Embassy of Switzerland in India

512.0 – BRUBR/ WEU/ SRU

Swiss representation in: New Delhi Formular: A754

country: India Last update: 10. February 2017

INDIA: Economic Report 2016-17 External version

0 Executive summary

India, with 1.3 billion people, is globally the fastest-growing G-20 economy. In the fiscal year 2016/17, its economic growth rate reached 7.1 percent, which is high compared to the global economy, which grew by around 3.0 percent. India is the world’s fourth-largest economy, has globally the largest and youngest working-age population 1, and is expected to achieve a high growth rate of 7.3 percent in 2017/18 and of 7.7 percent in 2018/19.

India is a land of millions of entrepreneurs and has a deep tradition of a business oriented mind-set. The Modi Government has prioritized the encouragement of start-ups and entrepreneurs as a key plank of economic policy through creating a vibrant entre-preneurial ecosystem in India, which identified the important role smaller and newer companies play in economic growth and job creation. 2

Keeping in view the reforms undertaken by the Indian government in the recent past, India has been ranked 39 among the 138 countries in the Global Competitiveness Index (GCI) 2016-17 3 released by the World Economic Forum (WEF), jumping 32 positions in two years from its rank of 71 in 2014.

India approved its major tax reform related to the “Goods and Services Tax (GST)” in 2017, after a decade of preparation. Its rollout took place on 1st of July, 2017.

India’s foreign trade increased in the fiscal year (FY) 2016-17. The country’s exports amounted to over USD 276 billion (+5.3%), while its imports decreased slightly to USD 384 billion (-0.9%). Consequently, the trade deficit came down. Bilateral Trade Flows between Switzerland and India amounted in FY 2016-17 to USD 18.3 billion. 4

Cumulative FDI data indicates that India received foreign direct investments worth USD 484 billion from April 2000 till March 2017. Switzerland is the 11th major investor based on Indian statistics (USD 3.8 billion inflows). As a large part of FDIs in India are rooted through other countries, including from Switzerland, the actual Swiss direct investment in India is estimated to be even higher (Swiss National Bank reports CHF

1 Around half of India’s population is under 25 years old.

2 Alain Roslin: Boom Country? The New Wave of Indian Enterprise, 2017, page 28f.

3 https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1

4 Fiscal year runs from 1

st April to 31

st March (Indian statistics);

Swiss custom statistics show for the year 2016 a trade flow of CHF 15.8 billion.

2

8.8 billion). Switzerland is also the 7th largest recipient of Indian investments (USD 1.58 billion received over the last three years).5

Over the last years, the number of Swiss companies active in India has further increased with currently around 250 subsidiaries, joint ventures, branches or liaison offices being present. About 140 Indian companies have a presence in Switzerland.

There are negotiations ongoing between EFTA member states (including Switzerland) and India on a Free Trade Agreement, named Trade and Economic Partnership Agreement (TEPA). With regard to the Bilateral Investment Protection Agreement (BIT), in April 2016 India informed Switzerland as well as around 60 other countries about its decision to terminate the existing BITs. Renegotiations between Switzerland and India started in April 2017.

On 22 November 2016, Switzerland and India newly signed a joint declaration on the introduction of the automatic exchange of information (AEOI) in tax matters on a reciprocal basis.

The Swiss network of representations in India (Embassy, Consulates General including Swiss Business Hub India, swissnex, Switzerland Tourism, and Honorary Consuls) continues to fully engage in Swiss economic promotion in India.

The Embassy has taken a new biennial initiative for 2017 and 2018: 70 Years of Swiss-Indian Friendship: Connecting Minds – Inspiring the Future, to take Switzerland’s image further and to present cutting edge innovations where Switzerland and Indian can mutually benefit. The new initiative is in commemoration of the 70th anniversary of the bilateral friendship treaty signed in 1948. This initiative will provide an excellent opportunity to organize numerous missions and events to further strengthen the bilateral economic relations between the two countries.

The Official visit of the President of the Swiss Confederation, Mrs. Doris Leuthard, to India, from 31st August to 1st September 2017, will be the highlight of this year.

5 Ministry of Finance, Department of Economic Affairs, Overseas Direct Investment, http://dea.gov.in/overseas-

direct-investment (status by June 30, 2017).

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1 Economic issues and problems

The year 2016 marked the 25th anniversary of the commencement of major economic reforms in India, which started in 1991. Over the years successive governments have gradually moved forward along India’s development path to further transform and liberalize the Indian economy.

Prime Minister Narendra Modi and his Government, representing the National Democratic Alliance (NDA) led by the center-right Bharatiya Janata Party (BJP), is seen as India’s strong and charismatic leader with a solid political majority. His recent win (2017) in State elections underlines his and the Government’s mandate to accelerate India’s socio-economic development as well as the implementation of its policy and reform agenda.6 Mr. Ram Nath Kovind 7 has been recently elected as 14th President of India for a five-year term starting July 25, 2017.

India, with 1.3 billion people, is globally the fastest-growing G-20 economy. In the fiscal year 2016/17, its economic growth rate reached 7.1 percent, which is high compared to the global economy, which grew by around 3.0 percent. India is the world’s fourth-largest economy, has the world’s largest and youngest working-age population8, and is expected to achieve a high growth rate of 7.3 percent in 2017/189 (see also IMF’s new outlook data, July 2017)10. This growth is being enabled by increased production of goods and services for both the domestic and the export markets, by rising consumer spending, by large-scale Government infrastructure programs11, and last but not least, by an uptick in the rural economy, also due to a good monsoon. Nevertheless, India’s high growth rates benefited also from low oil prices12, as well as a mix of good fortune.

India is on the way to become a country booming with economic activity. It is a land of millions of entrepreneurs and a country with a deep tradition of business. 13 The Modi Government has prioritized the encouragement of start-ups and entrepreneurs as a key plank of economic policy through creating a vibrant entrepreneurial ecosystem in India, which identified the important role smaller and newer companies play in economic growth and job creation.14

Various reforms are ongoing or expected to ease domestic supply bottlenecks and to increase productivity. India shows good potential to become the next “export power house” in South Asia15 , by improving and further expanding its exports of goods and services. However, over the coming years, no country will have to generate as many jobs as India, putting a huge pressure on policy makers, to ensure that the sufficient and

6 EIU, country report India, dated 31.5.2017, Policy Trends, page 5.

7 The new Indian President, Mr. Kovind, is 71-years old and a lawyer by profession. He has served as the central government’s Counsel at the Supreme Court. He has been a Member of Parliament for two terms (1994 till 2006) and been the national spokesperson of the Bharatiya Janata Party (BJP) and the President of BJP’s Scheduled Caste (SC)/ Scheduled Tribes (ST) front (1998 till 2002). He has worked extensively for education in rural areas and in providing free legal aid to weaker sections of the society, especially the SC/ST women, the poor and disadvantaged girls. In addition to having an unblemished image, Mr. Kovind comes from the Dalit community (a collective term used for those marginalized, oppressed and often treated as untouchables on the basis of caste).

8 Around half of India’s population is under 25 years old.

9 Ministry of Commerce & Industry: Annual Report 2016-2017, page 20 indicates for FY 2018 an expected

growth rate of 7.6 percent. 10

IMF: Economic Outlook July 2017; https://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-

economic-outlook-update-july-2017: For India: growth rate in 2016 is 7.1 percent, while projections for 2017 are 7.2 percent, for 2018 are 7.7 percent.

11 e.g. in roads, railways, airports, harbors, urban development, housing, schools, education and innovation etc.

12 India remains a huge importer of oil and prices have tumbled from well over $100 a barrel in May 2014 to less

than half that now. Analysts estimate that this alone has boosted GDP by 1-2%. 13

Alain Rosling: “Boom Country? The New Wave of Indian Enterprise”, page 28f. Hachette India, 2017. 14

Government of India, Planning Commission, 2012. Report of the Committee on Angel Investment and Early

Stage Venture Capital 15

World Bank published an interesting study named, South Asia’s Turn “policies to boost competitiveness and create the next export powerhouse”

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adequate employment opportunities are created16. 10 percent economic growth (or higher) over the next 4-5 decades is needed to create enough jobs to absorb around one million Indians who enter the labour market every month17. This is a huge challenge which Government officials and other experts dwelled upon at many events and conferences last year.

On November 8, 2016, both the Indian Government and the Reserve Bank of India announced a new currency reform, named ‘demonetization’, combined with tight implementation measures introduced over-night. The main purpose of the demonetization was to intensify the fight against black-money, corruption, terrorism financing, to accelerate the transformation of the informal economy to a formal one, and to generate higher tax revenues by expanding and deepening the tax payers’ base. This drastic measure, its implementation and the expected impact on India’s economy as well as on people’s daily lives has dominated the country’s media and politics for months. What about its expected and real impact? Contrary to widely expressed fears of a major dip in the growth rate following demonetization, the Indian economy has remained quite robust.

While the short-term impact was negative on the GDP (consumption and investment demand to suffer due to cash crunch), it was mainly neutral on the fiscal deficit/ tax collection, and positive on digital payments (higher incentives to use digital payment platforms) as well as on inflation (due to lower demand). A benefit of the ’demonetization’ in the medium run may also ease liquidity for the banking system18. The long-term impact (12 months and beyond) is expected to be positive, mainly due to rise in consumption, better tax compliance and collection of nearly 25% of unaccounted funds, the increased number of people using digital payment systems 19, and last but not least, the increased transparency and intensified fight against corruption and black-money.

The Reserve Bank of India (RBI) eased its monetary policy during the year 201520. Later, it was tightened as inflation expectations have still not fully adjusted down. However, the Reserve Bank of India deserves some credit for bringing back macroeconomic stability.

On the fiscal side, India approved its major tax reform related to the “Goods and Services Tax (GST)” in 2017, after a decade of preparation. It brings a single indirect tax system in the whole country. The new tax system is unifying the country economically, supporting and accelerating economic growth and improving framework conditions for doing business in India. It should result in a more predictable and transparent tax system and further reduce compliance costs for the companies. Its rollout took place on 1st of July, 2017 and represents an important milestone. However, there remain a remarkable number of open issues and implementation challenges, partially because of business guiding papers which are not yet timely available, partially because of the complexity of the reform. Its impact on the informal economy is also questionable. While the switch will be easier for companies in the formal sector, it will be difficult for the huge number of small, unorganized firms which are not yet GST-ready.

For India, there is a need to reduce the relatively high Public Debt to GDP Ratio, which leaves the Government little room for economic stimulus. However, investing more in physical and social infrastructure (e.g. health, education) remains critical for raising the living standard of all citizens (OECD on India in June 2017 21).

There are also some signals 22 that India might make the historic transition to end the 150-year-old tradition by changing its financial/ fiscal year from 1st April - 31st March to 1st January – 31st December, in 2018. If planned, the next Budget could be presented by the Central Government as early as in November 2017.

16

EIU country Report on India, June 2017, page 31. 17

The Economist (June 24th

-30, 2017) edition: Modi’s India: The illusion of reform, p.19 18

Ministry of Commerce & Industry: Annual Report 2016-2017, page 20. 19

Assocham: Currency Demonetization: Short Term Pain, Long Term Gain (January 2017).

http://www.assocham.org/publications.php 20

Ministry of Finance, Annual Report 2015-16, Introduction chapter, page x. 21

OECD: Economic Outlook, June 7, 2017 (fact sheet on India). 22

http://economictimes.indiatimes.com/news/economy/policy/financial-year-likely-to-be-changed-from-2018-

budget-in-november/articleshow/59323946.cms

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With regard to positive developments and digital aspects, the Modi Government has championed a nationwide biometric scheme known as Aadhaar, which has made many Indians visible for the first time. Linking digital identities to mobile phones and bank accounts has made it possible to get Government schemes and subsidies closer to those who need them. The gains made from Aadhaar could end up being quite sizeable.23

On the contrary, remarkable risks for the Indian economy are related to the Indian Banking sector. India’s large state-owned banks will need up to CHF 14 billion 24 equity capital, highlighting a key challenge facing the banking sector, 70 percent of which is accounted for by public sector banks. Banks will have to increase their equity to meet the capital adequacy norms and to clean up their balance sheets. On May 5, 2017, the Reserve Bank of India (RBS) received more power to deal with the non-performing assets in the banking sector, based on the approved amendment of the Banking Regulation Act 1949. The stressed loans resolution package prepared by the government will empower the central bank to directly intervene in settling bad loan cases. 25

Other areas where the progress of reforms is limited are, e.g. (a) the much discussed privatization of state-owned firms; (b) the labour market reforms where plans are afoot to consolidate over 40 central laws into four codes; (c) the pending land reform, where some responsibilities have been handed over to States; or (d) pending judicial reforms (24m pending cases) 26

Besides those mainly illustrated risks and challenges in the Indian economy, it is important to remind the reader about the overarching “transforming India” policy agenda.

India’s National Institute for Transforming India (NITI Aayog), the government’s premier think tank, published on 23 April 2017 a new draft of the Three Year Action Plan (2017/18 to 2019/20). A second document containing the Fifteen Year Vision and Seven Year Strategy is currently under its preparation. Prime Minister Modi’s development philosophy implies that development should include every citizen (“Sabka Saath, Sabka Vikas”)27. Focused on “transforming India”, the new Action Plan aims to better align India’s development strategy with the changed reality. Addressed are themes such as: (a) the medium-term revenue and expenditure framework (related to the Government’s budget), (b) the economic transformation in the major sectors (agriculture, production and services), (c) the regional development (from rural to urban), (d) growth enablers (e.g. private sector involvement, infrastructure, digital connectivity, energy sector, science and technology, or the creation of effective innovation ecosystem), (e) Government (including taxation policy, administration, regulatory framework) and Justice System, (f) social sector (reforming the education system, promoting skill development, transforming the health service system).28

This document provides an important policy framework to better understand, which development and reform path India is currently following. Their implementation has been accelerated in the year 2016/17 by the Modi Government.

23

The Economist: Modi’s India. The illusion of reform. June 24th – 30

th 2017, page 19.

24 Or Rs 95’000 crore (1 core= 10m Rupees)

25 Newspaper Mint, June 9, 2017: http://www.livemint.com/Home-Page/gblCa7SKnItZlMiWcJDs3K/President-Pranab-

Mukherjee-approves-ordinance-to-amend-Banki.html 26

The Economist: Modi’s India. The illusion of reform. June 24th – 30

th 2017, page 19.

http://www.economist.com/news/leaders/21723830-he-more-nationalist-firebrand-indias-prime-minister-not-much-reformer 27

NITI (Aayog) Former Ministry of Planning : Three Year Action Agenda http://niti.gov.in/, page 5 28

NITI (Aayog) Former Ministry of Planning : Three Year Action Agenda http://niti.gov.in/, pages 1-6 ff.

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2 International and regional economic agreements

2.1 India’s policy and priorities

2.1.1. Tax Policy OECD – Automatic Exchange of Information (AEOI) in tax matters and joint declaration signed between Switzerland-India India has expressed a strong interest towards intensifying its fight against black-money and corruption, coupled with its aim to substantially increase the collection of taxes. On 22 November 2016, Switzerland and India signed a joint declaration on the introduction of the automatic exchange of information (AEOI) in tax matters on a reciprocal basis. It is based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA), which is based on the international standard for the exchange of information developed by the OECD. Both countries intend to start collecting data in accordance with the global AEOI standard in 2018 and to exchange it from 2019 onwards. The signing of the joint declaration with India confirms Switzerland's international commitment to implementing the AEOI standard. Switzerland is thus strengthening its network of AEOI partner states. India meets in particular the high demands in terms of adherence to the principle of speciality and the safeguarding of confidentiality for the data delivered, which are prerequisites for the introduction of the AEOI.

The Federal Council has authorized the Federal Department of Finance (FDF) to conduct a consultation for the introduction of the AEOI with India and other countries. Thereafter, the corresponding federal decrees will be submitted to the Swiss Parliament for approval. 29

2.1.2. Trade Policy India and the World Trade Organization (WTO)

Since its accession to GATT (on 8 July 1948)/ WTO in 1995, India plays its role in the category of developing and emerging countries. At the risk of being categorized a “reluctant globaliser”, India embarked on the path of slow and steady liberalization of the economy. It still maintains high tariffs in many products (including agricultural products) and has given limited access to foreign investors in many sectors. 30 In 2016, India has taken the initiative to launch discussions on a Trade Facilitation in Services (TFS) Agreement at the WTO, as a services counterpart of the goods-specific Trade Facilitation Agreement (TFA). India opines that a TFS Agreement will address the key issues that are pertinent to facilitating trade in services. However, it might be challenging to further progress this issue within the WTO while blocking other discussions on raising matters, e.g. in February and May 2017 related to investment and dispute settlement issues.31 India and Free Trade Agreements

With the ongoing WTO negotiations facing for a longer time a certain ‘deadlock’, the focus of trade negotiations has also moved more towards Free Trade Agreements (FTAs). In the early 1990s, India had few FTAs or Preferential Trade Agreements. Over time, these

29

Current status: check e.g. on the SIF- website: https://www.efd.admin.ch/efd/en/home/themen/wirtschaft--

waehrung--finanzplatz/finanzmarktpolitik/automatic-exchange-of-information--aeoi-.html;

The legal foundations for introducing the AEOI entered into force on 1 January 2017. 30

UNCTAD and Centre of WTO Studies, Indian Institute of Foreign Trade, New Delhi: Twenty Years of India’s Liberalization. Experiences and Lessons (UN, 2012), overview chapter, page 1. http://wtocentre.iift.ac.in/books/Prof.%20Abhijit%20Das%20and%20Rashmi%20Banga.pdf

31 mint (newspaper in India), 11 May 2017: http://www.livemint.com/Politics/z7ZcaQc8rzCTcpt2qYdfaM/India-blocks-discussion-on-global-investment-facilitation-at.html;

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have increased and the proliferation of FTAs has been supplemented by larger agreements in the form of Comprehensive Economic Partnership Agreement (CEPA) or Comprehensive Economic Cooperation Agreement (CECA) which cover many more areas than conventional market opening under FTAs. 32 The situation for India (2014) was summarized in a government note on FTAs as follows: “India has preferential access, economic cooperation and Free Trade Agreements (FTA) with about 54 individual countries.33 India has signed bilateral trade deals in the form of Comprehensive Economic Partnership Agreement (CEPA)/ Comprehensive Economic Cooperation Agreement (CECA)/FTA/Preferential Trade Agreements (PTAs) with some 18 groups/countries. India is a late, and cautious, starter in concluding comprehen-sive preferential tariff agreements covering substantially all trade with some of its trading partners.” 34 India is currently negotiating FTAs (including follow-up agreements) with the EU, EFTA35 , Sri Lanka, Israel36 , Thailand, Mauritius, New Zealand 37 , Singapore, Southern African Customs Union (SACU), MERCOSUR, Chile, BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal), Gulf Cooperation38 Council, Canada39, Indonesia, Australia40 and the Eurasian Economic Union41 (Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan). EU is India’s largest trading partner. Sixteen rounds of negotiations have been held so far, the last in March 2013 in Brussel. Three stock-taking meetings have taken place in Delhi or Brussel with regard to the India-EU Broad based Trade and Investment Agreement (BTIA). After the termination of all Bilateral Investment Agreements (BITs) by India in 2016, the EU-India BTIA negotiations were also blocked. At political and technical level, the EU commission tries to find common ground to re-open the negotiations. EFTA: The 16th round of negotiations India-EFTA on a Trade and Economic Partnership Agreement took place in early June 2017 in Liechtenstein. Issues in core fields, such as trade in goods, trade in services and Intellectual Property Rights were discussed. A next round is scheduled to take place in mid-September 2017 in New Delhi.

USA: With regard to the US and after the election of its new President in 2017, the relationship became more complex, also with regard to the Trans-Pacific-Partnership (TPP)-Agreement. The US decided not to sign it. Given the US accounts for 68 percent of the group’s total GDP, ratification will not be possible without its signature42. There are Indian trade experts (think tanks) who say India should take advantage of the delays in the TPP and TTIP to set its domestic house in order and to register as a major trading nation. 43 Generally, several well established, bilateral dialogue mechanisms do exist on trade and investment related issues, including a Ministerial level Economic and Financial Partnership, a Ministerial Trade Policy Forum and the India-US CEO's Forum. The other bilateral institutional setups include the India-US Investment Initiative and the US-India Infrastructure Collaboration Platform. Prime Minister Modi visited President Trump in June 2017 in the US to establish good contacts.

32

Department of Commerce, Government of India, “Free Trade Agreements. Frequently Asked Questions”,

Note/ page 4, dated April 9, 2014. 33

Brookings India: Working Paper (by Harsha Vardhana Singh): Trade Policy Reform in India since 1991, page 27.

34 Department of Commerce, Government of India, “Free Trade Agreements. Frequently Asked Questions”,

Note/ page 4, dated April 9, 2014. 35

EFTA-India TEPA: 16th

round took place early June 2016 in Malbun (Liechtenstein). Ongoing negotiations. 36

8 rounds (2013) have been held / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 92. 37

10 rounds (2015) have been held / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 75. 38

2 rounds (2006/08) have been held / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 92. 39

9 rounds (2015) have been held / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 75. 40

9 rounds have been held so far. / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 75. 41

In 2016, it was agreed to initiate the FTA negotiations. / Source: Ministry of Commerce & Industry: Annual Report 2016-17; page 85.

42 Carnegie India: India’s Trade Policy dilemma and the role of domestic reform (Febr. 2017), page 8.

43 Carnegie India: India’s Trade Policy dilemma and the role of domestic reform (Febr. 2017), page 16.

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UK- The Brexit: The Indian Government expects the impact of the exit on India to be minimal. India it seems is well prepared to deal with this situation, considering its sound macroeconomic fundamentals, comfortable foreign exchange reserves, commitment to fiscal discipline and declining inflation. Nevertheless, factors such as the impact on the preferential access to EU markets; the need for recalibration of the broad-based Bilateral Trade and Investment Agreement (BTIA) and change in import-export tariff barriers, would become clear once the process of separation of UK from EU is completed, subject to the final terms and conditions of UK’s withdrawal arrangement with the European Union. 44 Regional Comprehensive Economic Partnership (RCEP) On regional basis, India is a member of two regional Free Trade Agreements (FTAs) in Asia: i) Agreement on South Asian Free Trade Area (SAFTA), ii) India-ASEAN Comprehensive Economic Cooperation Agreement on goods, services and investment. Launched in Cambodia on December 20, 2012, the RCEP is an FTA between 10 members of ASEAN and its FTA Partners (including India).45 The sixteen participating countries account for almost half the world’s population, 30 percent of global GDP, and 25 percent of world exports.46 India is participating in the RCEP negotiations but appears to be doing so with extreme caution. There are experts who think that India should be more forthright. India’s Foreign Trade Policy 2015-2020 The Government of India launched its Foreign Trade Policy 2015-2020 on April 1, 2015. Measures were adopted on trade facilitation by inducing and providing a framework for increasing exports of goods and services, generating employment and increasing value addition, following the “Make of India” vision, as well as better linking with other features, rules, procedures, initiatives and incentives, such as “Digital India”, Skills India” a.o. In that context, the Ministry of Commerce & Industry set up also an outreach program to the exporters located in 34 major export clusters/cities. The program focuses on training of exporters to utilize the FTAs, tracking inputs from exporters on FTA’s etc. Further, with support of the same Ministry, the Indian PHD Chamber launched a new Trade and Investment Facilitation Services (TIFS): Single Window Information and Facilitation Services towards the end of March 2017 for negotiations and promoting awareness about the contents of the website www.indiantradeportal.in. 47 2.2 Outlook for Switzerland (potential for discrimination) The Swiss authorities are following several avenues to minimize discrimination risks of Swiss companies doing business in India and to ensure a “level playing field”. Its priorities and focus are related to trade facilitation, to investment protection and intellectual property rights. This includes inherent topics such as Indian custom import taxes (goods and services), trade regulations, market access questions for companies doing business in India, Intellectual Property Rights and Swiss trade marks (enforcement), the implementation of the new GST tax regulations by India, the upcoming new regulation in Switzerland on the automatic exchange of information in tax matters (on reciprocal basis) between Switzerland and India (AEOI), as well as technical or phytosanitary regulations; others are related to the bilateral Air Services Agreement. India started recently to further open-up this sector.48 The “Make in India campaign” of the Government has also an inherent risk for an unequal treatment of Indian and foreign companies, to a smaller or bigger extent. However, this has to be observed on a case by case basis.

44

Indian Ministry of Commerce & Industry: Annual Report 2016-2017, page 22. 45

World Trade Organization, WTO members debate new proposals to ease global flow of services, https://www.wto.org/english/news_e/news16_e/serv_05oct16_e.htm

46 “Regional Comprehensive Economic Partnership,” Department of Foreign Affairs and Trade, Australian Government, http://dfat.gov.au/trade/agreements/rcep/Pages/ regional-comprehensive-economic-partnership.aspx

47 Ministry of Commerce & Industry: Annual Report 2016-17; page 46.

48 Ministry of Finance informed in spring 2017 about “Air India” and the new opportunity that foreign investors

are allowed to bring in capital.

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Generally, Switzerland is following the critical issues closely (incl. individual company problems) and includes its concerns directly into the established bilateral dialogues with the Indian Government (e.g. the India-Swiss Joint Economic Commission), into ongoing negotiations (e.g. EFTA-FTA, or bilateral on BIT), or as a member of WTO, OECD and other organizations in the existing policy and technical committees.

3 Foreign trade

3.1 Development and general outlook

3.1.1 Trade in goods

India’s foreign trade increased in the fiscal year (FY) 2016-17. The country’s exports amounted to over USD 276 billion (+5.3%) as compared to USD 262 billion in the previous fiscal year. Its imports on the other hand decreased slightly this year to USD 384 billion (-0.9%) from close to USD 388 billion in the FY 2015-16. Consequently, the trade deficit came down.

According to the data released by the Indian Ministry of Commerce and Industry (see annex 3), the demand for Indian goods from its major trading partners increased in the FY 2016-17, with the notable exception of the U.K. (-3.0%). This increase is due in particular to higher exports to regional economic powers such as Hong Kong (17.1%), China (+13.2%) and Singapore (+24%). One may also underline the increase of exports of 5.8% to the European Union. On the side of India’s imports, countries such as the U.A.E (+10.6%) and Iraq (+8%) registered significant growth whilst the biggest losses were recorded by Switzerland (-10.6%) 49 and the E.U. (-3.5%).

When it comes to India’s foreign trade basket, the top five import commodities are currently petroleum crude and products (18.1% + 4.3% = 22.4%)50, gems and jewellery (12.8%), electronic items (10.9%), chemicals and related products (9.8%) and machinery (8.9%). Compared to the previous year, a rather sharp decline in imports can be observed for gems and jewellery (-21.2%) as well as for chemicals and related products (-14.5%). On the export front, the top five commodities are gems and jewellery (17%), textiles and allied products (12.6%), chemicals and related products (12.1%), petroleum products (11.3%) and agricultural and allied products (8.6%) with a notable increase of 14% in the import of gems and jewellery.

India maintains a relatively high import duties setup in order to protect its domestic market, and there are some non-tariff barriers for pharmaceutical and food products (labelling issues), bureaucratic procedures, infrastructural bottlenecks and resultant high transaction costs. Nevertheless, the recently rolled out uniform indirect tax (Goods and Services Tax) is expected to reduce the transaction costs for both domestic and foreign companies, especially those in the industry sector.

3.1.2 Trade in services

According to the Reserve Bank of India’s monthly data on India’s international trade in services, the country’s service exports increased by about 4.4 percent from USD 154 billion to USD 160.7 billion in the FY 2016-17, while its service imports grew by over 22 percent from USD 84 billion to USD 102.7 billion.51 The surplus on India’s services trade side now covers about 54 percent of the deficit in its merchandise trade (60 percent in the FY 2015-16). In 2015, the share of India’s services exports as percentage of the global services exports at 3.2 percent was nearly double that of its share (1.6 percent) in global merchan-

49

In chapter 3.2.1. on bilateral trade and the decrease, reasons are mainly related to the strong decline in

exports of gold and jewelry. However, also the machinery and other core sectors of Switzerland’s export

industry were impacted. 50

The figures in brackets are the approximate share of the top five commodities in India’s total imports/exports during 2016-17 (April-October). Source: Ministry of Commerce and Industry, Annual Report 2016-17, http://commerce.gov.in/writereaddata/uploadedfile/MOC_636281140249481285_annual_report_16_17_eng.pdf

51 Reserve Bank of India, India’s International Trade in Services, https://m.rbi.org.in/Scripts/Pr_DataRelease.aspx?SectionID=352&DateFilter=Year

N.B. During the fiscal year 2016, India’s service exports had declined y-o-y by 1.8 percent to USD 154 billion, while its service imports grew by 4.3 percent to USD 84 billion.

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dise exports.52 The major sectors contributing to India’s service exports are (in descending order of percentage share): IT-related, business, travel, transport, and financial/insurance, whereas the major sectors constituting India’s service imports are: business, transport, travel, financial services and IT.

Continuing its steady growth over the past few years, the tourism sector continued to perform very well in calendar year 2016 as well. India received 8.9 million foreign tourists as compared to 8 million during the previous year (+10.7%).53 Some 20.4 million (+11.1%) Indian tourists travelled abroad in 2015, as compared to 18.3 million in the previous year.54

3.2 Bilateral trade

3.2.1 Trade in goods

In 2016 the bilateral trade flows between Switzerland and India amounted to CHF 15.8 billion55. Over the last 5 years, trade between the two countries had recorded a mixed trend. Difficult global economic conditions – still remnants of the global financial crisis – as well as the strong Swiss Franc had an impact on the trade exchanges. After a record of CHF 30.2 billion in bilateral trade in 2012, Swiss exports to India had experienced a decline in 2013 and 2014, but started to rise again in 2015, whereas imports from India went up during 2013 and 2014 but registered a decline in 2015. In 2016 exports to India declined severely, i.e. by 30.5 percent. This decrease registered in 2016 is almost solely due to a decline in exports of gold, precious metals and jewellery (CHF 12.7 billion in 2016 versus 18.8 billion in 2015). In the same year, imports from India grew slightly by 0.9% (see Annex 4).

According to Swiss foreign trade statistics56 India is ranked as the 8th largest destination (4th largest in 2015) for Swiss exports in 2016 (including gold and other precious metals and precious stones etc.). Gold and other precious metals, precious stones, etc., constitute nearly 89 percent of exports to India. Gold trade from Switzerland to India is very variable since it depends strongly on the global economic situation. On the import side, India was ranked 26th whilst total trade with India was ranked 9th.

As in the previous year, the major items that Switzerland exported to India in 2016 were: gold, precious metals and jewellery (-32.5%)57 , machinery (-6.0%), chemicals (+1.7%), pharmaceuticals (+1.4%) as well as optical instruments and medical devices (+9.2%). On the other hand, the main items imported by Switzerland from India during the same period were chemical (-1.5%), textiles, clothing, shoes (+23.5%), gold, precious metals and jewellery (-6.0%), agricultural products (-2.3%) and machinery (-2.0%).

India continues to offer business opportunities in many industry and service sectors due to a large and expanding domestic market. The most promising sectors include clean energy, energy transmission, power, food and food processing, healthcare, automotive, transport equipment, MEM (specifically railways and metros), engineering, construction, chemical, telecommunication, information technology, precision instruments, and consumer goods. Most of the Swiss companies having presence on the Indian market are happy with the current development opportunities available here. A revival in the private investment cycle would help to further strengthen business activities.

3.2.2 Trade in services

Switzerland and India have a strong relationship in terms of trade in services. Tourist arri-vals from India have been growing steadily for many years, with 599’062 overnights spent by Indians in Switzerland during 2016 (1.2% y-o-y growth).58 A good number of Swiss companies are active in India in the field of engineering services, either as independent service provider or part of high-tech machinery supplier. Switzerland is a major market for

52

India Brand Equity Fundation, Economic Survey 2016-17, https://www.ibef.org/economy/economic-survey- 2015-16 53

http://pib.nic.in/newsite/PrintRelease.aspx?relid=157393 54

Latest available data from http://tourism.gov.in/market-research-and-statistics 55

https://www.ezv.admin.ch/ezv/en/home/topics/swiss-foreign-trade-statistics.html (incl. gold) / Swiss statistics 56

https://www.ezv.admin.ch/ezv/en/home/topics/swiss-foreign-trade-statistics.html 57

The percentage increase/decrease is as compared to the year 2015 (see annex 4). 58

Federal Statistical Office, Tourist accommodation statistics 2016,

https://www.bfs.admin.ch/bfs/de/home.assetdetail.1347709.html

11

Indian companies engaged in IT related services. The export of software and other IT-enabled services from India to Switzerland is estimated to be around USD 2 billion annually.

4 Direct investments

4.1 Development and general outlook

The yearly foreign direct investment (FDI) inflows to India have grown steadily during the last ten years, rising from USD 5 billion in 2005-06 to USD 43.5 billion in 2016-17 (see Annex 5). According to the Ministry of Commerce and Industry, together with reinvested earnings and other capital, total FDIs into India amounted to USD 60.1 billion in the FY 2016-17.59 These rising inflows to India, which now amount to almost 2.5 percent of GDP, are driven by a number of factors, e.g. optimistic growth outlook, FDI liberalization in sectors where investments are needed, and economic reforms in the country.

Cumulative FDI data (incl. reinvested earnings) indicate that foreign direct investments worth USD 484 billion were made in India during the period April 2000–March 2017. Major foreign investors in India are Mauritius, Singapore, Japan, the UK, the Netherlands, the USA, Cyprus, Germany, France, the UAE and Switzerland (see Annex 5). Almost all of these (with the exception of the UK and Cyprus) have seen their total inflow grow by double digits in the FY 2016-17. A few of these countries are “channels” to route foreign investment into India in order to benefit from the tax optimization potential. India recently notified an amendment in the India-Mauritius tax treaty, and consequently has the right to tax capital gains on transfer of shares in an Indian entity since April 2017. Similar provisions, including the limitation of benefit (LOB) clause, are being discussed with some of the aforesaid countries to prevent investors misusing the treaties and round tripping the funds. The new structure will streamline the flow of foreign investments into India.

The following sectors attracted a significant share of cumulative FDI inflows during April 2000–December 2016: financial and non-financial services 60 (18%), followed by construction development (8%), telecommunication (7%), computer software and hardware (7%), automobile industry (5%), pharmaceutical (5%), trading (4%), chemicals61 (4%) and power (4%).62

With regard to outbound investments, Indian companies continue to invest abroad to have access to foreign markets, acquire latest technologies, brands, as well as high-end talent and secure sources of raw materials. As per data from the Ministry of Finance, the cumulative amount of (actual) outward direct investments (equity, loan and guarantee invoked) for the three-year period between April 2014 and April 2017 was worth USD 33 billion. During the same period, the cumulative amount of committed outward direct investment (equity, loan and guarantee issued) was USD 111.1 billion. Sector-wise, Indian companies made major investments in manufacturing (29.6%)63, financial, insurance and business services (27.4%) and wholesale, retail trade, restaurants and hotels (12.9%). Mauritius, Singapore, the USA, the UAE, Netherlands, UK, and Switzerland were among the top investment destinations for Indian companies.

As India remains amongst the fastest growing emerging economies, there are a lot of investment opportunities available for companies. Sectors, such as services, renewable energy, engineering, defence, life sciences, consumer goods (incl. food processing)

59

The Hindustan Times, India’s FDI inflows at a record $60.1 billion in 2016-17,

http://www.hindustantimes.com/business-news/india-s-fdi-inflows-at-a-record-60-1-billion-in-2016-17/story-

7a8pt2u7e8IJttptDQcwhO.html 60

The service sector includes the following: Financial, Banking, Insurance, Non-Financial / Business,

Outsourcing, R&D, Courier, Tech. Testing and Analysis 61

Other than fertilizers 62

Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, FDI Statistics,

http://dipp.nic.in/foreign-direct-investment/fdi-statistics 63

Representing the share in total outflows of direct investment between April 2014 and April 2017. Source:

Ministry of Finance, Department of Economic Affairs, Overseas Direct Investment, http://dea.gov.in/overseas-

direct-investment

12

transportation infrastructure (incl. railways) and electronics offer greater convergence for business collaboration.

Nevertheless, the decision of the Indian Government in July 2016 to terminate the existing Bilateral Investment Protection Treaties (BITs) with all the partner countries and to renegotiate them based on its new model text does negatively impact the level of legal protection for foreign investors and does generally increase the hurdles to access private arbitration.

4.2 Bilateral investment

Switzerland is ranked among the top foreign investors (11th position) in India. As per the cumulative FDI inflows data available for April 2000-March 2017, Switzerland has invested some USD 3.799 billion in diverse sectors. As a large part of foreign direct investment in India, including investment from Switzerland, is routed through other countries, the actual Swiss direct investment in India is much higher. As per the latest Swiss National Bank data, Swiss companies made investments worth CHF 8.8 billion in India between 2000 and 2015.64

Swiss companies present in India have successfully taken advantage of business opportunities to grow within an overall promising and reforming Indian market environment. Numerous Swiss companies have established new manufacturing plants in order to mitigate the consequences of the strong Swiss franc and high import duty in the value conscious Indian market. There are more than 250 joint ventures / wholly-owned subsidiaries of Swiss companies operating in India. A major part of Swiss investment in India has gone into engineering and industrial equipment, services (tourism, financial, logistics etc.), precision instruments, chemical and pharmaceutical, electrical and electronics, construction and consumer goods sectors.

Nevertheless, the Bilateral Investment Protection Treaty pertaining to Switzerland has ceased to be in force in April 2017. However, thanks to a sunset clause, the protection for existing investments of Swiss based companies will continue for the next 15 years, while new investments are currently not any more protected. In the meantime, the first round of re-negotiations of a new BIT between India – Switzerland have started. Switzerland continues to attract more investment from Indian companies looking for a gateway to Europe. As per data from the Ministry of Finance, outward direct investments (equity, loan and guarantee invoked) from India to Switzerland worth USD 1.57 billion were approved between April 2014 and April 2017, making Switzerland the 7th largest recipient of Indian investments.65 Currently, about 140 Indian companies have a presence in Switzerland.66

5 Trade, economic and tourism promotion "Country advertising"

5.1 Foreign economic promotion instruments

The Swiss network of representations in India (Embassy, Consulates General, Honorary Consuls, Swiss Business Hub, Swissnex, Presence Switzerland) continue to engage in Swiss economic promotion in India and provide advice/services to Swiss companies operating in the country. Activities consist of classical economic diplomacy and defence of interests (mainly through the Embassy’s official contacts with Government and business associations, door opening, lobbying activities etc.), macroeconomic issues (mainly reporting on economy, fiscal position and regulatory frameworks, including import-export policy) and providing specific services to Swiss companies (mainly match-making, market studies, fairs, industry delegation trips, company setups, information about business opportunities).

64

Swiss National Bank, Swiss direct investment abroad – by country and country group,

https://data.snb.ch/en/topics/aube#!/cube/fdiaustlanda?fromDate=2000&toDate=2015&dimSel=d0(IN) 65

Ministry of Finance, Department of Economic Affairs, Overseas Direct Investment, http://dea.gov.in/overseas-direct-investment

66 Source: Internal market intelligence done by the SBHI and verified by Zefix

13

The Swiss Business Hub India (SBHI)67, in close conjunction with Switzerland Global Enterprise and Swiss representations in India, supports more than 100 Swiss SMEs per year in their efforts to enter or extend their presence in the Indian market by providing free information, free basic consulting services and tailor-made services through in-house or third party experts. SBHI, as part of its Location Promotion mandate, also promotes Switzerland as a competitive business location among Indian investors. The Hub, in close collaboration with cantonal/regional economic development agencies and Swiss-Indian Chamber of Commerce, regularly conducts events and meetings to attract Indian investors. Two Investment Promotion (IP) road shows were hosted in September 2016 and March 2017, together with regional/Cantonal representatives and knowledge partners. swissnex India, based in Bangalore, is mandated by the Commission for Technology and Innovation, CTI/ KTI. swissnex India connects Switzerland and India in the fields of innovation, science, education, and art.68 It acts as a soft-landing platform for young Swiss entrepreneurs from University spin-offs and the Swiss startups that are coached by the Commission for Technology and Innovation (CTI) in the Hi-tech domains. Furthermore, in 2016-2017, swissnex India expedited, for example, Switzerland’s Functional Genomics Centre Zurich (FGCZ) of ETH and UZH and India’s leading innovation institution Centre for Cellular and Molecular Platforms, C-CAMP, signing a letter of intent to set up the Bangalore-Zurich Research and Innovation Corridor with the objectives of promoting collaboration in scientific research, enabling access to each other’s technology platforms, encouraging mutual collaborations with local innovation, incubation of common startups at C-CAMP and FGCZ, and mutual access to specialists at for technology commercialization. Another successful platform titled the Academia Industry Training (AIT) program is in its fourth year of successful execution. Top 10 Swiss applied researchers and top 10 Indian applied researchers (so called Sciencepreneurs) participate in a week-long training with the aim to support scientists in transforming their high-level applied research into market application and discovering their entrepreneurial potential. Under the innovation & entrepreneurship umbrella, swissnex India has focused specifically on three key themes aimed at promoting entrepreneurship and startups, namely Informa-tion and Communication Technology (ICT), Medical Technology (Medtech), and Clean Technology (CleanTech)69. The topics are linked to key developments within the Indian Government in the last years. In fact, the new federal government in India has given the Transforming India motto a boost with a slew of reforms aimed at spurring economic growth and promoting citizen inclusion into governance. These radical transformations have a solid information technology (ICT) backbone with expanding opportunities. 70 Another flagship initiative of the Indian Government is Startup India, intended to drive sustainable economic growth and generate large scale employment opportunities through startups. The National Institution for Transforming India, also called NITI Aayog (ex-Planning Commission which was re-organised and re-named as NITI Aayog in 2015) through its programs like AIM (Atal Innovation Mission); ATL (Atal Tinkering Labs) and SETU (Self Employment and Talent Utilisation) is promoting entrepreneurship at a scale and magnitude that was previously unheard of. Overarching these programmes, is the well-known Make in India initiative, which was launched by the Prime Minister in September 2014 as part of a wider set of nation-building initiatives, devised to transform India into a global design and manufacturing hub.

The developments in India create (potential) opportunities in the Swiss startup ecosystem, especially since a parallel umbrella initiative has been set-up called digitalswitzerland (previously: Digital Zurich 2015), a cross-industry association created to strengthen the country’s position as a digital hub including industries such as fintech, life

67

For website, please see: https://www.s-ge.com/en/company/swiss-business-hub-india

68 swissnex India, input paper (June 2017) for the Economic Report: contribution from Swissnex India/CG Bangalore.

69 Clean Tech driven through sub-themes such as Ed-tech (education), Fintech, IoT (Internet of Things),

Robotics, Healthcare, and others. 70

http://www.swissnexindia.org/: This Economic Annual Report 2016/17 provides a bit more space to swissnex

than in former times to explain in more details its working approach in India, also to illustrate existing synergies.

14

science, medtech, and many more. digitalswitzerland focuses on three key areas: attracting outstanding digital talent, helping existing companies master digital challenges, and significantly strengthening the Swiss startup ecosystem. Furthermore, one of the biggest startup challenge, Kickstart Accellerator, is being driven by digitalswitzerland, and has entered into a partnership with BaselLaunch (initiated and operated by BaselArea.swiss) to offer a healthcare-specific vertical. F10 is another Zurich based fintech initiative that supports and guides startups, all the while stimulating worldwide collaboration with international finance organizations. SIX, the backbone of the Swiss financial center, sponsors F10. swissnex India is partnering with all these organisations for their activities in India (mainly promotion and outreach).

Switzerland Tourism’s office in India promotes Switzerland as one of the most attractive destinations among Indian outbound tourists (detailed figures see chapter 3.2.2.) 71 . It regularly interacts with the Embassy and the Consulates General to increase the interest for Switzerland. In March of this year, Switzerland Tourism and the CG Mumbai cooperated to promote Swiss culture by having a Swiss booth at an annual food festival. Since May 2017, the Switzerland Tourism office is part of the Swiss Consulate General in Mumbai.

The Swiss-Indian Chamber of Commerce (SICC), headquartered in Zurich, with its four regional chapters in India (New Delhi, Mumbai, Bangalore, and Pune), works closely with the Embassy, Consulates General and Swiss Business Hub India to help promote and strengthen bilateral trade and investment relations. The Swiss-Indian Business Forum based in Geneva also helps in promoting Swiss-Indian business ties. The Embassy on Switzerland-India Economic Relations: The 15th Joint Economic Commission meeting took place successfully on 25th October 2016 in Berne. With regard to a new Free Trade Agreement, the negotiations between EFTA member states and India could be reactivated and three rounds took place in the reporting period. The next one is planned in mid - September 2017 in New Delhi. Besides these, another highlight was the closing ceremony of the Year of Swiss Innovation72, in November 2016, which was organized by the Swiss Embassy in New Delhi, in close cooperation with its network partners and with financial support from many Swiss and Indian companies. Another recent example of a joint participation at a promotional event for Swiss products was the Smart Cities Expo which was organised by Exhibitions India Group and took place in Delhi from 10 to 12 May 2017. Swiss Smart Cities technologies and services were jointly promoted in the Indian market through five participating Swiss organisations, namely the Swiss Cooperation Office (SCO), Swiss Business Hub India (SBHI), swissnex, Presence Switzerland (PRS) and the Embassy. Outlook: The Embassy has taken a new biennial initiative for 2017 and 2018: 70 Years of Swiss-Indian Friendship: Connecting Minds – Inspiring the Future, to take Switzerland’s image further and to present cutting edge innovations where Switzerland and Indian can mutually benefit. The new initiative is in commemoration of the 70th anniversary of the bilateral friendship treaty signed in 1948. This will provide an excellent opportunity to organize numerous missions and events to further strengthen the good bilateral economic relations between the two countries.

The Official visit of the President of the Swiss Confederation, Mrs. Doris Leuthard, to India, from 31st August to 1st September 2017, will be the upcoming highlight of this year.

5.2 The host country's interest in Switzerland

Tourism: Switzerland remains among the top destinations for outbound Indian tourists. In 2016, 265’410 Indian citizens visited Switzerland and generated 599’062 overnights. Last year, the Swiss Embassy Delhi issued 100’161 Schengen visa, which represents

71

Tourist arrivals from India were growing steadily with around 600’000 overnights spent by Indians in

Switzerland during 2016. 72

more details, see the Embassy’s website (Nov 2016 event)

15

around 15% of all the Schengen visa issued by European Embassies in India. During the last three years, an organizational centralization of Swiss visa offices took place in New Delhi, while an external Service Provider being present with offices in 12 main cities 73 of India provides the front organization and transmits the submitted visa applications daily to the Embassy.

Investments: Switzerland and Europe continue to be attractive markets for Indian companies despite some current political and economic difficulties faced by the region. Switzerland Global Enterprise and the SBHI have also intensified its engagement to attract potential Indian investors to come to Switzerland. Switzerland’s initiatives to remain competitive such as the introduction of the Swiss Innovation Parks are ensuring the interest of Indian and foreign companies alike to consider the country as a good base for European operations. Recent Indian investments in Switzerland have gone into sectors such as ICT, big data, life sciences, engineering, and chemicals. The activities conducted by Indian companies in Switzerland range from business development to R&D and IP management.

Education and skills development: The number of students interested in studying at Swiss Universities has increased in the past few years, and there were 857 Indian students in the Swiss university system in 2016 (up from 853 in 2015). This does not include Indian students in the management and hospitality schools which attract a lot of Indian students as well. India is a “priority country” in terms of federal scholarships granted to students, with some 10 to 25 scholarships reserved for Indian students.

Research, Innovation, Start-up Promotion, Vocational Training:

The Indo-Swiss Joint Research Programme (ISJRP) supports cutting edge research that brings together faculty and students from Switzerland and India. A call for proposals in the areas of translational medical research and medical devices; and renewable energy research attracted 66 proposals in 2016. Out of these, 11 proposals have been funded with a contribution of 2 million CHF from the Swiss side, which was matched by the Indian side. Discussions are going on with the Department of Science and Technology of the government of India to issue another call for proposals in 2017. The ISJRP in the social sciences supports collaborative research in this field. A call for proposals for scholars exchange grants in 2016 attracted 25 proposals which are currently being evaluated.

Entrepreneurship and innovation at swissnex India have empowered 205 Swiss start-ups thus far through various innovative platforms, among which the Startup Tour Bangalore, Academia Industry Training and the organisation of visits to India for specialised delegations such as for the space and med-tech start-ups were the most prominent ones. Thirty-seven start-ups have already successfully entered the Indian market.

The Indian innovation and startup ecosystem is either thought to be self-sufficient, or inspired by the USA courtesy the reverse brain-drain of returning successful Indians from the Silicon Valley. The present problems being solved by young startups in India are grassroot level problems and the young entrepreneurs are prone to emulate successful global ideas, by and large fine-tuning an existing model to serve local needs. On the challening side, a recent study, "Entrepreneurial India", by the IBM Institute for Business Value and Oxford Economics claims that 90% of Indian startups fail within the first five years. The venture capitalists, who were surveyed argued that Indian startups lack new technologies or unique business models. Government initiatives discussed previously such as Make in India, the Startup India program, and other incubation programs have definitely spurred growth, but it is no secret that innovation still remains the biggest challenge in the Indian startup ecosystem. Also, Indian researchers and scientific startups lag behind drastically in filing patents. The

73

The 12 locations to file applications for a Schengen visa related to the Swiss Embassy are: New Delhi,

Mumbai, Pune, Ahmedabad, Chennai, Bangalore, Punducherry, Hyderabad, Chandigarh, Jalandhar and

Kolkata)

16

resultant is that several international corporates have started their own innovation programs centered in India (Cisco, Société Generale, Microsoft Ventures, Gennext Ventures, Target, Paypal, Citrix, NetApp, Lowe’s, T-Labs (Times group), Pitney Bowes, etc.) to curate, train and then acquire external innovations from India. Skills Development and Vocational Training: The Swiss Vocational Training (VET) system was introduced in India, through a pilot project implemented during the years 2009-2011, in cooperation with a number of Indian subsidiaries of Swiss companies. This training model has since been transferred to a private self-sustainable model in India. Importantly, Switzerland and India have signed a Memorandum of Understanding in 2016 to establish formal cooperation in the fields of skills development and vocational and professional education and training. The First Joint Working Group (JWG) meeting foreseen by the MoU took place in New Delhi on 21 April 2017. Potential areas of cooperation, including cooperation in curriculum development, training of trainers, familiarization visits to Switzerland and research were identified.

Switzerland as a financial centre: Indian companies engaged in external trade have been using the Swiss banking system for business transactions. Corporate India is well informed about Switzerland as a good base for fund raising by issuing Swiss franc denominated bonds via SIX (Swiss Stock Exchange). In addition, private equity funding in India becomes more and more important for Swiss financial institutions. Further, the third round of the bilateral Financial Dialogue between India and Switzerland was held in June 2016 in New Delhi and November 2016, the new Joint Declaration on the Automatic Exchange of information (AEOI) on reciprocal basis between India and Switzerland could be signed, which marks an important milestone and change with regard to our bilateral relations in tax matters. As per the latest data (2016) of the Swiss National Bank, the Indian assets in Swiss banks recorded however a decline, probably already as consequence to the upcoming stricter laws and regulations being introduced in the context of the AEOI in tax matters. Generally, all leads to a continuous positive change in Switzerland’s image in India, away from being known as “tax haven”.

Health / Ayurveda: India is keen to examine how Ayurveda and Yoga can be further promoted in and out of Switzerland (globally). The Indo-Swiss Ayurveda Foundation (ISA) is supporting the efforts of the Government.

Working Permits: With regard to the IT-sector, India asks regularly for more working permits, while taking into account the existing regulations at Federal and Cantonal level in Switzerland.

17

Annexes:

1. Economic structure table

2. Main economic data table

3. Trade partners table including Switzerland

4. Bilateral trade table

5. Main investing countries table including Switzerland

18

ANNEX 1

Economic structure

Fiscal Year 2015-16 Fiscal Year 2016-17

Distribution of GDP*

Agriculture & Allied sector 15.4 % 15.1%

Industry sector 31.4 % 31.1%

Services sector 53.2 % 53.8%

- of which public services 12.3 % 12.8%

*Based on Gross Value Addition (GVA) at Basic Prices (2011-12 prices). The new calculation formula was adopted effective fiscal year 2013-14.

Fiscal Year 2011-12 Fiscal Year 2013-1474

Distribution of employment

Primary sector 53.8 % 48.3 %

Secondary sector 19.3 % 22.4 %

Tertiary sector 26.9 % 29.3 %

Sources: Ministry of Statistics & Programme Implementation, India

http://mospi.nic.in/data Labour Bureau, India http://labourbureau.nic.in/reports.htm

74

The latest data available at the moment.

19

ANNEX 2

Main economic data

2016* 2017* 2018*

GDP (USD bn) 2’288.715 2’487.937 2'724.756

GDP per capita (USD) 1’747.493 1’874.938 2'026.744

Growth rate (% of GDP) 6.83 7.18 7.69

Inflation rate (%) 5.29 5.33 5.54

Current account balance (% of GDP) -1.51 -2.08 -2.15

*estimates Source: IMF, World Economic Outlook (April, 2017) http://www.imf.org/external/pubs/ft/weo/2017/01/weodata/weoselgr.aspx

2015-16 2016-17 (est.) 2017-18 (est.)

Fiscal balance (% of GDP) -3.9 -3.5 -3.5

Total external debt (% of GDP) 23.4 22.9 22.7

Debt service ratio (% of current account receipts, excluding grants )

8.8 7.8 7.9

Reserves (months of imports) 8.6 8.1 7.9

Source: IMF, Article IV Consultation (February, 2017) https://www.imf.org/~/media/Files/Publications/CR/2017/cr1754.ashx

2012-13 2013-14 2015-16

Unemployment rate (%)75

4.7 4.9 5.0

Source: Labour Bureau, Indian Ministry of Labour and Employment http://labourbureaunew.gov.in/UserContent/ILS_2015.pdf?pr_id=R16a%2b2lYOw4%3d

75

N.B. Of the 484 million workers estimated in 2011-12, only about 30 million are in the formal sector. The rest,

i.e. 93%, are employed in the informal sector. (Source: Economical and Political WEEKLY, Vol LII No 22, June 3

2017)

20

ANNEX 3 CH@WORLD module: A352 Trade partners: April 2016 – March 2017

India’s trade

Rank Country Exports from the host

country (USD million)

Share Change76

Rank Country Imports

to the host country (USD

million)

Share Change

1 USA. 42’331 15.3% 5.0% 1 China 61’286 15.9% -0.7%

2 U.A.E 31,306 11.3% 3.4% 2 USA. 22’344 5.8% 2.6%

3 Hong Kong 14’158 5.1% 17.1% 3 U.A.E. 21’498 5.6% 10.6%

4 China 10’197 3.7% 13.2% 4 Saudi Arabia 19’945 5.2% -1.9%

5 Singapore 9’569 3.5% 24% 5 Switzerland 17’24977

4.5% -10.6%

6 U.K. 8’561 3.1% -3.0% 6 Indonesia 13’437 3.5% 2.3%

7 Germany 7’213 2.6% 1.7% 7 South Korea 12’593 3.3% -3.5%

47 Switzerland 980 0.35% 0.3% 8 Iraq 11’702 3.0% 8.0%

EU 47’019 17.0% 5.8% 9 Germany 11’584 3.0% -4.2%

EU 42’364 11.0% -3.5%

Total 276’280 100 % 5.3% Total 384’319 100 % -0.9%

Source: Department of Commerce, Indian Ministry of Commerce and Industry http://commerce.nic.in/eidb/default.asp

76

Change from the previous year 77

Inclusive of gold bars and other precious metals, coins, precious stones and gems etc.

21

ANNEX 4 CH@WORLD module: A750

Bilateral trade

Export

(CHF million) Change (%)*** Import

(CHF million) Change (%)*** Balance

(CHF million)

Volume

(CHF million)

2005 1’369 34.3 652 19.1 717 2’021

2006 1’888 37.8 736 12.8 1‘152 2‘624

2007 2’303 22.1 949 29.0 1‘354 3‘252

2008 2’406 4.5 1’101 16.0 1‘305 3‘507

2009 2’156 -10.4 800 -27.4 1‘356 2‘956

2010 2’561 18.8 1’010 26.2 1‘551 3‘571

2011 2’983 16.5 1’304 29.2 1‘679 4‘287

2012* 28’713 *) 1’450 *) 27‘263 30‘163

2013 23’980 -16.5 1’540 6.2 22‘440 25‘520

2014 19'342 -19.3 1'628 5.7 17'714 20'970 2015 20'613 6.6 1'464 -10.1 19'149 22'077 2016*** 14‘325 -30.5 1'478 0.9 12‘848 15‘803

(Total 1)** 1'619 -9.6 1'281 2.0 337 2900

2017 (IV) 7'243 74.8 526 -8.5 6’717 7‘769

*) The Swiss Customs Administration made changes to the way it calculates imports and exports as of 1 January 2012. Since then, comparisons between 2012 and the previous years have no longer been possible.

78

**) "Economic" total (total 1): without gold bars and other precious metals, coins, precious stones and gems, works of art and antiques

***) Change (%) from the previous year

Exports 2015 2016

(% of total) (% of total)

1. Gold, precious metals, jewellery 91.3 88.7

2. Machinery 2.8 3.9

3. Chemicals 1.5 2.3

4. Pharmaceuticals 1.1 1.7

5. Optical instruments and medical devices 0.7 1.2

Imports 2015 2016

(% of total) (% of total)

1. Chemicals 29.6 28.9

2. Textiles, clothing, shoes, umbrellas 18.9 23.1

3. Gold, precious metals, jewellery 15.2 14.1

4. Agricultural products 8.2 7.9

5. Machinery 6.7 6.5

Source: Swiss Customs Administration SCA, statistique du commerce extérieur (2016).

22

ANNEX 5 CH@WORLD module: A356

Main investing countries Foreign Direct Investment to India

Period: April 2000 – March 2017

Rank Country Direct investments

(Total Inflows in USD million) Share Variation

79

Inflows over past year

(USD million)

1 Mauritius 111’638 33.6% +16.4% 15’728

2 Singapore 54’590 16.4% +19.0% 8’711

3 Japan 25’675 7.7% +22.5% 4’709

4 U.K. 24’591 7.4% +6.4% 1’483

5 Netherlands 20’682 6.2% +19.4% 3’367

6 U.S.A. 20’323 6.1% +15.6% 2’739

7 Germany 9’698 2.9% +12.4% 1069

8 Cyprus 9’156 2.8% +7.1% 604

9 France 5’725 1.7% +12.0% 614

10 U.A.E. 4’705 1.4% +16.7% 675

… EU 73’210 25% +11.0 % 7’280

11 Switzerland 3’799 1.1% +15.7% 515

Total 332’112 100% +15.1% 43’478

Source: Department of Industrial Policy and Promotion, Indian Ministry of Commerce and Industry http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx

79

Change from the previous year