The Indian economy is booming, with rates of Gross Domestic Product (GDP) growth exceeding 8% every year since 2003/04. This ongoing growth is due to rapidly developing services and manufacturing sectors, increasing consumer demand (largely driven by increased spending by India's middle class) and government commitments to rejuvenate the agricultural sector and improve the economic conditions of India's rural population.

Construction is the second largest economic activity in India after agriculture, and has been growing rapidly. The production of industrial machinery has also been on the rise - and the increasing flow of goods has spurred increases in rail, road and port traffic, necessitating further infrastructure improvements.

In the fiscal year ending March 2008, India's GDP grew by more than 9%. This robust rate of expansion was initially forecast to continue in the 2008-2009 fiscal year. In summer 2008, however, the combined impact of slowing Indian consumption, a higher domestic cost of capital and reduced capital access from international capital markets raised concerns by some analysts that the rate of growth might be slowing.

In October 2008, India's Prime Minister, Mr. Manmohan Singh, affirmed the Government's view that a rate of growth of 7-7.5% remains realistic, even given the global credit crunch, and assured observers that the country's Government will take action if necessary to support businesses and the financial markets. Mr. Singh has also singled out infrastructure investment as particularly vital. Indeed, even with a somewhat slower rate of growth, the Indian economy is still expanding significantly, and substantial investment in infrastructure continues to be required in order to sustain India's economic progress.

The country's capacity to absorb and benefit from new technology and industries depends on the availability, quality and efficiency of more basic forms of infrastructure including energy, water and land transportation. In some areas, roads, rail lines, ports and airports are already operating at capacity, so expansion is a necessary prerequisite to further economic growth.

The Indian Government recognises this imperative. As per the Eleventh Five Year Plan, more than US$500 billion worth of investment is planned to flow into India's infrastructure by 2012. Construction projects account for a substantial portion of the proposed investments, making the E&C sector one of the biggest beneficiaries of the infrastructure boom in India. The regulatory environment is relaxing to encourage further foreign direct investment (FDI).

Private sector participation is integral to these plans. PPPs have been identified as the most suitable mode for the implementation of projects - and indeed, are rapidly becoming the funding norm. Their share of the total planned infrastructure improvements is projected to be around 30% (US$150 billion). Power and road projects top the list, and other transportation sectors such as railways, ports, and airports are also targeted for major investments. Companies looking to capitalise on the situation need to plan their strategy for entering the market carefully.

Understanding the local market, including selecting complementary local partners, is vital. Tax optimisation is a key cost component - while substantial tax benefits are provided for infrastructure projects, developers need to be savvy about structuring their contracts. Good tax planning can have a potentially decisive impact, especially in bidding situations, and help to avoid unnecessary litigation later.

Companies looking to invest in India need to consider a variety of tax issues. Overall tax rates can be relatively high, so careful tax planning is vital. Transfer pricing regulations were introduced in India in 2001. Although transfer pricing regulations are a relatively recent phenomenon, the authorities have taken an aggressive stance.

There is no advance pricing arrangement (APA) yet in India, so the implications of transfer pricing remain somewhat uncertain. The Government's strong focus on promoting infrastructure development also extends to tax policy, with a number of policy measures and incentives now in place for the construction of infrastructure facilities, including a numbers of tax holidays, although Minimum Alternate Tax (MAT) of 11.33% may be payable on book profits during this period.

Reasons to invest in India:

1. Fastest Growing Population

India has the fastest-growing population in the world, expanding at the rate of some 16 million per year. At that rate, India's population will exceed 1.4 billion people and be larger than China's by 2030. What's more, per-capita income in India has risen steadily over the past five years, from $285 to around $550 today.

2. Government Aids - Loans & Investment

Government investment in the country's infrastructure is soaring - jumping 9.9% from 2007. And the country needs it. Auto sales are zipping along at a 17% growth rate ... airline passenger traffic is expected to more than triple over the next five years from 14 million per annum to around 50 million. Over the next four years, by 2012, the government plans on spending a total of $500 billion to build out and improve India's infrastructure!

3. Growing Manufacturing Industry

Manufacturing now accounts for almost 30% of India's economy. When most analysts and investors think of India, they think of agriculture, textiles, and usually its famed information technology service industry, which handles the outsourcing for hundreds of U.S.-based computer hardware and software manufacturers and telecoms.

But in fact, the single largest employer in India is the manufacturing sector, which employs more than 100 million people, more than 25% of the total employed in India, and which is growing at a very healthy 8.8% clip.

4. Boost in Corporate Earnings

Corporate earnings in India are growing at an astounding 35% annual rate. The 30 largest companies in the Mumbai Sensex index increased their earnings at an incredible 35% in their first quarter of this year, blowing away estimates. Revenues jumped 20%. Out of 800 publicly-traded companies, average earnings growth is a blistering 17%.

5. Private Equity

Private equity investors are now putting more money in India than in China. Nearly $20 billion in private equity poured into India in 2007, a 156% jump versus '06, and 34% more than went into China in '07.

The ballooning Indian middle class - 330 million and growing - is spending their newly-earned money, ramping up retail sales growth that should average 13% or more for the next several years.

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