FDI is allowed with exchanges are restricted to the secondary markets only. Derivative markets The market for exchange-traded derivatives has evolved rapidly in India over the last decade and the country today boasts of one of the most active derivatives markets across the globe.

In fact, the turnover of derivatives trading on the National Stock Exchange of India (NSE), which increased from US$0. 55b in 2000–01 to US$6,128. 21b in 2011–12, has already surpassed that of the equity markets. Index options are the most popular type of derivative instrument and account for the highest share of the total derivatives turnover. Credit default swaps (CDS) for corporate bonds became the latest derivative instrument permitted in India when the recent guidelines for CDS issued by the RBI became effective from 24 October 2011.

The RBI has included EXIM, NABARD, NHB and SIDBI as users permitted to participate in the CDS market. Debt markets The debt market in India, especially the corporate bond market, has not kept pace with the growth of equity markets in India. Some of the reasons for the slow growth of corporate debt markets in India include poor transparency, absence of pricing of spreads against the benchmark yield curve, an inadequate supply of paper from corporate entities, large issuance of government securities and low-risk subordinated debts by banks.

The Indian life science market is witnessing dynamic changing trends such as large acquisitions by multinational companies and increasing investment by domestic and international players in India, deeper penetration into the rural markets, growth and availability of health care. Industry overview and outlook Pharmaceutical formulations and bulk drugs The Indian pharmaceutical market is highly fragmented with the top 10 players accounting for nearly 38% of total sector revenues, which was estimated at US$21. 5b in 2011.

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