Logistics in India Part 3

Logistics in India
G lo B a l t r a n S P o r t
Logistics in India
Part 3
K P MG i nt e r n at i o n a l
2011 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
CONTENTS
4
Foreign Direct Investment (FDI) Regulations in the Indian Logistics Industry
6
Routes of Entry into India
8
Tax Incentives for Foreign Investors in the Indian Logistics Industry
9
Emerging Investment Themes for Foreign Investors
10
Market Entry Tiger Traps
14
The Way Forward for Foreign Investors
16
Conclusion
17
Acknowledgements
18
About KPMG
Foreword
This is the third and final part of our three-part white paper on the Indian logistics opportunity. In the first two parts, we covered both the macro opportunity in the logistics industry as well as a deeper dive into the transportation, storage and service sub-sectors. In this part of our study, we focus on how foreign companies and investors can participate in the Indian logistics story. Specifically, we will cover the logistics regulatory landscape in India including foreign investment norms, emerging investment themes for foreign investors, investment risks and mitigants and the way forward for foreign companies. Regulations in the Indian logistics industry permit 100 percent foreign direct investment (FDI) in most sub-segments. Foreign investors can also enjoy benefits such as tax breaks and incentives when investing in key sub-sectors such as cold storage, agricultural warehouses and free trade warehousing zones (FTWZ). Historically, foreign investors in the Indian logistics industry have entered the market either by investing in greenfield core infrastructure projects (such as a ports), setting up subsidiaries or joint ventures in India, or through acquisitions. Partnering with or acquiring an existing company offers international logistics companies ready access to an existing network and customer relationships, which are often hard to develop ground-up. Like any industry, there are risks involved in both greenfield investments and acquisitions or partnerships. Greenfield infrastructure projects often take years to develop, and involve a number of clearances (such as environmental approvals) which foreign investors need to be aware of. Similarly, foreign investors need to carry out necessary due diligence on partners and acquisition targets to ensure that they comply with requisite corporate governance standards, have clean books of accounts and offer a good organizational fit with their existing businesses in other parts of the world. However, what is often most difficult for foreign investors is to evaluate whether their sectors of interest are indeed attractive in India, and whether there are attractive acquisition targets in these sectors. To succeed in the Indian logistics market, foreign companies should consider the following questions: i) Which segments of the Indian logistics industry are attractive for entry? ii) What are the opportunities and risks in the segment of your choice? iii) What are the tax and regulatory considerations for the segment? iv) What are the key considerations for direct market entry? v) Who are the potential joint venture partners you can tie up with?
vi) Are there any attractive acquisition targets? vii) What kind of due diligence do you need to do before a JV or acquisition? viii) How do you integrate an acquisition with your global operations? ix) What do you need to do to run an efficient operation in India? This white paper attempts to address some of these questions at a high level.
Logistics in India
The Government of India has actively pursued pro-active policies to promote foreign direct investment (FDI) into the Indian logistics industry. Investments by foreign companies into India can be made through two possible routes:
The Automatic Route where foreign investors do not require any approval from the Reserve Bank The Government Route for all activities, which are not covered under the Automatic Route, a prior
approval of the Government of India, through the Foreign Investment Promotion Board (FIPB), is required. The table below summarizes the route permitted as well as the extent of FDI allowed in a particular segment:1
Automatic/ Type of Industry FIPB approval route
of India (RBI India's central bank) or the Government of India; and
% of FDI permitted
Restrictions/Conditions imposed
Ports and Harbours
Automatic
100%
Allowed under the automatic route for: Leasing of existing assets of ports

Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 FIPB Approval 100%
Construction/creation and maintenance of assets such as container terminals, bulk / break bulk / multipurpose and specialized cargo berths, warehousing, container freight stations, storage facilities and tank farms, carnage / handling equipment, setting up of captive power plants, dry docking and ship repair facilities Leasing of equipment for port handling and leasing of floating crafts Captive facilities for port-based industries
Allowed subject to existing laws, i.e. The Indian Post Office Act 1898, and exclusion of activities relating to the distribution of letters
Storage and Warehousing Automatic including warehousing of agricultural products with refrigeration (cold storage)
100%
Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India Consolidated FDI Policy (Effective From April 1, 2010)
1
Logistics in India
Foreign Direct Investment (FDI) Regulations in the Indian Logistics Industry
Type of Industry
Automatic/ FIPB approval route
% of FDI permitted
Restrictions/Conditions imposed
Transport and Transport Support Services
Automatic
100%
Allowed for: Pipeline transport, ocean and water transport, inland water transport
Transport Support Services: - Support services to land transport such as operation of highway bridges, toll roads, and vehicular tunnels. - Support services to water transport such as operation and maintenance of piers, loading and discharging of vessels - Services incidental to transport, such as cargo handling incidental to land, water and air transport - Rental and leasing of motor vehicles without operators, for passenger transport, freight and refrigerated / cold transport - Renting of transport equipment without operators, of other transport equipment
Air Transport Services Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline
Automatic
49% FDI
Non-Scheduled Air Transport Service/ Non-Scheduled airlines, Chartered airlines, and Cargo airlines Helicopter services / seaplane services requiring Directorate General of Civil Aviation (DGCA) approval FDI ceilings in other services under the Civil Aviation sector
Automatic
49% FDI
Automatic
100%
FDI via automatic route up to 49% and on the government route beyond 49% and up to 74% Ground Handling Services-FDI up to 74% and investment by non-resident Indians (NRIs) up to 100% allowed. FDI under the automatic route up to 49% and through the government route beyond 49% and up to 74%. This will be subject to sectoral regulations and security clearances
Maintenance and Repair organizations; flying training institutes; and technical training institutions - FDI up to 100% allowed on the automatic route
Source: Consolidated FDI Policy issued by Department of Industrial Policy and Promotion, Ministry of Commerce, Government of India (Effective from April 1, 2010)
Logistics in India
Routes of Entry into India
Through M&A
M&A has been a popular route of entry into the Indian market. Over the past few years, several leading global companies have established a presence in the country through acquisitions of both regional and pan-Indian logistics companies.
Some Recent Inbound M&A Transactions in India Acquirer Target Year Segment
Broekman Group CH Robinson FedEx TNT Kerry Logistics Phoenix International Freight Services Sembcorp Marine Tropical Dimension DP World Oxbow Corporation Louis Dreyfus Armateurs Toll Group PSA International Hitachi Transport System NYK Line
Source: VC Circle, Mergermarket, Deal Curry, News Reports
Courcan Cargo Triune Freight Prakash Air Freight Associated Road Carriers Reliable Freight Forwarders Eastern Logistics Gujarat Pipavav Port Kakinada Seaports Chennai Container Terminal United Shippers ABG LDA Bulk Handling BIC Logistics Chennai Container Terminal Flyjac Tata Martrade International Logistics
2006 2006 2006 2006 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2010
Express Cargo Freight Forwarding Express Cargo Transportation Freight Forwarding Freight Forwarding Ports Ports Ports Shipping Bulk Cargo Handling Transportation Ports Transportation Port Services
Through the Organic Route

Apart from the inorganic route, foreign companies can initiate operations in India through the following routes: Joint Ventures
Wholly Owned Subsidiaries Liaison / Representative Office Project Office Branch Office
Logistics in India
Commercial consideration
Liaison Office
Permitted activities
Foreign Exchange Management Act (FEMA) Regulations
To undertake limited activities like liaisoning, establishing communication channels, data collection and conducting market surveys
The following four activities are permitted to be carried out: Representing the parent company/group companies in India
Promoting export / import from / to India Promoting technical / financial collaborations between parent / group companies and companies in India Acting as a communication channel between the parent company and Indian companies
Project Office
Generally set up to execute a specific project, e.g. EPC and dredging contracts To carry out permitted activities like export/import of goods, professional and consultancy services (manufacturing generally not permitted)
Only activities relating to and incidental to the execution of the project are permitted The following eight activities are permitted to be carried out: Export / Import of goods
Branch Office
Rendering of professional or consultancy services Carrying out research works, in which parent company is engaged Promoting technical or financial collaborations between Indian companies and overseas parent companies Representing the parent company in India and acting as buying / selling agent in India Rendering services in information technology and development of software in India Rendering technical support to the products supplied by parent / group companies; and Airlines / Shipping activities
Wholly Owned Subsidiary ('WOS')
Permitted to carry out all activities except regulated / prohibited activities
Any activity specified in the Memorandum of Association of WOS wide range of activities permitted, subject to FDI regulations
Source: Foreign Exchange Management (Establishment in India of Branch or Office or Other place of Business) Regulations, 2000 (Regulations)
The setting up of a presence in India in any of the above forms depend on the FDI policies of the Indian government, coupled with the taxability of profits arising therefrom under Indian tax regulations, and the exposure of their treatment as a permanent establishment of a foreign company. Currently, over 70 percent of the world's Top 50 logistics companies have a presence in India having entered the market via a variety of modes including acquisitions, JVs and the establishment of a local subsidiary.
Logistics in India
Tax Incentives for Foreign Investors in the Indian Logistics Industry
The Indian Government, with a view to attract investments in infrastructure and the logistics industry, has introduced various tax incentives either in the form of profit-linked incentives or capital-based deductions. Some of the key incentives available to foreign investors include:
Sectors Section under the Act Type of Activity Amount of Deduction
Food Processing
80-IB
Business of processing, preservation and packaging of: Fruits and vegetables or meat and meat products or poultry or marine or dairy products, or from the integrated business of handling, storage and transportation of food grains Setting up and operating of cold chain facilities on or after 1 April, 2009
100% of the profits for the first 5 years 30% of the profits for the next 5 years
For a period of ten consecutive assessment years, beginning with the initial assessment years 100% deduction of capital expenditure incurred during the year (other than acquisition of land or goodwill or financial instruments)
Cold Chain Facility
35AD
Warehouse Facility
35AD
Setting up and operating a warehousing facility for the storage of agricultural produce Undertaking engaged in development of SEZ / FTWZ
Same as above
Special Economic Zones and FTWZs
80IAB
100% deduction of profits derived from such business for ten consecutive assessment years out of 15 years beginning from year in which SEZ is notified by the Central Government
Source: Income Tax Act, 1961 (Government of India)
The Indian Government is planning the introduction of a Direct Tax Code (DTC), effective 1 April, 2011. Under a recent draft of the DTC, circulated for review, all of the above incentives offered to the logistics sector will continue to apply.
Logistics in India
Emerging Investment Themes for Foreign Investors
Potential Upsides
Potential Risks
1
Storage based Plays
(e.g. FTWZs. LPS, CFS/ ICDs , air cargo centres, bulk terminals)
Collateralized investment (capital safety) Long term attractiveness and growth story Capital intensive, high entry barrier
Short term asset utilization and realizations Potential asset price fluctuations Underdeveloped exit options High dependence on regulatory interface Cyclicality risk of user industries Targets likely to be small in size
Strong regulatory drivers (e.g. GST)
Industry-focused Plays
(e.g. 3PL / 4PL, reverse logistics cold chain)
Better customer pricing and margins Strong differentiation for LSPs High hockey stick growth potential due to large demand supply gap Potential to invest in companies with long and good performance track records Opportunity to bring about fundamental market shifts and realize improved profits Flexibility to combine asset light and asset heavy models selectively Opportunity to invest in established and long-running businesses Captive volume potential Potentially large businesses (ticket size barrier) Potential to augment capability gaps with smaller bolt on or rollup acquisitions Significant opportunity to participate in the Indian infrastructure story-over USD 1bn in investment opportunity over the next 5 years Large demand supply gap could imply high asset utilization and returns
Transportation Plays
(e.g. coastal logistics, rail-linked logistics, project logistics, LTL trucking)
Potentially long gestation periods Turning profitable and further expanding margins could be challenging
4
Captive Spin-off / Bolt-on Plays
(e.g. auto logistics, retail logistics)
Arms length captive relationships may be difficult to (re)establish Potentially not geared towards profit Organization capabilities may be more geared towards execution than business or solution development
5
Greenfield Infrastructure Plays
(e.g. ports, roads)
Longer gestation projects Approval and clearance process potentially lengthy and multi layered Foreign companies do not enjoy incentives offered to Indian consortiums / bidders
Source: KPMG analysis
10
Logistics in India
Depending on the chosen route of entry organic or inorganic a foreign investor in the Indian logistics industry should be aware of some of the complexities and risks involved in the entry process. India is not a particularly easy place to do business, but having the right entry strategy, choosing appropriate segments to focus on, engaging with the right partners and leveraging M&A fully can make all the difference in unlocking the tremendous value that the Indian logistics industry has to offer.
Doing Business in India Ranking Among 183 Economies India China Brazil Russia
Overall Ease of Doing Business Starting a Business Dealing with Construction Permits Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business
Source: The World Bank: Doing Business 2010 (India)
133 169 175 104 93 30 41 169 94 182 138
89 151 180 140 32 61 93 130 44 18 65
129 126 113 138 120 87 73 150 100 100 131
120 106 182 109 45 87 93 103 162 19 92
Infrastructure Development Considerations

Infrastructure development in India is often a complex and long-winded process that entails obtaining clearances and approvals from multiple agencies. Even after these approvals are acquired, there are often risks involved at the development and operating stage. These risks are particularly relevant for port, road and airport projects.
Logistics in India
11
Market Entry Tiger Traps
Some of these approvals include:
FIPB clearances for certain sectors where

government approval is required, or where foreign investors intend to have stakes greater than those specified through the automatic route
Ministry clearances specific ministry approvals

are needed for the development of specific assets (e.g. from the Ministry of Shipping for ports)
Environmental clearances for infrastructure

developments in ecologically sensitive zones such as coastal regions and forests, or in regions where the development of the project is likely to impact the human population or the biodiversity of the region, the environmental clearance process can be a time-consuming process
Rehabilitation and relocation clearances for

populations displaced by the development of the project, developers need to consider options for suitable employment in the project, compensation for loss of livelihood or relocation to other suitable regions
Some key project development risks include:
Land acquisition risk since most infrastructure projects require large tracts of land for
development, developers often need to liaise with the government and individual landowners to aggregate these contiguous parcels of land. This is accompanied by the risk of not being able to accumulate connecting land or having to pay high or escalating valuations to do so - Mitigants: Developers need to conduct a detailed assessment of available land tracts and appoint reputable agents or brokers to carry out acquisitions expeditiously and confidentially (to avoid speculative price run-ups). Prior assurances from the government, where applicable, should be sought
12
Logistics in India
Some key project development risks include:
Traffic and utilization risk for many port, road and airport projects that are built on concession
models or otherwise, the financial feasibility of the project is highly contingent on the projected traffic throughput of the asset. The development of suitable cargo generating catchments or supporting eco-systems (such as a freight forwarding or customs clearance network) has also been blamed for the failure of several projects in India. There have been instances in the past where traffic projections have not been realized, leading to payback delays and financial losses - Mitigants: Investors in projects should conduct detailed traffic studies prior to investing in such projects. Traffic linked royalty payments could be affected where projections are uncertain. Also, the cargo catchment and hinterland should be understood in depth to fundamentally assess the viability of the project. Steps should be taken to tie-up suitable project partners and ancillary industries early on in the project, so that development risks are shared. The project conceptualization and design should also account for seamless interfacing with these key ecosystem partners
Connectivity development risk for projects that rely on cargo reaching the asset through a
connecting feeder transportation network, the state of development of these networks has often become a stumbling block in the successful operation of the project. For example, several port projects in India have been constrained by the lack of suitable road or rail connectivity, which has led to shipping lines ignoring the port altogether - Mitigants: Project developers should understand the long term development plan for the region, including master plans and road maps. They should also understand the broader economic development of the region that would support the evolution of the supporting infrastructure
Project cost escalation risk many projects in India are burdened by rising project costs that have
not been initially estimated. Delays in land acquisition or construction or rising cost of materials and equipment can seriously impact returns from a project - Mitigants: The project planning process should be stringently carried out and stress tests for unfavourable conditions should be budgeted. A strong project management team is needed to minimize this risk
Greenfield Investment Considerations

Going solo in the Indian market can be both a rewarding and a daunting experience. For foreign investors looking at setting up their own operations ground-up, without any partnerships or acquisitions, there are a number of risks that they need to consider and plan for. Some key greenfield-specific risks include:
Procedural delays as with infrastructure investments, getting procedural approvals from various
authorities such as the local municipal council, sanitation and utility departments, environmental department, fire department and others, is a time consuming process. According to World Bank estimates, it takes 37 procedures and 195 days to construct a warehouse in India. Often, having access to an experienced local Indian logistics partner can help dramatically reduce these timelines
Logistics in India
13
Some key greenfield-specific risks include:
Organization building risk the logistics industry in India is severely labour constrained at all
levels including workers and management. In the past, several foreign companies have found it difficult to source local management bandwidth for their operations and have had to offer significant salary differentials to attract employees, which have often constrained profits. Expatriate staff often do not understand the Indian cultural subtext and customers (especially smaller and mid size companies) are often wary of dealing with foreigners
Customer acquisition risk customer relationships in the Indian logistics industry, particularly in
warehousing and transportation, have often been built over years and foreign companies have often found it difficult to convert these relationships. Often, logistics services providers customize assets and services to the specific needs of customers, and breaking this stickiness is challenging
Building a brand barring some of the top global logistics companies who have managed to
leverage their brand and credentials to attract business, it is often difficult for lesser known international companies to gain customer mindshare and win business
Steeper learning curve many foreign companies have found it difficult to introduce their
international business models to the Indian market. The state of evolution of the market, and the willingness and ability of customers to pay for truly world-class services, is still evolving and foreign companies often need to 'customise' offerings to suit the Indian context, while preparing for a marathon rather than a sprint
M&A and JV Considerations

M&A and JV targets in India are often risky, and foreign investors should seek to conduct detailed due diligence studies including commercial, financial, tax, legal, environmental and promoter due diligences prior to investing or partnering. However, M&A remains the easiest and most preferred route of entry into India, and, provided a suitable partner is identified, many of the risks and delays associated with greenfield entry and infrastructure development are significantly reduced.
No separation between ownership and management Auditor not independent Weak internal control environment Inadequate document trail for capture of information Financial statements driven by fiscal consider actions
Weakk
Weak internal controls Quality and reliability of information is poor

W ea ccorporatee orporat
Complex group structures - difficult to unwind,

Weak
W ea k
ggovandardsce o vernan
ernance
S ystemss Sy s tem C omplex oComplex ip wners h

ownership s
"hidden owners especially other factions of
Related party supplier / customer

relationships on non-commercial
sstandards t RRelated elated pparty a rt y transactions

transactions
"Associated companies avoidance)" may need

to be consolidated which may bring in more
family
terms,
liabilities/value enhancers
s ue
No formal arrangements Funds deployment in non-core

activities/related party companies
IIs ssues s
ues to
iissuess
Minority interests may have a disproportionate

amount of power
Taxx Ta eexxposuress
E
valluatte E va ua e
Organisation
posure
Orgculti ure tion
an sa culture
Aggressive tax management (tax

planning vs tax avoidance)
UUnclearr nclea vis ion and

vision and
PPoorr GAAPP
compliance
Decision making concentrated with the owners Risk of regulatory violations
s trategy
strategy
oo G A A compliance
Business plan not backed up Promoter unclear about strategy

Source: KPMG analysis
Aggressive management estimates with Weak book closing processes Capitalisation of pre-operative expenditure
respect to provisions/write downs
14
Logistics in India
The Way Forward for Foreign Investors
Foreign investors should evaluate the following when planning an India market entry: Understanding the Indian logistics market logistics in India is a collection of dozens of subsegments, some of which are very attractive and some of which are not. Even within the unattractive segments, foreign investors have been able to introduce new business models in the past and have been successful. Foreign companies need to understand the fundamental attractiveness of and opportunity in various segments in terms of:
Size and growth prospects
Sustainability of growth drivers Regulations, tax policies and incentives available Profitability of the segment
Returns on investment
Competitive intensity Ability of customers to pay and accept better quality of services Potential to differentiate services and products and gain market share
Developing an India market entry strategy based on the attractiveness of the segment(s) studied, foreign investors need to develop a focused strategy to play in the Indian market. This includes some of the following considerations:
Products and services (including differentiators) planned for India Operating model and business plan Entry road map Mode of entry Greenfield versus M&A
Understanding the tax and regulatory aspects foreign investors should evaluate the appropriate operating model when evaluating the Indian logistics market. Some foreign investors choose to initially set up liaison offices to initially gain a better understanding of the market, some choose to participate in projects and some choose a direct and full market entry. There are often regulatory approvals required and tax jurisdiction planning that foreign investors need to do when evaluating market entry into India. Shortlisting, profiling and meeting partners there are hundreds of companies in the Indian logistics industry, operating across one or multiple sub-segments, on either a regional or a panIndian basis, and with marginal or leadership market positions. Only a fraction of these companies are listed on Indian stock exchanges, and it is often a daunting task to find the right partner for a JV or acquisition. Cultural fit and a personal rapport with promoters is often the differentiating factors between a good partner and a difficult one. As we have discussed, M&A vastly simplifies the market entry process, but finding an appropriate partner is a critical step in this direction.
Logistics in India
15
Some of the typical issues evaluated by due diligence procedures include: Commercial Issues
Many companies have commoditized offerings with declining or at-risk growth or profitability Operations may not be streamlined or in line with leading industry practices M&A targets often inflate their business projections to arrive at attractive valuations
Financial and Tax Issues
Logistics in India is often a cash intensive business and this has led some companies to Assets such as trucks and warehouses may not be properly capitalized Quality of earnings is not strong and there may be one-off items that have historically contributed Promoters often have speculative real estate interests which supersede their logistics interest There may be instances where taxes have been avoided, or where significant tax liabilities exist
Legal Issues and are often used to divert cash from core businesses to profits improperly account for this cash and understate or overstate profits
Some businesses and projects lack the appropriate land and environment clearances, therefore Business contracts often do not exist, or are not watertight There may be pending litigations or cases against the company or the promoter
Carrying out detailed due diligence procedures simply finding a partner is not enough. Carrying out appropriate due diligence procedures is critical in evaluating whether that partner will truly add value. Valuation, negotiation and deal closure many M&A deals in India fall apart on valuation differences, and investors often appoint neutral third-party advisors to prepare independent valuation reports or assist in negotiations with targets. Closure of transactions requires obtaining requisite regulatory and tax clearances. running the risk of closure or penalties
16
Logistics in India
Conclusion
The concluding part of this three part white paper has focused on the practical aspects that foreign companies should consider when evaluating an entry into the Indian logistics market. We have seen that there are a number of market, regulatory, tax and partnering issues that foreign investors need to be aware of, and tide over, when planning their market entry. For those companies that successfully negotiate this path, the returns from participating in the India growth story can indeed be very attractive.
Logistics in India
17
Acknowledgements
For the purposes of this study, we relied on KPMG industry knowledge and prior engagement experiences. We also spoke with a number of logistics industry participants, who we would like to thank for their time and insights. This white paper has been authored by Sankalpa Bhattacharjya, with Tax and Regulatory inputs from Girish Mistry from KPMG in India.
18
Logistics in India
About KPMG
To meet the challenging demands of the transportation industry, KPMG member firms deliver a range of Audit, Tax and Advisory services geared to industry needs. Think of KPMG's global Transportation and Logistics practice as an extra resource one that aims to be available as and when you need it. We understand the financial and operational drivers of the transportation and logistics sector and can assist clients in dealing with current and emerging issues. The Indian industry, as a whole, faces a fiercely competitive and volatile business environment. It must fund high levels of ongoing investment to overcome infrastructure constraints and accommodate technological innovation, as well as changing customer demands. Few transport entities possess the resources to manage all these issues. This is where KPMG's Transportation & Logistics practice can help. Our professionals can complement inhouse capabilities, contribute to improved business decision making and performance, help reduce business risk and enhance management confidence as well as peace of mind. KPMG professionals can assist you with the following: Planning an India market entry KPMG's Strategic and Commercial Intelligence (SCI) practice advises international companies on their India market entry plans, by helping them evaluate the attractiveness of various segments of the logistics industry (in terms of size, growth drivers, competitive landscape, profitability and returns), and assists them with the development of their strategy and business plan for the Indian market. KPMG's Tax practice, in parallel, can help companies devise an optimal tax and corporate structure for market entry. Creating value through transactions KPMG's global Finance andTransaction professionals help realize the potential of mergers, acquisitions, divestments and other capital transactions. If you are seeking to acquire a company in India, we can help you find suitable targets, evaluate them, negotiate and close transactions, and even assist with post-merger integration services. Driving the audit further KPMG's independent insight and robust audit methodology aims to provide high quality audit opinions. Managing tax strategically KPMG's Tax practice advises clients on effective tax management and compliance. Managing risk to create value KPMG firms can help organizations adopt an enterprise-wide approach to identify, prioritize, manage and monitor risk. Enhancing internal controls Internal audit is the foundation of a comprehensive assurance framework. KPMG firms can increase existing internal capabilities, either on a project basis or on a continuing basis. Improving performance KPMG firms can help organizations enhance their strategic and operational performance. Responding to regulatory change KPMG firms assists organizations in transforming regulatory compliance from just another cost and management issue to an important business value driver. Funding infrastructure KPMG's Advisory professionals work with public and private infrastructure providers to create funding strategies.
Logistics in India
19
Contact Us
Dr Ashley Steel Partner Global Chair - Transport KPMG in the UK +44 20 7311 6633 ashley.steel@kpmg.co.uk
Justin Zatouroff Partner Global Head of Logistics KPMG in the UK +44 20 7311 8415 justin.zatouroff@kpmg.co.uk
Manish Saigal Executive Director National Industry Leader - Transport & Logistics KPMG in India msaigal@kpmg.com Tel: +91-22-3090 2410
Sankalpa Bhattacharjya Associate Director Strategic and Commercial Intelligence KPMG in India sankalpab@kpmg.com Tel: +91124-334 5089
Girish Mistry Executive Director Tax KPMG in India girishm@kpmg.com Tel: +91-223-090 2707
kpmg.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
2011 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International"), a Swiss entity. Designed by Evalueserve. Publication name: Logistics in India Publication number: 173085 Publication date: January 2011

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Logistics in India

of India (RBI India's central bank) or the Government of India; and

Ports and Harbours

Foreign Direct Investment (FDI) Regulations in the Indian Logistics Industry

Automatic/ FIPB approval route

Transport and Transport Support Services

Routes of Entry into India

Through the Organic Route

Wholly Owned Subsidiary ('WOS')

Permitted to carry out all activities except regulated / prohibited activities

Tax Incentives for Foreign Investors in the Indian Logistics Industry

Cold Chain Facility

Special Economic Zones and FTWZs

Source: Income Tax Act, 1961 (Government of India)

Emerging Investment Themes for Foreign Investors

Strong regulatory drivers (e.g. GST)

Source: KPMG analysis

133 169 175 104 93 30 41 169 94 182 138

89 151 180 140 32 61 93 130 44 18 65

129 126 113 138 120 87 73 150 100 100 131

120 106 182 109 45 87 93 103 162 19 92

Infrastructure Development Considerations

Market Entry Tiger Traps

Some of these approvals include:

FIPB clearances for certain sectors where

Ministry clearances specific ministry approvals

Environmental clearances for infrastructure

Rehabilitation and relocation clearances for

Some key project development risks include:

Some key project development risks include:

Greenfield Investment Considerations

Some key greenfield-specific risks include:

M&A and JV Considerations

Weak internal controls Quality and reliability of information is poor

Complex group structures - difficult to unwind,

S ystemss Sy s tem C omplex oComplex ip wners h

"hidden owners especially other factions of

Related party supplier / customer

sstandards t RRelated elated pparty a rt y transactions

"Associated companies avoidance)" may need

No formal arrangements Funds deployment in non-core

Minority interests may have a disproportionate

Orgculti ure tion

Aggressive tax management (tax

UUnclearr nclea vis ion and

Decision making concentrated with the owners Risk of regulatory violations

Business plan not backed up Promoter unclear about strategy

The Way Forward for Foreign Investors

Size and growth prospects

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