Budget set to increase cross-border M&As

NEW DELHI: The capital subsidy of 25 per cent on investments for setting up semi-conductor, micro and nano-technology manufacturing units extended by the Minister for Communications and Information Technology, Dayanidhi Maran, sets the tone for the upcoming Union Budget of the country for the Financial Year 2007-'08.

“The benefit extended to the semiconductor industry is expected to attract investments of up to $10 billion in the next 4-5 years from global chip manufacturers that initially sighed away from India such as Intel Corp, Advanced Micro Devices Inc., Texas Instruments, ST Microelectronics, among others,” said Bundeep Singh Rangar, chairman of IndusView, an India-focused cross-border advisory firm.

It is symbolic of the need to bridge the digital divide between developed and developing economies, the benefits of which will eventually percolate down to the citizens.

“The initiative will open the Indian Electronic Design Automation (EDA) industry estimated to grow to $43 billion by 2015 from the current $3 billion to merger and acquisition (M&A) activity by companies to gain competitive advantage of cost and engineering skill sets in the country,” said Rangar.

The announcement by the IT minister, which precedes the Union Budget is also indicative of the fact that the budget will be pro-development ensuring the economy continues to grow at more than nine per cent.

The key sectors that should get a generous hand of the Finance Minister include retail, infrastructure and real estate and telecommunication, said Rangar.

The retail sector in India is witnessing a huge revamp as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Easing regulations in the sector will help bring the benefits of organised retail to customers.

“It's only a matter of time before Tesco and Boots set up shop in India. Europe's largest mobile phone retailer, The Carphone Warehouse Group Plc would find India among interesting emerging markets to target and the same goes for Carrefours SA, French supermarket chain,” said Rangar.

India's total retail market at $202.6 billion is expected to grow at a compounded rate of 30 per cent in the next five years. With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current $7.7 billion to $24 billion by 2010.

The infrastructure sector offers the biggest opportunity in India with an investment of $150 billion required in the next few years. Infrastructure assumes importance as the development of the corresponding real-estate sector depends on it.

“Introducing development schemes and systems that enhances transparency in the sector is one way by which overseas funds announced over the year of more than $7 billion can be attracted and utilised optimally,” said Rishi Sahai, Board Director of IndusView.

India's real estate market is expected to be worth $50 billion by 2010 from $14 billion this year. This growth in the real estate sector will come from housing requirement of 80 million units over the next 15 years and 200 million square feet in office space required over the next five years by the country's Information Technology and Business Process Outsourcing industries.

The Telecommunication sector is the other sector that has seen great traction particularly in the mobile communication segment growing at more than six million subscribers a month. But the sector continues to be plagued by inequitable distribution of service tilted more towards urban penetration.

“Restrictive regulations have so far kept some of the large mobile telecom service providers such as Telefonica SA of Spain, Deutsche Telekom AG of Germany and the French service provider France Telecom away from the Indian market,” said Rangar

Allowing increased participation of global service providers in their Indian operations would bring those not present in the country and with them the much-needed investments. The quantum of investments required in the sector in the next four years is about $20 billion, according to industry estimates.

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