April 14, 2010 New Delhi

April 14, 2010New Delhi

Doing Business with India Policy Framework &

Opportunities

DepartmentDepartment of Industrial Policy & Promotionof Industrial Policy & PromotionMinistry of Commerce and IndustryMinistry of Commerce and Industry

Government of IndiaGovernment of India

Indian Economy – GDP Growth

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FDI Inflows – Recent Trends

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India: Entry OptionsBy incorporating a company under Company’s Act

1956, in a joint venture or a Wholly Owned Subsidiary. Foreign equity in such a company will be as per choice of the investor, subject to FDI policy.

(Concerned Authority: Registrar of Companies)As an unincorporated entity as a foreign company

through a Representative/Liason office, a Branch office or a Project office.

(Approving Authority: Reserve Bank of India)

Industrial PolicyNO LICENCE required for most activities Industrial Licensing limited to only 5 sectors (security, public

health & safety considerations listed below)Cigars and cigarettes of tobaccoDefence manufacturing Industrial explosivesHazardous chemicalsAlcohol

Large unit proposing to make items reserved (only 21 items) for small scale sector* will require Industrial licence.

*Investment in plant and machinery upto Rupees 50 million (US$ 1.123 million)

FDI Policy & Procedure Automatic Route– No prior approval route. RBI, India’s Central Bank, is

to be informed within 30 days of receiving remittances and also within 30 days issue of shares to non-residents.

FIPB Route– Activities under restricted category require prior Government approval by Foreign Investment Promotion Board (FIPB).

Activities requiring Government approval are indicated in a small negative list. Those activities not listed are treated under automatic route.

FIPB generally conveys decision within 4 to 6 weeks. Activities Prohibited under FDI Policy – cigarette manufacturing, Multi-

brand Retail Trade (single brand allowed upto 51%), Atomic Energy, Lottery, Gambling & betting, sectors reserved for public sector, agriculture (except specified activities), plantations (except tea plantation)

Extant FDI Policy – A SummarySECTORS UNDER AUTOMATIC ROUTE

UPTO 100% FDI

Most manufacturing activities Non-banking financial services Drugs and pharmaceuticals Food processing Electronic hardware Software development Film industry Advertising Hospitals Private oil refineries Pollution control and management Exploration and mining of minerals other

than diamonds and precious stones Management consultancy Setting up/development of industrial

parks/SEZ Petroleum Products Pipeline Wholesale Trading Mining of diamonds and precious stones Exploration and mining of coal and lignite

for captive consumption

INFRASTRUCTURE SECTORS UNDER AUTOMATIC ROUTE UPTO 100% FDI

Electricity Generation (except Atomic energy)

Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbours Hotel & Tourism Townships, Housing, Built-up

Infrastructure and Construction Development Project

Greenfield Airports

Main Sectors with FDI Equity/Route Limit

FDI equity limit-Automatic route

Insurance – 26%Domestic airlines – 49%Telecom services- Foreign

equity 74%Private sector banks- 74%

FDI requiring prior approval

Defence production – 26%FM Broadcasting - foreign equity

20%News and current affairs- 26%Broadcasting- cable, DTH, up-

linking – foreign equity 49%Tea plantation – 100%Development of airports- 100%Single brand retail – 51%

Technology Transfer PolicyRoyalty and Lump sum payments permittedPayments to foreign collaborator do not require

Government approvalNo limit on the duration of paymentsA Wholly Owned Subsidiary or a JV of a foreign

company can make payments to its parent company abroad for technology transfer

Relevant regulation: Current Account Transaction under Foreign Exchange Management Act (FEMA)

India: Investment OutlookSecond most attractive destination –

(A.T. Kearney’s 2007, Foreign Direct Investment Confidence Index).

Third most attractive investment destination among Transnational Corporations for FDI for 2009-11 (UNCTAD’s ‘World Investment Report, 2009).

Investment Opportunities - Infrastructure

India needs to invest heavily in infrastructureInvestment requirement estimated at US$ 514

billion during 11th Plan period ( 2007-12)Share of investment in infrastructure to increase

from 5% of GDP to 9% by 2012Major sectors are Power, Highways & Roads,

Ports, Air transport / Airports

Investment Opportunities – Power

FDI Policy – 100% foreign investment permitted under automatic route in Power Generation, Transmission & Distribution (other than atomic power)

No limit on the project cost and quantum of FDITariff regulation through independent regulator at the

central & state Government levelIncentive - Income tax holiday for a block of 10 years in

the first 15 years of operation Waiver of capital goods import duties on mega power

projects (above 1000 MW)Investment Opportunity - Target to increase generation

capacity up to 200,000 MW by 2012 from current level of 1,47,000 MW

Estimated investment requirement is US$ 166 billion

Investment Opportunities – Roads & Highways

Policy – 100% FDI is permitted under automatic route in all road development projects

Incentive - 100% income tax exemption for a period of 10 years

Government provides viability gap funding for road projects and developers are permitted to recover investment by way of collection of tolls

Opportunity – Private Sector participation via both construction contracts and Build – Operate – Transfer (BOT) based on either toll or annuity basis

Investment requirement is projected at US$ 78 billion till 2012 and one third of this requirement is expected to come from private sector

Investment Opportunities – Telecom

Policy – 100% FDI permitted in the manufacture of telecom equipments

Basic & Cellular mobile services have a foreign equity cap of 74% subject to licensing and security requirements

Incentive – Exemption from basic custom duty is allowed on the import of specified infrastructure equipments to service provider

Opportunities – India is adding almost 12- 14 million new cellular phone connections every month

The total telecom subscriber base is expected to exceed 700 million by 2012

Rural areas in India offer big market for both land line as well as cellular phones as present penetration level is low

Investment Opportunities – Auto Sector

Policy – 100% FDI permitted under automatic route in automobile and auto components manufacturing

No licensing approval required for production of automobiles and import of component for assembly is freely permitted

Incentive – No specific incentive for this sector, however central incentives are available for units set up in certain states and in backward areas as well as in Special Economic Zone

Reduced basic custom duty available for new projects for import of capital equipments

Opportunities - India’s automobile sector growing at double digit rate and India expected to emerge as small car manufacturing hub

World’s largest two wheeler manufacturer is in India Indian auto component industry is well established and

supplied to major OEMs in Europe & USA

Investment Opportunities – Food Processing

Policy – 100% FDI under automatic route permitted in this sector

No licensing approval required for setting up food processing unit

Opportunities – An investment opportunity of US$ 22 billion exist in India for next 10 years

India is the largest producer of milk and dairy products. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.

Currently, only 5% of total production is processed The food processing industry is presently growing at 14 per

cent against 6-7 per cent growth in 2003-04.The retail food sector in India is likely to grow from around

US$ 70 billion in 2008 to US$ 150 billion by 2025

Other Important SectorsPorts and ship building sectorAir ports and Air transport servicesDrugs & pharmaceuticalsReal estate – Construction and development projects Investment Requirements of US$ 50 billion in 5 years

Housing 20 million new units in 5 yearsOrganized retail space 200 million sq ft by 2010Hotels & Hospitality : 50,000 new rooms in 5 years

Consumer durables and Fast Moving Consumer Goods

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