OVERVIEW

"WE consider India one of the most important strategic countries in the world... India is potentially the most important market in the world", said Mr. Flavio Cotti on the eve of the first-ever official visit to India by any Swiss President in 1998. Five decades back, Indian Prime Minister Jawaharlal Nehru signed India's first friendship pact which happened to be with Switzerland on August 14, 1948. The Indo-Swiss bilateral relations has raised to a greater height since then but with the gradual unfolding of Indian market, opportunities are expanding for both the country to explore and exploit to mutual interest. Some of the major Swiss companies like Nestlé and ABB have their business roots in India much before Independence in 1947. "India has one of the most open and liberal investment regimes anywhere", so feels the European Union Trade Commissioner, Mr. Pascal Lamy. The liberal investment atmosphere is being recognized by the Swiss government as well. The setting up of the Swiss Business Hub (SBH) in India "is a clear signal that Switzerland recognizes Indian market as one of the attractive destinations," said Dr. Jacques Derron, Economic Counsellor, Embassy of Switzerland. In an interview Dr Derron observed that over the years India's FDI regime has been made more and more "investor-friendly" but the country could achieve higher inflows of FDI "provided it further opens up sectors such as insurance, banking, retail trading and also remove bureaucratic hassles faced by foreign investors in India".

In one of their  meetings last year (2002) with then Indian federal Commerce and Industry minister, Murasoli Maran, the Swiss investors highlighted a number of hurdles coming in the way of higher bilateral trade and investment like multiplicity of agencies and delay in getting the required approvals from a number of agencies, inadequacy of infrastructure, etc. the problems regarding custom procedures and taxes. The problems still persists. Stating that the 'second generation reforms' in India is "far from being actually put into force", Dr Derron said "the foreign companies definitely look forward to reducing of import tariff and non-tariff barriers in India, as well as easing of administrative burdens and rigid labour laws, so that doing business in India becomes more attractive". The President of the Swiss-Indian Chamber of Commerce (SICC), Mr. Sushil K. Premchand is of the view that "ultimately, the attraction of business is not inspiration, but opportunity-- the huge opportunities that India offers, in my opinion, represent the real reasons for the strength of this bilateral relationship". In an interview the SICC President emphasized that "Trust is hugely effective in reinforcing bilateral relationships. If only one factor is selected, it would be this: India has always kept its word, even though it may have been slow in making the initial commitment."

The Indo-Swiss bilateral trade trend  shows that over a decade (1994-2003) the Indo-Swiss bilateral trade has increased from 865.3 mio Sfr in 1994 to 1.24 billion mio Sfr signifying 43.51 percent growth. During this period India's exports to Switzerland were up by 63.29 percent at 516 mio Sfr from 316 mio Sfr in 1993. Imports from Switzerland on the other hand increased from 404 mio Sfr in 1993 to 641 mio Sfr in 2002 signifying an increase of 58.66 percent. The major items in Swiss export basket for India include machinery, chemicals and pharmaceuticals, instruments, metals, metal products and jewellery. India's export basket for Switzerland includes textiles, chemicals and pharmaceuticals, precious metals and jewellery items, agri- products and machinery. The SBH India's Annual Report 2002 says: "Switzerland and India have since long been enjoying mutually beneficial trade and economic ties. Both sides have some core competences, which our political leaders and business communities have always strived to put together resulting in increased trade and investment flows between our two countries." Referring to India's initiating and implementing market economy policy in 1991 and subsequent introduction of a number of economic reforms, the report said that these measures "definitely gave a further boost to our bilateral trade as well as to Swiss investments in India". In the first ten months of calendar year 2003, India's exports to Switzerland stood at mio Sfr 421.3 and imports at mio Sfr 606.3 leaving a 185 mio Sfr balance of trade in favour of Switzerland.

In yet another report, India's performance in world trade has been highly praised. "In the last 4-5 years, India's growth of exports has not only outperformed the growth in world trade, but it has also been able to diversify in terms of commodities as well as export destinations. As India is gradually integrating with the global is of the opinion that there is need to review the EXIM policy annually so as to align the export strategy in tune with the changes occurring in the global economy. Furthermore, as the WTO negotiations on services are in process now, India would strive to maximize the gains by strengthening its various service segments." It is felt that India's privatization programme which has to face some major hurdles "will no doubt continue but not a fast track".

Even after more than a year the Indian Commerce and Industry minister assured the Swiss companies in 2002 that foreign investment process would smoothen further, it would be a hassle-free system, the EC in his  interview says that though over the past many years, the FDI regime in India has been made "more and more investor-friendly" but "the implementation phase for foreign investors in India remains troublesome, as they have to encounter with a fairly large number of regulatory approvals, especially at the State levels. India can achieve higher inflows of FDI provided it further opens up sectors such as insurance, banking, retail trading, and also remove bureaucratic hassles faced by foreign investors in India."

Despite many a problems confronting India's economic reforms programme, a report compiled by the Swiss Embassy on India's major business sectors identifies a number of growing industries which offer vast scope for closer Indo-Swiss collaboration. Information Technology and telecommunication is one of the fastest growing industries. Chemicals, biotechnology and genetic engineering is yet another expanding sector. Financial services, insurance in particular, equally offers vast scope for Swiss investments/collaboration. On the other hand, major Swiss industries of interest to India, the report points out, include machinery, chemical and pharmaceuticals, instruments and apparatus, Precious metals, jewellery and coins and metal and metal products.

So far Indian IT industry is concerned, it has registered a growth of about 26 percent. India's software export revenues increased by 30 percent during the fiscal 2002-03 with IT services exports projected to grow by 22 percent. India's software exports accounted for around 20.4 percent of the country's overall exports during this period. According to a recent study (Aug. 2003) carried out by the Forbes magazine, India remains prime destination of outsourcing for the US companies. India tops the position after being compared with six other destinations -- China, Russia, the Philippines, Canada, Mexico and Ireland. "Outsourcing is so ingrained in the fabric here that the Indian government has a national minister specifically for IT. The government favours IT foreign ownership and imposes no export taxes," the report said. The National Association of Software and Services Companies (Nasscom), India's national platform of the IT industry, expects that by 2008, the Indian software and services industry will be able to reach the export target of US$ 50 billion and US$ 70-80 bn in overall revenues. The IT services exports are likely to remain unchanged at US$ 28-30 bn. The IT enables services (ITEs) sector has the potential to reach the US$ 21-24 bn-mark.

An industry specific report on Indian IT and Telecommunication by Osec Business Network Switzerland states that the Swiss companies have been "increasingly outsourcing their work from Indian companies and many of them have also entered into business partnership with Indian companies. On the other hand, many Indian software companies have already established their operations in Switzerland, and more such companies are showing interest to enter into business alliance with Swiss companies." About telecommunication industry, the Swiss report says that the telecom sector offers "huge business opportunities" but at the same time it points to contentious issues like interconnectivity and access charges besides some inconsistencies in government policies.

Indian chemical industry is yet another sector which offers good scope for foreign collaboration. In fact, in Indo-Swiss bilateral trade, chemicals assume a significant position. India imported organic chemicals worth US$ 56.31 mn in fiscal 2001-02. According to the latest available statistics, during the first nine months of fiscal 2002-03, organic chemicals imports from Switzerland stood at US$ 84.69 mn. On the other hand, India exported organic chemicals worth US$ 52.76 mn to Switzerland in fiscal 2001-02 and exports in the first there quarters of fiscal 2002-03 stood at US$ 36.91 mn. Leading Swiss chemical companies deep rooted in India include Ciba Speciality Chemicals, Clariant, Farmachem, Novartis, Roche and Sika.

A SBH India report on petrochemicals industry in India points out that in view of the low per capita consumption, the "growth prospects remain promising. It is envisages that by 2010 India would emerge as one of top there consumers of plastics and synthetic fibers in the world. Referring to the prospect of market of polymers, the reports says that "even with a reasonably estimated annual growth of around 7-8 percent in the next five years, this segment is likely to need fresh capacities in some select polymers such as polypropylene and polyethylene."

Pharmaceuticals industry is yet another potential area of Indo-Swiss investment and technology collaborations.  According to a report (April, 2003) of ABN  Amro, in global ranking, the Indian pharmaceuticals industry positions 4th in terms of volume and 13th in terms of value. India accounts for 1.6 percent of the global pharmaceuticals market and is growing at 8-9 percent per annum. The Indian market is estimated at US$ 5 billion or around Rs 200 billion. Bulk drugs account for 20 percent of country's total pharma production. The formulations segment registering a growth of around 17 percent. Top three Indian pharma  majors - Dr. Reddy's Laboratory, Ranbaxy and Cipla, account for almost half of India's total foreign exchange earnings from pharma exports. Of the total exports formulations account for the larger share. India's pharma exports in past five years grew by 30 percent. "Formulations exports are largely to developing nations in CIS, South East Asia, Africa and Latin America. In the last three years generic exports to developed countries have picked up. In the coming years, opening up of US generics market and anti-AIDS market in Africa would keep export growth high," the ABN Amro report says. It also points out, Imports have registered 2 percent compound annual growth rate. It is significant to note that India will have to recognise product patents latest by 2005.

India is a signatory to GATT and is likely to put in place a new patent regime shortly, granting recognition to product patents. This should encourage introduction of new drugs in the Indian market. 70 percent self sufficiency in bulk drugs and near self sufficiency in formulations. Major products exported are anti-infectives including antibiotics, anti-bacterials and anti-tuberculosis drugs. Increasing thrust on upgradation of manufacturing facilities to actively participate in the various regulated markets for both generics.

Indian government allows FDI upto 100 percent is permitted on the automatic route for manufacture of drugs and pharmaceuticals, provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell/tissue targeted formulations. FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology, and specific cell/ tissue targeted formulations will require prior Government approval. Although the industry is registering 17 percent CAGR, the R&D spending is quite unmatching, only about 2 percent of total sales. In the long run this may have negative impact in the complete product patent regime for pharma products from 2005. Indian pharma industry's R&D is yet another area that may attract technology collaborations with major phrama giants in the world. "The R&D expenditure by the Indian pharmaceutical industry is around 1.9% of the industry’s turnover. This obviously is very low when compared to the investment on R&D by foreign research based pharma companies. They spend 10 – 16% of the turnover on R&D. However, now that India is entering into the Patent protection area, many companies are spending relatively more on R&D" says the Organization of Pharmaceuticals Producers of India (OPPI).

Biotechnology is a potential area identified in SBH India report. "The prospects for growth in this industry are immense as the country has rich bio-diversity, strong IT skills, and a powerful scientific and industrial base", the report says adding that "the main objective Indo-Swiss collaboration in biotechnology is to enhance the scientific  and technological capabilities of Indian R&D institutions and help establish a network system for production and technology transfer."

Indian telecom sector which is registering 25-30 percent growth is one of the fastest growing sectors and offers vast scope to attract FDI. This is supported by the fact that with the emergence of India as IT super power (software development) "it needs to have a supportive and competitive telecom infrastructure for the IT sector and at the same time also for its overall economic development", the SBH India report says.

To expand the Indo-Swiss business and trade relations, the SICC President feels that "a significant area of opportunity that needs to be addressed in more detail is the need for the Swiss medium-sized business. He is of the view that "India has to communicate better to the SME sector, which is critical to the Swiss economy- and represents the essential area for growth in investment into India." These SMEs cover a wide range of specialities but "the Swiss authorities  have focused initially on a few areas for building an enhanced SME presence in India, including food processing, environmental technologies and biotechnology. And successful ventures in India by some SMEs will cause others to follow!"  There were large investments by many a Swiss major (in fact Nestlé, ABB are in India before Independence) and over the years a number of Swiss SMEs have entered the Indian market but  investments by Swiss SMEs in India are yet to take off the ground in broader sense. May be individually their investments will not be huge "but collectively SMEs could contribute large FDI volumes," so says SICC President.

One major issue that need to be addressed in proper perspective is India's continual trade deficit with Switzerland. The Economic Counsellor in India however likes to see things in a different perspective. "In the emerging globalized economy, it is the position of the overall foreign trade of a country and the pace of its strengthening within the global trade that matters and not so much the balance of trade between any two countries". So far trade with India is concerned, Switzerland is a major exporter of gold and silver but this is not reflected in country's trade statistics as these two commodities are considered to be part of the financial market. The surplus balance of trade with India is "at a reasonable level" of about 10 percent of total bilateral trade (excluding gold and silver) in 2002, the EC asserts, the EC asserts. In fiscal 2001-02 India imported US$ 2.47 billion worth of precious stones and jewellery and exported precious metals, stones and jewellery to Switzerland worth US$ 120.96 million. The Swiss-Indian Chamber of Commerce President is of the view that deficit balance of trade with Switzerland notwithstanding, "the impact of invisibles and services should provide a significant counterbalance in India's favour. As India's markets are opened progressively under the WTO rules, trade should increase in both directions, provided India does not resort to non-tariff barriers to protect the domestic Indian markets."

Updated on August 30, 2005

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