Doing Business In India Final June 08

Doing Business In India A Hand Book

Department of Industrial Policy & Promotion Government of India

Contents 1

India-An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Indian Society and Demography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.1 Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.2 Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.3 Society and Traditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.4 Currency System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Indian Economy: An Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 The Indian Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.1 The Indian Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.4 Indian Business Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.5 Government and Administrative Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2

Economic Trends and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 Recent Economic Performances and Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Principal Sectors of the Indian Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.1 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.2 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2.3 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.4 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.5 Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.6 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.7 Capital Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.8 Other Institutions – MF, Insurance, PE and VC . . . . . . . . . . . . . . . . . 13 2.3 External Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.3.1 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3.2 External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.4 Fiscal Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.5 Foreign Investment Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.5.1 Foreign Institutional Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.5.2 Proliferating R&D Centres: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3

Business Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.2 Foreign Exchange Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.3 Trade Regulations in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3.1 Import. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3.2 Export. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.4 Labour Laws and Social Security System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.5 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.6 Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.7 Environment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

1

Taxation and Commercial Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.1 Taxation of Foreign Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.1 Liaison Office/Representative Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.2 Project Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.3 Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.4 Wholly Owned Company/Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.5 Foreign Institutional Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.6 Double Taxation Avoidance Agreements (DTAA) . . . . . . . . . . . . . . 28 4.2 Indirect Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.1 Central Excise Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.2 Sales Tax/VAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.3 Customs Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.4 Export Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.5 Service Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.3 Incentives and Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

5

Foreign Investment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.1 Government of India's Policy on Foreign Direct Investment. . . . . . . . . . . . 34 5.2 Sectors where FDI is Prohibited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.3 FDI in SSI Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.4 Investment in Indian Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.5 Investment in Overseas Issues of Indian Companies . . . . . . . . . . . . . . . . . . . 36 5.6 Investment Schemes and Incentives of the Government of India . . . . . . . . 37 5.6.1 EOUs: Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.6.2 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.6.3 Software Technology Parks (STPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.6.4 Investment in Special Economic Zones (SEZs) . . . . . . . . . . . . . . . . . . 38 5.7 Institutional and Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6

Implementation and Operational Aspects . . . . . . . . . . . . . . . . . . . . . . 41 6.1 Entry options for Foreign Companies in India. . . . . . . . . . . . . . . . . . . . . . . . . 42 6.2 Procedure for Incorporating a Company in India . . . . . . . . . . . . . . . . . . . . . . 42 6.3 Acquiring Land/Property in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.4 Approvals Required for Setting Up Industries. . . . . . . . . . . . . . . . . . . . . . . . . 45

7

Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.1 Identifying the Right Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.1.1 State Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2 Human Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2.1 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2.2 Visa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

India-An Overview

I

ndia is an ancient yet modern civilisation with a rich culture and heritage. Indian

economy has been on the global central stage always. From Indus Valley Civilization

uptil 1700 Mughal Emperor Akbar, Indian economy was largest for most of the time.1

Over the years, the country has made rapid progress and currently stands tenth in the world in terms of industrialisation. It is the seventh largest country in the world, with a land area of approximately 3.28 million square kilometres, extending from the snowcovered Himalayas to the tropical rain forests of Kerala.2 India's population is estimated to reach 1.14 billion by July 2008. Nearly 25 percent of the Indian population live in urban areas. Mumbai, Kolkata and Delhi are among the important metropolitan cities, each with a population exceeding 10 million.

India -An Overview

4.

Doing Business in India Report

1.1 Indian Society and Demography 1.1.1

Language

Indian Economy: An Overview

Post Independence , India's economic development strategy was modelled on the key 3

India's most distinctive feature is its diverse languages and dialects. The Indian Constitution recognises 22 languages as national languages.4 Hindi, the most widely spoken language, is the official language of the Union of India.5 At the state level, regional languages are the official languages of the states concerned. English is also recognised as an official language and as the language of the executive, legislative and judicial institutions of the Union of India.

1.1.2

1.2

Religion

Freedom of religion is a fundamental right guaranteed by the Constitution of India. As per

tenets of self-reliance, import substitution, and social equity. These policies set the foundations for a modern India and helped create a robust industrial base. Till the 1980s, a system of licensing was followed; there were controls placed on foreign exchange and restrictions on imports. Economic reforms of 1991 transformed the country to bring greater unision with rest of the World. , India is still undergoning a continuous process of liberalisation and globalization based on “inclusiveness”. Significantly India had a GDP growth of around 8 percent per annum over the last four years, far more than “hindu” rates of 2 –3% during pre-liberalization era.9 Salient features of the Indian economy are:

the decennial census of 2001, Hinduism was the religion practised by over 80 percent.

The estimated GDP for 2007–08 is USD l

The other prominent religions include Islam (practiced by 13.4 percent of the population

1.09 trillion, with a nominal GDP of USD

or 110 million), Christianity (20 million), Sikhism (18 million), Buddhism (6 million),6

1,081 per capita.10

Jainism, Judaism and Zorastrianism.7

India is the fourth largest economy after the l

1.1.3

Society and Traditions

US, China and Japan in terms of purchasing power parity.

There is great diversity in the food habits, social customs and traditions of different regions of India.

The Services sector is largest contributor l

Every region in the country has its own peculiar cuisine. The Indian cuisine is renowned

to India's GDP. The sector's estimated

for its exotic gravies. The Mughlai cuisine of the North, the Wazwan style of Kashmir,

contribution to the national GDP was

Bengal's Macher Jhol, Rajasthan's Dal Bati, the kebabs of Uttar Pradesh and Punjab's

60.712 percent in 2007–08. The Services sector was estimated to have grown at

Sarson Ka Saag and Makki di Roti are some of the well known Indian delicacies.

about 11.2 percent in 2006–07. India has a robust and diverse industrial base. It also has the capacity to l

Festivals in India are never restricted to the family—the entire community or neighbourhood takes active part to bring the occasion to life. Some of the most widely

manufacture an extensive range of products. India sends satellites with payloads ;

celebrated Indian festivals include Diwali, Holi, Id, Christmas, and Mahaveer Jayanthi.

it makes pins also.

Another important occasion that is celebrated with great fanfare is the wedding

India has a mature financial sector—the capital market has more than 9,000 listed l companies14 with a market capitalisation of over USD 70 trillion, according to

ceremony where all family members and friends take active part.

1.1.4

December 2007 figures.15

Currency System

India's external trade deficit has been stable, ranging between 1.5 percent and 2 l

The rupee is the currency of India. One rupee is made of up of 100 paise. As on 16 May

percent of GDP, despite the fact that the country is highly dependent on

2008, the exchange value of the Indian currency was roughly INR 42.64 per USD, INR 66

petroleum imports.

per EUR, INR 83 per GBP and INR 40.8 per Yen. Travellers' chequesand credit cards are

Foreign exchange reserves increased to USD 314 billion as on May 16, 2008 l

commonly used in India. There are two traditional terms used in the Indian counting system different from the international counting system —the lakh (hundred thousand) and the crore (ten million). 9

1

Timeline of the economy of India: wikipedia 2 National Portal of India: Profile 3 Britannica 4 PIB 5 National Portal of India: knowindia 6 www.tradewingstours.com 7 National Portal of India: knowindia

IMF 1 IMF 11 CIA World Fact book 12 CIA World Fact book 13 CIA World Fact book 14 Mayfield.com 15 Economictimes 16 IMF 10

16

02 03

Doing Business in India Report

The standard of customer service is an important determinant for creating l

Table: Annual Growth Rate of GNP

customer loyalty in the case of high-value goods and institutional sales. India's rural market is increasingly becoming important. Based on the rural l

9.6

10.0

8.6

8.1

spending trends, rural India accounts for more than 50 percent of the total 9.7

6.7

6.5 5.0

7.3

5.4

market and presents a market that is hugely untapped.

6

Foreign brands may need to adapt to the cultural needs of the Indian market. It is l

7.3

%

6.4

advisable that foreign companies do not blindly base their Indian ventures on

5.9 4.5

successful models implemented in other countries. As a matter of fact, even 4

4

global brands such as McDonald's have had to mould their products to meet the requirements of Indian customers.

1.4 0.0 199 0-9 1 199 1-9 2 199 2-9 3 199 3-9 4 199 4-9 5 199 5-9 199 6 6-9 7 199 7-9 8 199 8-9 9 19 99 -20 00 200 0-0 1 200 1-0 2 200 2-0 3 200 3-0 4 200 4-0 5 200 5-0 6(P ) 200 6-0 7(Q )

India's younger generation is increasingly becoming techno savvy and places l prime importance on gadgets that are made using the latest technologies. The spending power of Indian consumers is growing as rising per capita incomes l

Year

Source: indiabudget

have increased the disposable income available with the population. Further, it is estimated that the consumer spending in India will quadruple by 2025 from the present levels of US% 370 billion in retail .17

1.3 The Indian Market Post the economic reforms of 1991, India adopted policies to allow all private sector companies including foreign to operate in all sectors of manufacturing. and services

1.4 Indian Business Entities

including consumer goods sectors, raising expectations of international business

Indian businesses are not immune to the strong regional influences that are a result of a

community. India has more than one billion consumers, thereby representing a nascent

long tradition of trade and commerce, the country's geographical size, differences in the

but a highly profitable market.

levels of regional development and the cultural diversity that exists in different parts of

1.3.1 The Indian Consumer

India. All these factors have led to an extremely diverse business system, with most businesses being local in nature. Not many enterprises have a pan Indian presence and

While developing India-focussed strategies, companies will be well advised by experts to

most businesses have higher a penetration in semi-urban areas.

take the following aspects into consideration: Indian customers are price-sensitive like any low income country; therefore, to l lead in the market, strategies have to be price-driven, and should attempt to leverage higher market shares to spread overhead costs over a wider customer base. Rapid spread of mobile telephony based on “value for customer “ strategy is a recent success story.

Although many businesses in India have started shifting towards professional management, a majority continue to be family managed. Many companies are managed directly by the majority shareholders themselves, via management control of the board of directors, unlike the delegation of management in the case of many other economies. However, things are fast changing and professional management is increasingly becoming popular.

India's middle class is mostly peer-conscious, and new product launches l generally have to pass an initial stage of referrals, before becoming widely accepted among consumers.

17

democraticunderground.com

04 05

India is a union of states, and is a sovereign, socialist, secular and democratic republic, which has a parliamentary system. India has 28 states and 7 union territories.18 Delhi is the capital city The India's Constitution is unique in the world and very detailed. It provides for three layers of governance; federal, states and local.

Economic Trends and Outlook

While few subjects are exclusive to a level ( like Defense to Federal), some are “concurrent” – meaning thereby joint responsibility. India has independent Judiciary, active parliament and vocal Press. Executive systems are adopted from colonial days. Administrative reforms are now in the central stage.

THE PRESS IN INDIA IN 2005-06: AT A GLANCE (Data compiled as per the annual statements received) (Source: Registrar of Newspapers for India) Periodicity Dailies Tri/Bi-Weeklies Weeklies Fortnightlies Monthlies Quarterlies Annuals Others Total Miscellaneous Publications

Number

Circulation

2,130

8,88,63,048

39

5,66,198

3,428

5,05,80,648

955

1,23,09,948

1,471

2,11,36,710

219

15,52,138

49

29,86,256

221

27,43,665

8,512

18,07,38,611

126

71,69,952

T

he Indian economy began to be liberalised in 1991. India is now the fourth

largest economy after the US, China and Japan in terms of purchasing power

parity and is also one of the fastest growing economies in Asia.

Table: GDP Growth Rate at Current Price

2002

Source: IMF 18

Indian Census

2008

2001

573

2007

495

1233

877

2006

473

783

2005

462

2004

440

669

2003

411

1999

1099

2000

1200 1000 800 600 400 200 0

1998

USD(in billion)

India's GDP Growth at Current Price

Economic Trends and Outlook

2

1.5 Government and Administrative Setup

Doing Business in India Report

2.1 Recent Economic Performances and Outlook

production.19 Some of the important crops produced in India are rice, wheat, coarse cereals, cotton, sugarcane, tobacco, tea, coffee, rubber, silk, pulses, groundnut and oilseeds.20 India is the world's largest producer of milk and dairy products, sugarcane and tea, and the second largest producer of rice, wheat, fruits and vegetables.21 The share of

India's GDP is constituted of the three primary sectors—Agriculture, Manufacturing and

agriculture in India's GDP was 19.9 percent in 2007–08. Agriculture contributes about 15

Services.

percent to India's exports and supports 52 percent of India's workforce .22 Table: Agricultural Production

Table: Sector-wise GDP Growth Rates

Production (in million tonnes)

Sector-wise GDP Growth Rates

Precent

15 11.6 11.9

12 9

8.4

9.8 8.2 9.4

9.6

7.5

10.6 9.2 8.7

9.6

5.9

6

3.8

2.6

3 0 FY05 Agriculture

FY06 Industry

FY07 Services

FY08E GDP

360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 FY03

Source: Ministry of Finance Rice

Wheat

FY04 Coarse Cereals

FY05 Pulses

Oilseeds

FY06 Sugarcane

Cotton

FY07 Jute and Mesta

Source: indiabudget

Table: Sector-wise Contribution to GDP GDP Composition (April–December 2007) Industry 19.3%

Agriculture 19.9%

2.2.2 Manufacturing Services 60.8%

In 2007–08, India's industrial sector recorded a growth of 9.2 percent, contributing 19.3 percent to the GDP. The real estate sector grew at 11.7 percent during 2007–08 and is the second largest employing sector in India.23 Indian steel production grew by 11.2

Source: Ministry of Finance

percent in 2006–07 and has maintained an average output growth rate of 12 percent per annum over the last two years. Moreover, India is increasingly being recognised as a lowcost producer of high-quality bulk drugs and formulations. The Indian pharmaceutical

2.2 Principal Sectors of the Indian Economy

industry ranks 4th and 13th in terms of volume and value, respectively, globally, accounting for an 8 percent share of global sales.24 19

2.2.1 Agriculture The growth in the production of food grains increased at an average annual rate of 2.5 percent from 1950–51 to 2006–07, whereas the growth of the population averaged at 2.1 percent during the same period, making India self sufficient in terms of food grain

indiabudget winentrance.com 21 USDA 22 CIA World Fact Book 23 Ministry of Finance 24 IBEF 20

08 09

Doing Business in India Report

Roads: India has the second largest road network in the world, of length exceeding 3.3

2.2.3 Services

million kms, carrying about 65 percent of the freight and 80 percent of the passenger The services sector is the largest contributor to India's GDP, contributing 60.725 percent

traffic. The total length of the highways and expressways in India is about 66,000 km,

to the GDP in 2007–08. While the financial services sector was estimated to grow at

carrying 40 percent of the road traffic.30

26

more than 13.9 percent in 2006–07, trade, hotels, transport and communication were expected to grow by 12.1 percent during 2007–08. The exports of the software and

Shipping and Ports: India has a total of 12 major and 187 minor ports along the 7,517-

services sector grew by 32.1 percent, reaching USD 76.2 billion in revenues during

km-long coastline.31 In 2006–07, Indian ports handled more than 463 MT of cargo, a

2007–08. Sectors such as transport, communications, software services, banking,

growth of 9.5 percent over the previous year.

insurance and real estate are also witnessing high growth.

Airports: India has more than 454 airports of which 16 are international airports. The airports handled more than 95 million passengers and more than 1.5 million tonnes of

2.2.4 Infrastructure27

cargo during 2006–07.32

The investment layout as per the Planning Commission is as follows:

Telecommunication: India is the second largest wireless network in the world,33 with revenues more than USD 23 billion in FY07. The industry grew by 22 percent in FY07

IX Plan

X Plan

XI Plan

(1997-2002)

(2002-2007)

(2007-2012)

Airports

66

129

400

million were fixed line and 261.09 million34 were wireless subscribers. At present, there

Ports

50

54

933

are about 70 million CDMA35 and about 191 million37 GSM users. As of March 2008, the

Infrastructure

over FY06. By March 2008, there were more than 300 million subscribers, of which 39.42

Power

866

1,452

5,257

tele-density (number of people having phone connection out of 100 people) in India was

Railways

464

847

2,645

recorded at over 26 percent.36

Roads

546

994

3,686

Telecom Total

472

989

2,243

2,464

4,465

15,164

Note: Railway Investment includes the freight corridor; Figures in INR billion Source: expresstravelworld.com

2.2.5 Financial Sector The banking and financial services sector in India is characterised by sound fundamentals such as low Non Performing Assets (NPAs) and Basel I compliance. The Indian financial sector is rapidly growing and has a total estimated investment opportunity of USD 40

Energy: India is among the major energy producers as well

billion in five years.

one of the major energy consumers globally. The overall installed power generation capacity in India is 143 GW, and annual power generation is about 624 billion units (BU). India added an electricity generating capacity of about 23,000 MW during the 10th Five Year Plan (2002-07). while the target for the next five year plans duration is 73, 000 MW. 28

2.2.6 Banking The banking assets in India were recorded at around USD 664 billion in 2006. The banking assets of Indian banks have grown at a CAGR of 22 percent per annum over the last two years. The public sector or government-owned banks accounted for more than 75 percent of the assets of the overall market. The three largest foreign banks—Standard Chartered Bank, Citibank and HSBC—hold more than 65 percent of the total assets with

Railways: The total track length in 2006–07 was 63,327

foreign banks. The Reserve Bank of India (RBI) has issued guidelines for the adoption of

km with 8,153 locomotives in use.29 The freight handled by

Basel II by March 2008.37

the railways during April–December 2007 was 571.35 million tonnes (MT), a growth of 8.2 percent over the freight movement in the previous year. The number of passengers travelling by the Indian Railways in 2006–07 was 6,219 million.

30

Investment Commission of India Investment Commission of India 32 Investment Commission of India 33 TRAI 34 TRAI 35 AUSPI 36 COAI 37 TRAI 31

25

CIA World Factbook Ministry of Finance 27 MOSPI Annual Report 28 World Bank 29 Indianrailways 26

10 11

Doing Business in India Report

Types of Banks (2007)

Number Of Banks

Total Assets (INR Billion)

Total Assets (USD Billion)**

8,057.95

201.45

State Bank of India and Associate Banks

8

Nationalised Banks

21

16,341.90

408.55

Scheduled Commercial Banks

52

7,454.03

186.35

Foreign Banks

65

2,780.16

69.50

2.2.8 Other Institutions - MF, Insurance, PE and VC The Indian insurance sector is valued at USD 30 billion, of which the life insurance segment was worth USD 25 billion. Some of the major players in the insurance sector are Life Insurance Corporation, General Insurance Corporation, AIG, Aviva, MetLife, New York Life, Prudential, Allianz, Sun Life, Standard Life and Lombard. The mutual funds industry is a growing segment in the Indian financial services sector with assets under

Regional Rural Banks

243

1,057.67

26.44

management (AUM) of more than USD 78 billion in FY 2006, marking a growth of 62

Total

389

35,691.71

892.29

percent over the previous year. The AUM is expected to grow by 15 percent till 2010.

Source: RBI - Statistical Tables Related to Banks in India - 1979-2007

There are more than 44 venture capital and over 100 private equity funds operating in

2.2.7 Capital Market

India.39

The Indian capital market grew both in terms of depth and breadth during 2007. The

2.3 External Trade

Bombay Stock Exchange (BSE) Index scaled a high of 20,000 by the close of the calendar year 2007 while the National Stock Exchange (NSE) Index almost reached the 6,100

The exports for the period of April-March 2008 stood

mark. The total capital raised through different instruments in the primary market was

at USD 155.5140 billion while the imports for the same

31.5 percent higher in 2007 as compared to that in 2006. The total number of IPOs issued

period were USD 235.91 billion. The trade deficit for

in 2007 was 100 as compared to 75 in the previous year, and the net flow of savings into

the period of April-March 2008 was USD 80.39 billion,

mutual funds increased by more than 30 percent in 2007 and reached INR 138,270 crore.

which is more than the trade deficit of USD 59.32

The price to earnings (P/E) ratio was higher at around 27 by end-2007 as compared to 21

billion for the same period in 2007. Though the deficit

in the previous year.38 The market capitalisation in India nearly doubled in 2007 as shown

increased, it was not a cause for major concern as the

below:

foreign exchange reserves increased to reach USD 309.741 billion during 2007-08. Further, the imports were directed towards industrial inputs and capital goods, which were required to expand capacity and

Index BSE 500

2007 (USD Billion)*

2006 (INR Billion)

2006 (USD Billion)**

64,708.81

1617.72

33,365.09

775.93

annum over the last three years. The growth rate in 2006-07 was 9.4 percent and the growth rate in the

BSE Sensex

28,613.41

715.34

1,758.65

40.90

Nifty

35,225.27

880.63

19,756.03

459.44

Nifty Junior Total

aid growth. The Indian economy has been growing at

2007 (INR Billion)

6,436.23

160.91

3,336.93

77.60

134,983.72

3374.59

58,236.76

1354.34

an average growth rate of about 8.6 percent per

first quarter of 2007-08 was 9.3 percent.

Table: India’s Trade Update

USD Billion

* 1 USD = 40 INR ** 1 USD = 43 INR

60

6.00%

40

4.00%

20

2.00%

0 -20

0.00% FY03

FY04

FY05

FY 06

FY07

FY08E(AprSep)

-40

-4.00%

-60

-6.00%

-80

-8.00%

Invisibles (LHS) Trade Deficit Trade Deficit % to GDP (RHS) Invisibles % to GDP (RHS) Source: Ministry of Finance

39

PIB Investment Commission of India 41 Ministry of Commerce 40

38

Investment Commission of India

-2.00%

Percent

Market Capitalisation (INR CRORE)

12 13

Doing Business in India Report

Table: Performance of Export and Import (2000-2007)

2.5 Foreign Investment Trends

Export and Import Trend 55 Annual Percent Change

During April 2007 - March 2008, a total inflow of USD 25.57 billion

35

has been recorded.45 The central government has estimated total

15

FDI inflows of more than USD 30 billion for the financial year

-5

2007-08, primarily due to investments in the auto and electronics FY00

FY01

Exports

FY02

FY03

Imports

FY04

FY05

FY06

FY07

Source: Exim Key

manufacturing industries. The estimated FDI would constitute 3.3 percent of the GDP as compared to 2.5 percent of the GDP in the previous year. During 2006-07, the FDI inflows were USD 19

2.3.1 Balance of Payments

billion, of which USD 3.5 billion were reinvested earnings.46 India is perceived by international investors as second hottest investment

India was comfortably positioned with regard to the balance of payments during 2007-

destination by a number of international surveys.

08. The merchandise trade deficit, on balance of payments basis, for the quarter October-December 2007 was recorded at USD 25.35 billion as against USD 16.53

2.5.1 Foreign Institutional Investments

billion for the previous quarter. The current account deficit during the same period was

The net investments made by foreign institutional investors (FIIs) during FY 2006 were

recorded at USD 5.39 billion.42

USD 9,332 million as against USD 10,172 million in FY 2005.47 By the end of 2006, the number of FIIs registered with the Securities and Exchange Board of India (SEBI)

2.3.2 External Debt

exceeded 1,000, while FIIs having offices in India increased to 1,030. In 2006, 217 new FIIs The total debt of India was estimated at INR 19.57 trillion during 2007-08. The internal

opened their offices in India.

debt of the federal government was estimated at INR 18.44 trillion, while the external debt was INR 1.13 trillion at the end of 2007-08. The external debt increased to 2.4

International Competitiveness

percent of the GDP in 2007-08 from 1.7 percent in 2003-04 whereas the internal debt

India has been making impressive strides in terms of the competitiveness of its workforce

declined to 39.3 percent from 41.4 percent during the same period. Although in absolute

when compared to the competitiveness of the global workforce. According to a study

terms the external and internal debts have been increasing, as a percent of GDP, they

conducted by IMD International, India was among the fastest improving countries on the

have decreased from 43.1 percent in 2003-04 to 41.7 percent in 2007-08.43

world competitiveness scorecard.

2.4 Fiscal Developments

supply of human resource, unskilled and skilled manpower, at a competitive price.

(approximately USD 20.56 billion) in the first seven months of 2007-08 as compared to INR 81,000 crore (approximately USD 20.25 billion) in the previous year. The revenue deficit of the centre was reported at INR 57,562 crore (approximately USD 14.39 billion) up to

Rank (1-Bes t, 100-Wors t)

The fiscal deficit for 2007-2008 was 3.3 percent of the GDP. The fiscal deficit was reported at INR 82,256 crore

Abundance of Human Resources: India is a resource-rich country, with a plentiful

end-October 2007, declining from INR 67,299 crore

India's Stride on World Competitiveness Scorecard 100 90 80 70 60 50 40 30 20 10 0

39

50 34

2003

2004

29

2005

2006

27

2007

Source: IMD International

(approximately USD 16.82 billion) in the previous year.44 Skilled Manpower: India is among the countries where the shortage of skilled manpower is the least severe in the world, according to an annual study conducted by Manpower Inc. India and the UK lead the chart with only 12 percent of the employers finding it difficult to fill vacancies.

42

45

43

46

Ministry of Finance FinancialExpress 44 thehindubusinessline

DIPP hindustantimes 47 SEBI

14 15

Demographic Dividends: India is well positioned to harness its demographic

100 90 80 70 60 50 40 30 20 10 0

Global Skilled Manpower Shortage Survey, 2008 73

63 31

61 31

Romania Japan

57 31

52 31

31

Hong Singapore Australia

12

31

UK

12

31

India

22 31

US

15 31

China

18 31

Italy

World

Source: Manpower Inc.

group of 15–64 years) accounted for 62.9 percent of its total population in 2006. According to Economic Survey for 2007–08, this figure is expected to increase steadily to 68.4 percent of the total population by 2026.48 The Knowledge Edge: India has a vast reservoir of English-speaking knowledge professionals such as engineers, doctors, managers, accountants, scientists and technicians. The country produces about 2.5 million graduates annually, specialising in IT, engineering and life sciences.

2.5.2 Proliferating R&D Centres: With a plethora of knowledge workers, India is now seen as a preferred location for carrying out research and development work. The salary levels for the knowledge professionals in India are among the lowest in the world, which has led to the proliferation of research and development centres in India. Today, India is a global hub for R&D activities in the fields of Information Technology, Automobile Engineering, Technology, Pharmaceuticals, Biotechnology and Life Sciences, Clinical Research, Energy, Nanotechnology and others. Some of the globally renowned companies setting up their centres in India are Microsoft, IBM, DuPont, Monsanto, General Electric, AMD, Texas Instruments, Cisco, Intel, General Motors, Astra Zeneca, DaimlerChrysler, Siemens, Hyundai, Delphi, Analog Devices, Hewlett Packard and Motorola.49

economictimes alibaba.com

49

Business Regulations

Kong

Countries

48

3

Business Regulations

% age of employers struggling to fill the vacancies

dividend for a prolonged duration in the future. India's working population (in the age

Doing Business in India Report

3.1 An Overview

REPATRIATION OF INVESTMENT CAPITAL AND PROFITS EARNED

The Indian business regulatory environment is comprised broadly of the following

(i) All foreign investments are freely repatriable, and except for cases where NRIs

IN INDIA

aspects:

choose to invest specifically under non-repatriable schemes. Dividends declared on

1. Foreign Exchange: Foreign trade, capital transactions, inward remittances of

foreign investments can be remitted freely through an Authorised Dealer.

equity, sale/transfer of shares to residents, repatriation of profit/dividends, royalties

(ii) Non-residents can sell shares on stock exchange without prior approval of RBI and

and technology fees, repatriation of share capital following disinvestment or winding

repatriate through a bank the sale proceeds if they hold the shares on repatriation

up, capital gains and savings, overseas borrowings, overseas placement of equity,

basis and if they have necessary NOC/tax clearance certificate issued by Income

acquiring or investing in overseas ventures - Covered by the Foreign Exchange

Tax authorities.

Management Act (FEMA) (iii) For sale of shares through private arrangements, Regional offices of RBI grant 2. Company Affairs: Conduct, accounting practices and compliance - Governed by

permission for recognized units of foreign equity in Indian company in terms of

the Companies Act

guidelines indicated in Regulation 10.B of Notification No. FEMA.20/2000 RB dated

3. Capital Market Regulations: Listing, IPOs, rights and preferential issue of

May '2000. The sale price of shares on recognized units is to be determined in

capital, share buyback and delisting - Under the ambit of the Securities and Exchange

accordance with the guidelines prescribed under Regulation 10B(2) of the above

Board of India (SEBI) guidelines

Notification.

4. Business and Trade Practices Regulations: Consumer Protection Act,

(iv) Profits, dividends, etc. (which are remittances classified as current account

Substantial Acquisition and Takeovers Act, Competition Policy, etc.

transactions) can be freely repatriated.

5. Labour Laws and Social Security System: Industrial dispute act, Workmen's

Source: Investing in India, Department of Industrial Policy and Promotion

Compensation Act 1923, The Equal Remuneration Act etc. 6. Intellectual Property Regulations: Patents Act, Trademarks Act, Industrial Designs Act, Copyrights Act

3.3 Trade Regulations in India 3.3.1 Import

7. Corporate Governance: The Government of India follows a free trade regime except for few restrictions due to 8. Environment Regulations: Establishment, licensing, pollution control, employment regulations, industrial safety and working conditions, workmen statutory benefits registrations – Covered under Industrial Policy, Industrial Disputes Act, Factories Act, Payment of Bonus Act and Environment Protection Act

international commitments and local conditions. Such items are broadly classified into the following categories: Prohibited items - The category of prohibited items includes tallow, animal fats, n certain items under the Environment Protection Act, Wild Life Act, Indian Trade Merchandise Marks Act and Arms Act.50

3.2 Foreign Exchange Regulations

Restricted items - The import of restricted items requires a specific import licence n Reserve Bank of India (RBI ) - the Central Bank administers the Foreign Exchange

or special notification and permission. These restrictions are generally on the

Management Act (FEMA) of 1999. FEMA was enacted for the purpose of facilitation of

account of phytosanitary considerations for propagating materials (seeds, cuttings,

external trade and to develop the foreign exchange market in India.

etc.). The restrictions may also be on the basis of the non-essentiality of items such

Highlights of the exchange controls in India include the following:

as alcohol and certain consumer goods.

The rupee is freely convertible on the current account. n

Canalised items - The canalised items can only be imported through designated n State Trading Enterprises (STEs). At present, items such as edible oil, wheat,

Barring a few exceptions, the rupee is also convertible on capital account for nonn

fertilisers and certain petroleum products come under the purview of canalised

residents.

items.

Profits earned, dividends and proceeds out of the sale of investments, subject to n sectoral policies, can be fully repatriated for foreign investments.

50

indiamart.com

18 19

Doing Business in India Report

3.3.2 Export Again a free trade regime exists for exports. In act like most of the countries exports are facilitated and incentiwised within accepted international rules and norms. Export restricted items fall in the following four categories: n Prohibited items - This category includes items, the export of which have been

The Act lays down the conditions that shall be complied before the termination/retrenchment or layoff of a workman who has been in continuous service for not less than one year under an employer. The workman shall be given one month's notice in writing, indicating the reasons for retrenchment and the period of the notice that has expired or the workman has been paid, in lieu of such notice, wages for the period of the notice. The workman shall also be paid compensation equivalent to 15 days'

prohibited on religious, environmental and/or bio-conservation grounds. This

average pay for each completed year of continuous service. A notice shall also be served

category includes items such as all wild animals and exotic birds and their parts,

on the appropriate government.

endangered plant/species declared under the CITES convention, seashells of certain species and human skeletons. n Restricted items - This category includes chemicals that are included in the Chemical Weapons Conventions. It also includes cattle, camel, horses and certain seasonal agriculture products (in which India is not fully self-sufficient). Some of the items in this category may also require an export quantity registration or licence from the Export Development Authority. Such items include skimmed milk powder, pulses, edible oil in bulk, sugar, wheat and rice (excluding basmati rice). Restrictions may also be imposed by the destination country on the grounds of health and phytosanitary grounds. n Canalised items - This category includes certain mineral products such as mica, iron ore, other ores, slag and ash, petroleum crude, naphtha, kerosene and motor spirit.

Workmen's Compensation Act 1923 The Workmen's Compensation Act provides that compensation shall be provided to a workman for any injury suffered during the course of his employment or to his dependents in the case of his death. Minimum Wages Act 1948 The Minimum Wages Act prescribes minimum wages for all employees in all establishments or working at home in certain employments specified in the schedule of

Certain state agencies include onion, and niger seeds in the category of canalised

the Act. Central and State Governments revise minimum wages specified in the schedule

items.

from time to time .

n Import safeguards - Anti dumping, quality standards

Payment of Wages Act 1936 The Payment of Wages Act regulates issues relating to time limits within which wages

3.4 Labour Laws and Social Security System Government Regulations Industrial Disputes Act The Industrial Disputes Act 1947 provides for the investigation and settlement of

shall be distributed to employees and that no deductions other than those authorized by the law are made by the employers. Employees Provident Fund and Miscellaneous Provisions Act 1952 The Act provides for establishments of a contributory Provident Fund in which employees' contribution shall be at least equal to the contribution payable by the employer.

industrial disputes in an industrial establishment relating to lockouts, layoffs,

The Equal Remuneration Act

retrenchment etc. It

An Act to provide for the payment of equal remuneration to men and women workers

provides the machinery

and for the prevention of discrimination, on the ground of sex, against women in the

for the reconciliation and

matter of employment and for matters connected therewith or incidental thereto.

adjudication of disputes

Source: Indian embassy in US website, Labour ministry

or differences between the employees and the employers. Industrial

3.5 Intellectual Property Rights51

undertaking includes an

India provides protection to Intellectual Property Rights (IPR) in accordance with its

undertaking carrying any

obligations under the TRIPS Agreement of the WTO.

business,

trade,

manufacture etc. 51

Embassy of India

20 21

Doing Business in India Report

Patents, Copyrights, Trademarks, Geographical indications Patents India has undertaken exhaustive amendment of its Patents Act 1970, three times since 1999. Now Indian Patents Act is fully compliant with India's obligations under the TRIPS

Police officers are empowered and seized without warrant the counterfeit goods and machinery used to commit the offence. Penalties ranging from six months to three years and fines have been prescribed in the Act for trademarks violations Geographical indications

Agreement of the WTO. The three amendments that were carried out since 1999,

Protection to geographical indications is provided under the Geographical Indications of

introduced the following main changes in the old Patents Act:-

Goods (Registration and Protection) Act 1999.

1. India carried out first amendment in the Patents Act in 1999 and introduced

A geographical indication may be registered with the Controller General of Patents,

exclusive marketing rights and mail box facility for inventions relating to chemical and

Designs and Trademarks for all goods originating in a definite territory of a country, or a

pharmaceutical products. India introduced these transitory provisions as India had

region or locality in that territory. The Geographical Indications Act provides for

availed of the transition period available till 01 January 2005 to developing countries in

additional protection of higher level to goods notified by the Central Government.

introducing product patent protection to all areas. 2. India carried out an exhaustive 2nd amendment to the Patents Act in year 2001. This

Registration of a geographical indication is for ten years with possible renewal for further ten-year periods. Source:indianembassy.org

amendment brought the Indian Patents Act in compliance with India's obligations under the TRIPS Agreement. 3. India again carried out 3rd amendment of the Patents Act in year 2005 and introduced product patents protection for chemicals and pharmaceutical products. Copyrights and related rights India's copyright law, laid down in the Indian Copyright Act 1957 as amended by

3.6 Corporate Governance Some corporate governance guidelines specified for all public listed companies are given below: 1.

Independent Directors, who have no monetary interest, except remunerative

Copyright (Amendment) Act 1999, fully reflects the Berne Convention on Copyrights,

transactions, with the company and its allied entities, should constitute at least one-

to which India is a party. Additionally, India is party to the Geneva Convention for the

third of a BoD's strength where the Chairman is a Non-executive Director.

Protection of Rights of Producers of phonograms and to the Universal Copyright Convention.

2.

having adequate financial and accounting knowledge). The committee must meet at

requirements. The recent amendment to the copyright law, which came into force in

least thrice a year and perform its role as specified in the guidelines; primarily

May 1995, has ushered in comprehensive changes and brought the copyright law in line

ensuring the credibility of its financial statement, and other compliance norms.

with the developments in satellite broadcasting, computer software and digital 3.

issues, risks and key internal aspects of the company.

Several measures have been adopted to strengthen and streamline the enforcement of training programmes for enforcement officers and setting up special policy cells to deal

The company should give a Management Discussion and Analysis Report with the Annual Report to the shareholders. It should outline the relevant sector specific

performer's rights as envisaged in the Rome Convention.

copyrights. These include the setting up of a Copyright Enforcement Advisory Council,

All companies should have an audit committee of at least three members (with all being Non-executive Directors and at least two being independent and at least one

The copyright law has been amended periodically to keep pace with changing

technology. The amended law has made provisions for the first time, to protect

The Board of Directors (BoD) should have Non-executive Directors. Also,

4.

The Annual Report should have a section on corporate governance. The company should also obtain a compliance certificate from statutory auditors.

with cases relating to infringement of copyrights Trademarks

3.7 Environment Regulations

India provides trademark protection for marks of goods and services, collective marks,

All industrial units in India need prior environmental

certification trademarks and well-known marks under the Trademarks Act 1999. Application for registration of a trademark should be filed with the trademark registry. Trademark is registered after publication in the trademarks journal to invite opposition and after further examination. Registration is not must for protection, however, it is mandatory for taking action against infringement. Registration is valid for an initial period of ten years and can be renewed for further period of ten years.

approval from State Pollution Control Boards under the Water Pollution Act and Air Pollution Act of India. The Government of India has identified a list of 17 highly polluting industries, which include steel, aluminium, pesticides, refineries, paper, leather, dyes and pigments. The industrial units falling under this list are required to establish captive effluent

22 23

4

treatment plants. These effluent treatment plants are required to meet the specified discharge levels corresponding to the activities of the industrial unit. The judiciary in India has also been highly vigilant in matters concerning public health and safety over the last few years. Technical and Quality Standards In India, all businesses are mandatorily required to meet certain quality standards, especially for the products and services affecting public health, hygiene and public safety. The Ministry of Health has instituted certain safety standards, which have to be fulfilled

Taxation and Commercial Laws

by the business units involved in food, medicines and food processing, and by those associated with service industries. Services such as public transport and civil

Taxation and Commercial Laws

construction are also required to meet strict safety standards.

I

ndia has a fairly well developed tax structure. The principal taxes/duties that the union government levies are income tax (except tax on agricultural income, which are levied by the state governments), customs duties, central excise and sales tax and

service tax. The main taxes levied by the state governments are sales tax, stamp duty, state excise, land revenue, tax on professions, etc. Local government bodies are mandated to tax properties, Octroi and utilities such as water supply and drainage. Owing to the process of economic liberalisation that began in 1991, the tax system in India has undergone a substantial change. Some of the changes are as follows: n Reduced n Lower

customs and excise duties; peak customs duty at 10%

corporate tax

n Widening n Rates

of the tax base

AEAN bound; GST regime by 2010.

Doing Business in India Report

4.1 Taxation of Foreign Companies

4.1.3 Branch Office

In Indian tax laws, domestic and foreign companies are taxed differently. Indian

Permission for setting up Branch Offices is granted by the RBI. The tax rate is same as that

companies (FDI/WoS/JV incorporated in India) are taxed on their global income, while

of the Project Office (mentioned above). No other taxes are levied on the repatriation of

foreign companies (those incorporated outside India) are taxed only on the income from

the dividend for Branch Offices.

Indian operations. Indian income includes royalties, technical service fees, dividends and

Branch Offices are permitted to represent the parent/group companies and undertaking

capital gains on the sale of Indian company shares, besides business income emanating

the following activities in India:

from branch or project operations. Some segments of business expenditure, such as

(i)

Export/Import of goods*

entertainment expenses, interest remittances overseas without withholding taxes and administrative costs of overseas headquarters, are excluded or capped for calculating

(ii) Rendering professional or consultancy services.

net income.

(iii) Carrying out research work, in which the parent company is engaged.

4.1.1 Liaison Office/Representative Office

(iv) Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

Approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). A liaison office is not taxable in India as it is not allowed to conduct any commercial

(v) Representing the parent company in India and acting as buying/selling agent in India.

activity.

(vi) Rendering services in Information Technology and development of software in India.

A Liaison Office can undertake the following activities in India:

(vii) Rendering technical support to the products supplied by parent/group companies.

i)

Representing in India the parent company/group companies.

(viii) Foreign airline/shipping Company.

ii)

Promoting export import from/to India.

Source: RBI

iii) Promoting technical/financial collaborations between parent/group companies and companies in India. iv) Acting as a communication channel between the parent company and Indian companies. Source: RBI

4.1.4 Wholly Owned Company/Subsidiary A wholly owned subsidiary/company is an Indian corporate entity-a private or public limited company-and is taxed like Indian companies. 100% of its equity is held by its foreign holding company

4.1.2 Project Office

4.1.5 Foreign Institutional Investors(FIIs)

The RBI now grants permission to foreign entities to establish Project Offices subject to

FIIs , which are incorporated outside India , are allowed

some specific conditions. Such offices can undertake activity that is related and incidental

to invest in Indian stock market after registration with

to the execution of the project. Project Offices may also remit outside India the surplus

Securities and Exchange Board of India (SEBI). Dividends,

of the project on its completion, the general permission for which has been granted by

interest, royalties and capital gains earned on portfolio

the RBI.

investments of registered foreign institutional investors

A project office is treated as a foreign company for taxation purposes. At present, the tax rate is 41.2 percent (tax rate of 40 percent, surcharge of 3 percent and education cess of 2 percent) of the profits of the Indian project branch.

(FIIs) are treated in a similar manner as income received from Indian subsidiaries. Long-term and short-term capital gains from the sale of securities, for the FIIs, are 10 percent and 30 percent, respectively.

A Project Office can undertake the following activities in India provided they have secured from an Indian company to execute a project in India, and: (a) the project is funded directly by inward remittance from abroad;or (b) the project is funded by a bilateral or multilateral International Financing Agency; or (c) the project has been cleared by an appropriate authority; or (d) a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project. Source: RBI

26 27

Doing Business in India Report

4.1.6 Double Taxation Avoidance Agreements (DTAA)

Country

India has entered into DTAA with 65 countries. The table below lists the countries with the agreed tax rates:52

Dividends (%)

Interest (%)

Royalties (%)

Mauritius

15

20

15

Mongolia

15

15

15

Morocco

10

10

10

Namibia

10

10

10

Nepal

15

15

15

Netherlands

10

10

10

New Zealand

15

10

10

Norway

15

15

30

12.5

10

15

Philippines

20

15

15

Poland

15

15

22.5

Portugal

15

10

10

Qatar

10

10

10

Romania

20

15

22.5

Russian Federation

10

10

10

Singapore

15

15

15

South Africa

10

10

10

Spain

15

15

20

Sri Lanka

15

10

10

Sweden

10

10

10

Switzerland

15

15

20

Syria

0

7.5

10

Tanzania

15

12.5

20

Thailand

20

20

15

Trinidad and Tobago

10

10

10

Turkey

15

15

15

Turkmenistan

10

10

10

United Arab Emirates

15

12.5

10

Country

Dividends (%)

Interest (%)

Royalties (%)

Australia

15

15

15

Austria

20

20

30

Bangladesh

15

10

10

Belarus

15

10

15

Belgium

15

15

20

Brazil

15

15

15

Bulgaria

15

15

20

Canada

25

15

15

China

10

10

10

Cyprus

15

10

15

Czechoslovakia

20

15

30

Czech Republic

10

10

10

Denmark

20

15

20

Egypt

20

20

30

Finland

15

10

20

France

10

15

10

Germany

10

10

10

Greece

20

20

30

Hungary

15

15

30

Indonesia

15

10

15

Israel

10

10

10

Italy

20

15

20

Japan

15

15

20

Jordan

10

10

20

Kazakhstan

10

10

10

United Kingdom

15

15

15

Kenya

15

15

20

United States

20

15

15

Korea

20

15

15

Uzbekistan

15

15

15

Kyrgyzstan

10

10

15

Vietnam

10

10

10

Libya

20

20

30

Zambia

15

10

10

Malaysia

20

20

30

Non-treaty countries

0

20

20

Malta

15

10

15

Oman

52

DIPP, Ministry of Commerce and Industry

28 29

Doing Business in India Report

4.2 Indirect Taxes 4.2.1 Central Excise Duty

4.2.5 Service Tax Service tax is applicable at the rate of 10 percent (in addition to 2 percent education cess) on certain taxable services provided in

Manufacturing in India comes under the Central Excise Act 1944 and the Central Excise

India by specified service providers. There is no service tax on

Tariff Act 1985.

taxable services provided in India if the payment for such services

Most of the products attract excise duties at the rate of 16 percent; some products also

is received in convertible foreign exchange in India and the same

attract a special excise duty at the rate of 8 percent in addition to the 16 percent excise

is not repatriated outside India. The Government of India (GoI)

duty. Additionally, a 2 percent education cess is levied on the aggregate of the excise

guidelines on the Cenvat Credit Rules maintain that a service

duty. Excise duty is levied on an ad valorem basis or based on the maximum retail price in

provider can avail and utilise the credit of additional customs/excise duty for service tax payment. According to the

certain cases.53

GoI guidelines, credit can also be provided on payment of service

4.2.2 Sales Tax/VAT

tax on input services for the discharge of output service tax liability.55

Sales tax has been replaced with the value added tax system (VAT). It is levied by state governments and is only applicable on goods and not on services. The tax slabs range

4.3 Incentives and Subsidies

from 0 percent to 12.5 percent and varies from state to state. Some of the corporate income tax exemptions are listed below:

4.2.3 Customs Duty

v 100 percent EOUs either in India's six Export Promotion Zones (EPZs) or in other The Customs Act 1962 and the Customs Tariff Act

areas under customs-bonded premises are entitled to 100 percent income tax

1975 govern the rate of customs duty. Imported goods

exemption till 31 March 2009-10.

in India are levied a basic customs duty, additional

v Financial institutions and banks are allowed deductions of up to 40 percent, if their

customs duty and education cess. The rates of basic

profits are used or set aside for deployment in infrastructure development funds.

customs duty are specified by the Tariff Act. The peak rate of the basic customs duty has been reduced to 10

v Entities in infrastructure development are given a deduction of 100 percent for the first five years and 30 percent for the next five years for the calculation of taxable

percent for industrial goods. Additional customs duty is

income.

equal to the excise duty levied on similar goods manufactured in India. An education cess of 2 percent is

v Technical fees received by foreign companies for services rendered in projects related to Indian security are exempted.

applicable on the aggregate of customs duty on imported goods, which is applicable on the transaction value of goods.

Some of the export subsidies and incentives are listed below: v Customs duty on all imported capital goods and raw materials and other inputs is

Rates of customs duty for goods imported from

exempted, in addition to excise duty and sales tax on domestic inputs, for all export-

countries with which India has entered into free trade

oriented units.

agreements, such as Thailand and Sri Lanka, as well as BIMSTEC, South Asian and MERCOSUR countries, are provided on the website of the Central Board of Excise and

v There is a provision for duty-free import replenishment of inputs, subject to basic input-output norms for approximately 600 export categories.

Customs (CBEC).54

4.2.4 Export Duties Export duties and cess apply to a limited list of 26 items, including certain agriculture commodities. The tariff ranges from 0.5 percent to 10 percent and in most of the cases, a floor price is set for export FOB prices.

54 53

Central Board of Excise and Customs Central Board of Excise and Customs

55

Service Tax Rules

30 31

FISCAL INCENTIVES FOR SEZ UNITS n Different minimum land requirement for different class of SEZs; n Every SEZ is divided into a processing area where alone the SEZ units would come up

and the non-processing area where the supporting infrastructure is to be created; n Simplified

procedures for development, operation and maintenance of the Special

Economic Zones and for setting up units and conducting business in SEZs; n Single window clearance for setting up of an SEZ; n Single window clearance for setting up a unit in a Special Economic Zones;

5

Foreign Investment Regulations

n Single window clearance for matters relating to Central as well as State Governments; n Simplified

compliance procedures and documentation with an emphasis on self

certification. Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT

Foreign Investment Regulations

ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Doing Business in India Report

Approvals of composite proposals involving foreign investment/foreign technical collaboration is also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion. Applications can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for

5.1 Government of India's Policy on Foreign Direct Investment

further processing. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable. Source: Investing in India, Department of Industrial Policy and Promotion

India has an extremely liberal and transparent foreign direct investment (FDI) policy in place. A snapshot of the various provisions for FDI is provided below. Please refer to the respective government ministries for detailed information on these policies.

5.2 Sectors where FDI is Prohibited

POLICY ON FOREIGN DIRECT INVESTMENT

The extant policy does not permit FDI in the following cases:

FDI up to 100% is allowed under the automatic route in all activities/sectors except the

i.

Gambling and betting;

ii.

Lottery Business,

following which require prior approval of the Government : i.

Activities/items that require an Industrial Licence (Refer para2.1);

ii.

Proposals in which the foreign collaborator has an existing financial / technical

iii. Atomic Energy collaboration in India in the 'same' field(Refer Press Note no. 1 of 2005 series), iii.

Proposals for acquisition of shares in an existing Indian company in: a. Financial services sector and b. Where Securities & Exchange Board of India(Substantial Acquisition of Shares and Takeovers )Regulations, 1997 is attracted;

iv. All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted. (Refer Annexure II). FDI policy is reviewed on an ongoing basis and changes in sectoral policy/sectoral equity cap are notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy & Promotion. All Press Notes are available at the website (www.dipp.gov.in). FDI Policy is also notified by Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) .Please refer to RBI website (www.rbi.org.in). PROCEDURE UNDER AUTOMATIC ROUTE FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. PROCEDURE UNDER GOVERNMENT APPROVAL FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).

iv. Retail Trading except in single brand upto 51% Source: Investing in India, Department of Industrial Policy and Promotion

34 35

Doing Business in India Report

5.3 FDI in SSI Units

5.6 Investment Schemes and Incentives of

REGULATIONS FOR THE SSI SECTOR

the Government of India

SMALL-SCALE SECTOR An industrial undertaking is defined as a small-scale unit, if the capital investment in plant and machinery exceeds twenty five lakh rupees but does not exceed five crore rupees.. Small-scale units can get registered with the Directorate of Industries/District Industries Centre of the State Government. Such units can manufacture any item, and are also free from locational restrictions. The Government has reserved 34 items for exclusive manufacture in the small-scale sector. (List available at www.dipp.gov.in) MANUFACTURE OF ITEMS RESERVED FOR SMALL-SCALE SECTOR Non small-scale units can manufacture items reserved for the small-scale sector only after obtaining an industrial license. In such cases, the non-small scale unit is required to undertake an obligation to export 50 per cent of the production of SSI reserved items.

There are special provisions for companies that have been set up for the exclusive export of products outside India. Such a unit can be set up in: A 100 n

percent Export

Oriented Unit (EOU) within the domestic territory A notified n

An Export n FDI IN SSI UNITS

Free Trade

Zone (FTZ) Processing Zone (EPZ); an EPZ is a specified bonded area promoted

by the government to develop exports

A small-scale unit can not have more than 24 per cent equity in its paid up capital from any non- SSI entity, either foreign or domestic. If the equity from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status and shall require an industrial license to manufacture items reserved for small-scale sector. Source: Investing in India, Department of Industrial Policy and Promotion

5.4 Investment in Indian Companies Foreign business entities are allowed to take a shareholding in Indian companies, which has to be accordance with the same guidelines as those applicable while applying for fresh investments through the automatic route n the specific approval route n

5.5 Investment in Overseas Issues of Indian Companies

5.6.1 EOUs: Benefits RECENT POLICY CHANGES IN THE EOU SCHEME Procurement n

and export of spares/components up to one and half percent of the FOB value of exports will be allowed to the same consignee/buyer of the export article within the warranty period. The exports of such spares/components could be effected separately from the capital goods.

In order n

to facilitate the smooth functioning of the EOU units, the Development Commissioners will fix time limits for finalizing the disposal of matters relating to EOUs.

New n

units engaged in export of Agriculture/Horticulture/Aqua-Culture products have been now allowed to remove capital goods inputs to the DTA farm on producing bank guarantee equivalent to the duty foregone on the capital goods/input proposed to be taken out.

The n

EOU units in Textile Sector are allowed to dispose off the left over material/fabrics up to 2 per cent of Cost Insurance Freight (CIF) value of imports, on consignment basis. Recognizing that settling the accounts for every consignment is complex and time consuming it has been decided to allow disposal of left over material on the basis of previous year's imports.

Indian business entities can raise foreign currency capital

Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS

via Foreign Currency Convertible Bonds (FCCBs) and by

(EOUs), Department of Commerce ,Government of India

issuing ordinary equity shares to foreigners via Global Depository Receipts (GDRs) or American Depository Receipts (ADRs).

36 37

Doing Business in India Report

SEZ units enjoy the following benefits:

5.6.2 Taxation

n Duty free

SPECIAL ECONOMIC ZONES (SEZs)

import/domestic procurement of goods for development, operation

and maintenance of SEZ units.

TAX EXEMPTIONS TO SEZ DEVELOPERS

n 100 per

n Exemption

from Customs/Excise duties for development of SEZs for authorized operations approved by the Board of Approval.

cent Income Tax exemption on export income for SEZ units under

Section 10AA of the Income Tax Act for first 5 years, 50 per cent for next 5 years thereafter and 50 per cent of the ploughed back export profit for next 5 years.

n Income Tax exemption on export income for a block of 10 years in 15 years under

n Exemption from Minimum Alternate Tax under section 115JB of the Income Tax

Section 80-IAB of the Income Tax Act.

Act. n Exemption

from Minimum Alternate Tax under Section 115 JB of the Income Tax n External

Act.

commercial borrowing by SEZ units up to US $ 500 million a year

without any maturity restriction through recognized banking channels. n Exemption from Dividend Distribution Tax under Section 115 O of the Income Tax n Exemption from Central Sales Tax, Service Tax, State Sales Tax and other levies

Act.

as extended by the respective State Governments.

n Exemption from Central Sales Tax (CST) and Service Tax (Section 7, 26 and Second

Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT

Schedule of the SEZ Act).

ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

5.7 Institutional and Portfolio Investments 5.6.3 Software Technology Parks (STPs) Foreign Institutional Investors n The Government of India has launched the Software Technology Parks Scheme

to provide impetus to the electronics and software sector. The STP scheme is similar to the EOU scheme. n STPs offer

a single window facilitation service to investors, high speed Internet

connection, state-of-the-art telecommunication infrastructure, etc. The following can avail all the export benefits that are offered in EOUs till 31 March 2009. n Software export units

(FIIs) can invest in Indian securities (shares, debentures, warrants, mutual funds, government securities and derivative instruments) in both the primary and secondary capital markets. FIIs are established to make investment in Indian securities. They are required to register with the Securities and Exchange Board of India (SEBI) and have to comply with the regulations of the RBI.

n Business

process outsourcing and

information technology enabled

POLICY ON FII INVESTMENTS

services (medical transcription,

Main features of the policy on investment by FII are:

remote back office, KPOs, call centres,

a.

etc.)

FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30. However, it is also possible for an FII to declare itself a 100% debt FII in which case it can make its

5.6.4 Investment in Special Economic Zones (SEZs)

entire investment in debt n SEZs are duty-free areas and are deemed as foreign territory; all activities within

instruments.

SEZs are considered to be beyond the purview of local authorities. b. n SEZs are set up to become positive net foreign exchange earnings. n Up to 100 percent FDI is allowed via the automatic route in SEZs, but this FDI is

subject to sectoral norms. n SEZ units enjoy the following benefits:

FIIs can buy/sell securities on Stock Exchanges. They can also invest in listed and unlisted securities outside Stock Exchanges where the price has been approved by RBI.

38 39

Doing Business in India Report

No individual FII/sub-account can acquire more than 10% of the paid up capital of an Indian company.

d.

All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company.

e.

Indian Companies can raise the above mentioned 24% ceiling to the Sectoral Cap / Statutory Ceiling as applicable by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by its General Body in terms of Press Release dated Sept.20, 2001 and FEMA Notification No.45 dated Sept. 20,

6

Implementation and Operational Aspects

2001. No permission from RBI is needed so long as the FIIs purchase and sell on recognized stock exchange. All non-stock exchange sales/purchases require RBI permission. Source: Investing in India, Department of Industrial Policy and Promotion

Implementation and Operational Aspects

c.

38 39

Doing Business in India Report

6.1 Entry options for Foreign Companies

INCORPORATION OF COMPANY COMPANY'S ACT 1956

in India Any foreign company that wants to set up operations in India can utilise any of the

Incorporation of a company in India is governed by the Companies Act, 1956. Part II of the Act deal with the incorporation of a company and matters related to.

following options:

PRIVATE COMPANY

Entry Options for Foreign Companies in India

Private company means a company which has a minimum paid-up capital of Rs,1,00,000/or such higher paid-up capital as may be prescribed, and by its articles,

A foreign company planning to set up business operations in India has the following options : AS AN INCORPORATED ENTITY

(a) restricts the rights to transfer its shares, if any; (b) limits the number of its members to fifty, not including i) persons who are in the employment of the company ;and

i) By incorporating a company under the Companies Act,1956 ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment have continued to be members after the employment ceased; and

through i. Joint Ventures; or ii. Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to any equity caps prescribed in respect of the area

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; (d) Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

of activities under the Foreign Direct Investment (FDI) policy. PUBLIC COMPANY AS AN UNINCORPORATED ENTITY ii) As a foreign Company through i. Liaison Office/Representative Office ii. Project Office iii. Branch Office Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000. Source: Investing in India, Department of Industrial Policy and Promotion The formation of a company is governed by the Indian Companies Act, which differentiates between public and private companies, and also between companies

A public company is a company which is not a private company and has a minimum paidup capital of Rs,5,00,000/-or such higher paid-up capital, as may be prescribed; is a private company which is a subsidiary of a company which is not a private company. FORMATION OF A PRIVATE LIMITED COMPANY A private Company can be formed either by i.

incorporation of a new company for doing a new business, or

ii.

conversion of existing business of a sole proprietory concern or partnership firm into a company.

Government of India has made available online company incorporation facilities. NAME OF COMPANY

having limited and unlimited liabilities.

The name of a corporation is the symbol of its personal existence. Any suitable name may be selected for registration subject to the following guidelines :

6.2 Procedure for Incorporating a

a.

Company in India To register and incorporate a company, the foreign entity has to file an application with the Registrar of Companies (ROC). After the registration and incorporation, the company is subject to the same Indian laws and regulations as applicable to other domestic Indian companies. More details on this aspect is available at the website of the Ministry of Company Affairs (http://dca.nic.in).

The promoters should select three to four alternative names, quite distinct from each other.

b. The names should include, as far as possible, activity as per the main objects of the proposed company. c.

The names should not too closely resemble with the name of any other registered company.

d.

The official guidelines issued by the Central Government should be followed while selecting the names.

Besides, the names so selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.e. Apply in form 1-A to the Registrar of Companies having jurisdiction along with a filing fee.

42 43

Doing Business in India Report

MEMORANDUM OF ASSOCIATION An important step in the formation of a company is to prepare a document called Memorandum of Association. It is the charter of the company and it contains the basic conditions on which the company is incorporated. The Memorandum contains the name, the State in which the registered office is to be situated, main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects, liability of the members and the authorized capital of the company. The main purpose of the memorandum is to state the scope of activities and powers of the company. ARTICLES OF ASSOCIATION Articles of Association of the company contain rules, regulation and bye-laws for the general management of the company. It is compulsory to get the Articles of Associations registered along with the Memorandum of Association in case of a private company. The Articles are subordinate to the Memorandum of Association. Therefore, the Articles should not contain any regulation, which is contrary to provisions of the Memorandum or the Companies Act. The Articles are binding on the members in relation to the company as well as on the company in its relation to members. REGISTRATION OF COMPANY AND ISSUE OF CAPITAL After completion of the preliminaries as enumerated above, the application with necessary documents are required to be filed with the Registrar of Companies of the State in which the company is proposed to be incorporated. These include: a.

Memorandum of Association (duly stamped) and a duplicate thereof.

b.

Articles of Association (duly stamped) and a duplicate thereof

c.

The agreement, if any, which the company proposes to enter into with any individual for appointments as its managing or whole time director or manager.

d.

A copy of the letter of the Registrar of Companies intimating the availability of the proper name

e.

Documents evidencing payment of prescribed registration and filing fee, i.e. a bank draft or a treasury challan.

f.

Documents evidencing the directorship and situation of Registered Office in Form 32 and Form 18 respectively and declaration of compliance with requirements of the Companies Act in Form No.1 and Form 29 for giving consent to act as a Director in case of public company are also given.

The amount of registration fee payable is regulated with reference to the amount of authorized capital of the proposed company. CERTIFICATE OF INCORPORATION

the company will issue shares to the subscribers to its memorandum and other members of the company. The issued capital must not exceed the authorized capital of the company. It is necessary for a public limited company to obtain the Certificate of Commencement of Business before commencing the business. For more details please contact Ministry of Company Affairs at http://dca.nic.in Source: Investing in India, Department of Industrial Policy and Promotion Online filing facility is provided on http://www.mca.gov.in/, which can be accessed for further reference.

6.3 Acquiring Land/Property in India No prior approval is generally required by Indian citizens and companies for the purchase of property. However, restrictions are placed on foreign companies for acquiring property in India. Can an office of a foreign company purchase immovable property in India? A foreign company which has established a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. The payment for acquiring such a property should be made by way of foreign inward remittance through proper banking channel. A declaration in form IPI should be filed with Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorised Dealer as a security for other borrowings. On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of Reserve Bank. Further, acquisition of immovable property by entities who had set up Branch Offices in India and incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of Reserve Bank to acquire such immovable property. However, if the foreign company has established a Liaison Office, it can not acquire immovable property . In such cases, Liaison Offices, can take property by way of lease not exceeding 5 years Source: FAQ's, RBI

6.4 Approvals Required for Setting Up Industries Other than the routine general approvals required by a foreign company to operate in India, a few other clearances/permissions, such as industrial licenses, might be required. Industrial Licensing INDUSTRIAL LICENSING POLICY

Upon compliance with all requirements, the Registrar will register the company and issue a Certificate of Incorporation of company. It brings the company into existence as a legal entity.

Industrial Licenses are regulated under the Industries (Development & Regulation) Act, 1951. With progressive liberalization and deregulation of the economy, the requirements of industrial licensing have been substantially reduced. At present industrial licence for manufacturing is required only for the following :

ISSUE OF SHARE CAPITAL

i.

Industries retained under compulsory licensing,

After obtaining registration, the company proceeds with its business for which it requires funds. In case of a private company, the capital is to be raised by way of private arrangements whereas a Public Ltd. company can raise funds from the public. First of all,

ii.

Manufacture of items reserved for small scale sector by non-SSI units; and

iii. When the proposed location attracts locational restriction

44 45

Doing Business in India Report

INDUSTRIES REQUIRING COMPULSORY LICENSING The following industries require compulsory industrial license: i.

Cigars and cigarettes of tobacco and manufactured tobacco substitutes;

ii.

Electronic Aerospace and defence equipment: all types;

iii. Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches; iv. Hazardous chemicals; a. Hydrocyanic acid and its derivatives

7

38 39

Business Operations

b. Phosgene and its derivatives c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate). PROCEDURE FOR OBTAINING INDUSTRIAL LICENSE Industrial License is granted by the Secretariat for Industrial Assistance (SIA) on the recommendation of the Licensing Committee. Application for industrial license is required to be submitted in the prescribed form. (Form FC-IL). This form is available in the Public Relation and Complaint Section (PR&C) of the SIA, all outlets dealing in Government Publications, Indian Embassies, and can be downloaded from the web site http://www.dipp.gov.in. Application accompanied with a crossed demand draft of Rs. 2500/- (appr. US$ 55) may be submitted to the Public Relation and Complaint Section (PR&C) of Department of Industrial Policy & Promotion. Decisions are usually taken within 4-6 weeks of filing the application.

Business Operations

Source: Investing in India, Department of Industrial Policy and Promotion

Doing Business in India Report

7.1 Identifying the Right Location Choosing an appropriate location for establishing operations is one of the main decisions to be considered while setting up a business in India. Many factors such as the availability and cost of land, power and water dictate the decision, depending on the business' requirements. Some of the other factors considered are availability of labour, suitable infrastructure and state government incentives.

7.1.1 State Incentives State incentives play a major role in attracting high FDI inflows. In addition to specific exemptions and sops, quality of governance and social infrastructure are also major factors that have to be considered by foreign investors.

7.2 Human Resource India has a large pool of trained and technical manpower. The Indian educational system is also rated highly worldwide, with some of the best universities located in the country.

7.2.1 Employment Though collective bargaining is a part of the industrial landscape, white collar positions are non-unionised. Employment contracts in the service industry are generally terminable with one-to-three months notice, and utilise all relevant clauses for the protection of the company's security infrastructure. Most disputes between the employee and employer come under the purview of civil courts, with the non-payment of dues being handled by the labour courts. India is also viewed as a provider of good managerial talent and Indians are increasingly being recruited to manage the global

About Department of Industrial Policy & Promotion The Department of Industrial Policy & Promotion, established in 1995, is responsible for the formulation and administration of overall Industrial Policy. With the progressive liberalization of the Indian economy, initiated in July 1991, there has been a consistent expansion in the role and functions of this Department. From regulation and administration of the industrial sector, the role of this Department has been transformed into facilitation of technology and investment flows and promotion of industrial development in the liberalized environment. The role and functions of the Department of Industrial Policy and Promotion primarily include: Formulation and implementation of industrial policy and strategies for industrial n development in conformity with the developmental needs and national objectives in order to make the Indian industry internationally competitive; Monitoring and stimulation of industrial growth in general, and performance of n industries specifically assigned to it, in particular, and guidance in the creation of an enabling environment, infrastructure, technology transfer / collaborations on all industrial and technical matters; Approval of foreign technology collaborations at enterprise level and formulation n of policy parameters for the same, for enhancing productivity, with reference to international benchmarking; Formulation of Foreign Direct Investment (FDI) Policy and amendments thereto n as well as promotion and facilitation of direct foreign and non-resident investment in industrial and service projects; Association as nodal department for investment-related issues in Bilateral / n Regional Economic Cooperation Agreements;

7.2.2 Visa

Formulation of policies relating to Intellectual Property Rights in the fields of n Patents, Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations and rules made thereunder;

A visa is needed to enter the country unless one is an Indian citizen. Employment visas

Administration of Industries (Development & Regulation) Act, 1951; n

are valid for a specific period and allow for the remittance of salaries earned in India. In

Promotion of Industrial development of industrially backward remote, hilly and n inaccessible areas of the special category States of North-Eastern Region (including Sikkim), Jammu & Kashmir, Himachal Pradesh and Uttrakhand through special incentive packages;

headquarters of MNCs.

addition, foreign workers need residence permits to reside in India for a duration longer than six months.

Promotion of international cooperation through productivity, quality and technical n cooperation; Compilation of data / statistics on Foreign Direct Investment & analysis thereof; n and Compilation of monthly industrial production statistics for use in the construction n of Index of Industrial Production (IIP).

For more information please log on to http://dipp.gov.in/

48 49