1 Dr. Ajay Dua Dr. Ajay Dua Secretary Secretary Department of Industrial Policy & Promotion Department of Industrial Policy & Promotion Ministry of Commerce & Industry Ministry of Commerce & Industry Government of India Government of India 28 28 th th November 2005 November 2005 Website: Website: www.dipp.gov.in Foreign Direct Investment in India
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Dr. Ajay Dua Secretary Department of Industrial Policy & Promotion Ministry of Commerce & Industry
Foreign Direct Investment in India. Dr. Ajay Dua Secretary Department of Industrial Policy & Promotion Ministry of Commerce & Industry Government of India 28 th November 2005 Website: www.dipp.gov.in. Indian Economy – An Overview. Economic Performance Sustained economic growth - PowerPoint PPT Presentation
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Dr. Ajay DuaDr. Ajay DuaSecretarySecretary
Department of Industrial Policy & PromotionDepartment of Industrial Policy & PromotionMinistry of Commerce & IndustryMinistry of Commerce & Industry
Government of IndiaGovernment of India
2828thth November 2005 November 2005Website: Website: www.dipp.gov.in
Sustained economic growth Average last 10 years 6.5% 2004-05 6.9% Forecast up to 2006-07 >7.0% Forecast till 2050 – Goldman Sachs 5 % p.a.
Services share in GDP over 50% (52.4% share in GDP in 2004-05)
Manufacturing sector grew at 8.8% in 2004-05 (17.4% share in GDP in 2004-05)
Foreign Trade Merchandise exports grew by 25% in 2004-05, now
US$80 billion Imports grew by 36%, now US$106 billion
Investment Foreign Investment – over US$14 billion in 2004-05 (FDI
US$5.5 billion, FII US$8.9 billion) Mature Capital Markets
NSE third largest, BSE fifth largest in terms of number of trades
A well developed banking system
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Economic Reforms- Fiscal
Rationalization of tax structure – both direct and indirect
Progressive reduction in peak rates Peak Customs duty reduced to 15% Corporate Tax reduced to 30% Customs duties to be aligned with ASEAN
levels Value Added Tax introduced from 1st April
2005- only 6 states left
Fiscal Responsibility & Budget Management Act, 2003 Revenue deficit to be brought to zero by
2008
India among the top reformers in
2003: World Bank’s ‘Doing
Business in 2005’
4
Economic Reforms: Liberalisation of Investment & Trade Policies
Industrial Licensing Progressive movement towards delicensing
and deregulation Licensing limited to only 5 sectors (security,
public health & safety considerations) Foreign Investment
Progressive opening of economy to FDI Portfolio investment regime liberalised Liberal policy on technology collaboration
Trade Policy Most items on Open General License,
Quantitative Restrictions lifted Foreign Trade Policy seeks to double India’s
share in global merchandise trade in 5 years
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Economic Reforms: Exchange Control & Taxation
Exchange Control All investments are on repatriation basis Original investment, profits and dividend can
be freely repatriated Foreign investor can acquire immovable
property incidental to or required for their activity
Rupee made fully convertible on current account
Taxation Companies incorporated in India treated as
Indian companies for taxation Convention on Avoidance of Double Taxation
with 65 countries
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Manufacturing Competitiveness- ‘Made in India’
Second most attractive destination for manufacturing ATKearney’s FDI Confidence Index 2004
Indian industry globally competitive in a wide range of manufacturing skill-intensive products: Apparels, electrical and electronics components;
speciality chemicals; pharmaceuticals; etc. Automotive components: Major MNC’s & their OEMs
sourcing high-quality components from India Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever,
Cliariant, Cummins, Delphi Indian companies now having manufacturing
presence in many countries Over 55% of approved outward investment by India
companies in manufacturing activities
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Evolution of FDI Policy
Pre 1991
1991
1997
2000
2000-05
Allowed selectively up to 40%
Up to 74/51/50% in 112 sectors under theAutomatic Route 100% in some sectors
Up to 100% under Automatic Route in all sectors except a small negative list
More sectors opened ; Equity caps raised in many other sectors Procedures simplified
FDI Policy Liberalization
FDI up to 51% allowed under the Automatic route in 35 Priority sectors
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Investing in India – Entry Routes
Automatic Route Prior Permission(FIPB)
Investing in India
General RuleNo prior permission requiredInform Reserve Bank within 30 days ofinflow/issue of shares
By ExceptionPrior Government Approval needed.Decision generally within 4-6 weeks
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FDI Policy Initiatives : 2000-2004 New sectors opened to FDI
Defence production, Insurance, print media - up to 26%
Development of integrated townships up to 100% e-commerce, ISP with out gateway, voice mail,
electronic mail, tea plantation -100% subject to 26% divestment in 5 years
FDI equity limits raised Private sector banks raised from 49% to 74% Drugs and pharmaceuticals from 74% to 100% Advertising from 74% to 100% Private sector refineries, Petroleum product
marketing, exploration , petroleum product pipelines – 74% to 100%
Procedural simplification Issue of shares against royalty payable allowed
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Recent Initiatives : June 2004 onward FDI in domestic airlines increased from 40% to 49%.
Automatic route allowed FDI up to 100% allowed under the automatic route in
development of townships, housing, built up infrastructure and construction development projects
Foreign investment limit in Telecom services increased to 74%
FDI and portfolio investment up to 20% allowed in FM Broadcasting. Hitherto only Portfolio investment was allowed.
Transfer of shares allowed on automatic route in most cases
Fresh guidelines for investment with previous joint ventures
A WTO (TRIPs) IPR regime compliant in position since 2005 – Patents Act amended to provide for product patent in pharma and agro-chemicals also.
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Extant Policy on FDI FDI up to 100% allowed under the ‘Automatic
Route’ in all activities except for Sectors attracting compulsory licensing Transfer of shares to non-residents (foreign
investors) In Financial Services, or Where the SEBI Takeovers Regulation is attracted
Investor having existing venture in same field Sector specific equity/route limit prescribed under
sectoral policy Investments made by foreign investors are given
equity 74% Private sector banks- 74% Mining of diamonds and
precious stones- 74% Exploration and mining of coal
and lignite for captive consumption- 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% Trading- wholesale cash and
carry, export trading, etc., 100%
Tea plantation – 100% Development of airports- 100% Courier services- 100%
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Foreign Technology Collaboration Policy Foreign technology agreements also allowed
under Automatic route: Lump-sum fees not exceeding US$2 Million Royalty @ 5% on domestic sales and 8% on
exports, net of taxes Royalty up to 2% on exports and 1% also
permitted for use of Trade Marks and Brand name, without any technology transfer
Wholly owned subsidiaries can also pay royalty to their parent company
Payment of royalty without any restriction on the duration allowed.
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India: FDI Outlook 2nd most attractive investment destination among
the Transnational Corporations (TNCs) - UNCTAD’s World Investment Report, 2005
3rd most attractive investment destination – AT Kearney Business Confidence Index, 2004 Up from 6th most attractive destination in 2003 and 15th in
2002 2nd Most attractive destination for manufacturing
Among the top 3 investment ‘hot spots’ for the next 4 years UNCTAD & Corporate Location – April 2004
Most preferred destination for services - AT Kearney’s 2005 Global Services Location Index (previously Offshore Location Attractiveness Index)
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India & Other Countries - Policy Framework
Restriction on Foreign ownership
Efficiency of Legal Framework
Govt. inter. In Corporate Invest.
Financial market Sophistication
IND-41
IND-35 IND-34IND-37
MLY-67
MLY-19
MLY-58
MLY-21
THA-75
THA-32 THA-14
THA-39
CHN-81
CHN-50 CHN-38
CHN-72
Top 1/3
Mid 1/3
Bot. 1/3
Source: Global Competitiveness Report 2003-04)
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India’s Competitive Strengths - Human Capital India’s competitive edge - its highly-skilled
manpower and entrepreneurial expertise Over 380 universities (11,200 colleges) 1500 research institutions Over 200,000 engineering graduates Over 300,000 post graduates from non-engineering
colleges 2,100,000 other graduates Around 9,000 PhDs
Knowledge workers in software industry increased from 56,000 in 1990-91 to over 1 million by 2004-05;
54% of India’s population under 25 years of age India would continue to be surplus in working
population for a long-time Would contribute 25% to the additional working
population globally over the next 5 years.
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India’s Competitive Strengths – HRD Contd.
Rank out of 102 countries
Availability of scientist and engineers 3 Quality of management schools 8 Quality of scientific research institutions 20 Quality of educational system 36
(Source: World Economic Forum’s ‘Global Competitiveness Report, 2003-04’)
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ICT Advantages
IT- ITES ExportsIn US $ Billion
6.2
10
12.8
17.2
8
0
2
4
6
8
10
12
14
16
18
20
2000-01 2001-02 2002-03 2003-04 2004-05
IT –ITES Industry Exports US$17.2 billion in 2004-05,
growth of 34% over previous year 2008 exports target : US$60 billion, to be
35% of India’s total exports
High quality standards 76 SEI/CMM level 5 companies, two third
of world’s total, are Indian Over 250 of the Fortune 500 companies
are clients of Indian firms R&D base of over 100 FORTUNE 500
companies
Investment Opportunities • Collaborative ICT research • Joint Software development in a variety
of applications
Source: NASSCOM
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Global Business Leaders on India
“India is a developed country as far as intellectual capital is concerned”
“India can be a major part of Dell’s operations and we are looking to capitalize on India’s human capital”
“We are expanding our presence in India to take advantage of the ample R&D talent available”
“India is handling the most sophisticated projects in the world. I am impressed with the quality of work”
JACK WELCH, GE JOHN CHAMBERS, CISCO
MICHAEL DELL, DELL BILL GATES, MICROSOFT
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Physical Infrastructure
Overall Ports Electricity Air Transport
IND-70 IND-69
IND-85
IND-47
MLY-12MLY-7
MLY-26
MLY-9
THA-29
THA-36THA-41
THA-20
CHN-55 CHN-54CHN-60
CHN-68
Top 1/3
Mid 1/3
Bot. 1/3
Source: Global Competitiveness Report 2003-04)
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Recent Infrastructure Initiatives
National Highway Development Programme to develop over 24,000 km of highways Golden Quadrilateral NSEW Corridor Links to ports and State capitals
Modernisation of airports Metro and other airports
Development of ports with private sector The Electricity Act, 2003 provides the framework for
development of power sector ‘Bharat Nirman’ Programme to develop rural
infrastructure at an estimated cost of Rs. 1,74,000 crore (~US$40 billion)
Incentives for the Development of Industrially Backward Areas A special package of incentives to promote
industrilisation of industrially backward regions North Eastern states, Sikkim, Jammu & Kashmir,
Uttaranchal and Himachal Pradesh Incentives
100% Income Tax Exemptions for 10 years Excise Duty Exemptions for 10 years Transport Subsidy for transportation of raw
material and finished products, Investment Subsidy (50-90%)
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India & Other Countries - Quality of Business Environment
State of Cluster Development
Value Chain Presence
Firm Level technology Absorption
Local Supplier Quality
IND-17
IND-37IND-31
IND-37
MLY-24MLY-36 MLY-14
MLY-36THA-10
THA-27 THA-30THA-27
CHN-30
CHN-46 CHN-58CHN-46
Top 1/3
Mid 1/3
Bot. 1/3
Source: Global Competitiveness Report 2003-04)
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Governance and Regulatory System Central, State and Local levels of Government
with their specified powers and responsibilities seen as complicated in regulatory administration by investors
11.9% of Senior Management’s time spent in dealing with Government agencies(Source: World Bank’s Report - India Investment Climate Assessment, 2004)
World Bank’s Report ‘Doing Business in 2006’ 71 days required to set up a Company and start
business – Incorporation of Company and PAN/TAN allotment taking most time
Paying taxes: 59 transactions taking 264 hours in a year
Closing a business: time taken 10 years
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Governance - Initiatives Major e-governance initiatives undertaken at Central and State
level National e-Governance Action Plan
Projects being taken up in Mission mode at Central and State level. Integrated services projects for services across Departments. MCA-21 - Ministry of Company Affairs, to cover all Registrar of
Companies by June 2006 e-Biz project being taken up by the Department of IPP
To set up a web enabled portal to provide for the services at the Central, State and Local level during the entire life cycle of business
To begin with a pilot project covering 25 services in four states Project capable of rapid upscaling to cover other services and
extend to other areas Right to Information Act for greater transparency in public
administration
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Investment Opportunities
Development and management of infrastructure
Food processing, including logistic and support services, development of cold chain
Manufacturing – relocation into India R&D – leveraging on abundant skilled