Fdi In India

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FDI policy – Indian Perspective

11th September 2007

Macro-economic Overview ‹

Sustained Economic growth • Growth of over 8.0% during last 3 years • Fourth largest economy in the world in PPP terms

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Services account for over 50% of GDP

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Manufacturing sector growing annually at over 9% (17.4% in GDP)

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Foreign exchange reserve of over US $ 200 billion

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FDI inflows grew by 72% in 2005-06: the growth in 200607 was 184%.

‹

FDI inflows continue to be impressive this year as well with US$ 4.9 billion already recorded for the first quarter of 2007-08

India- Advantages as a destination for FDI ‹

Young Demographic Profile- 54% population below 25 years

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Abundant availability of Skilled Human Resources

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Adequate natural resources and raw materials

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Large and growing domestic market

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Established rule of law and a vibrant three tiered democracy

Economic Reforms ‹

Industrial Policy Reforms • Compulsory licensing limited to only 5 sectors: on security, public health & safety considerations and where items are reserved for the SSI sector • FDI policy liberalisation since 1991calibrated progressive liberalisation followed • Technology collaboration liberalised

Liberalization of FDI Policy New sectors opened

Automatic Route introduced

FDI up to 100% allowed in most sectors

FDI limits Increased

FDI up to 100% allowed in some sectors FDI up to 74/51/50% allowed In 111 sectors

Only a small negative list

Procedures Further simplified

1997

2000

FDI up to 51% Allowed In 35 priority sectors FDI Allowed selectively up to 40%

Pre 1991

1991

2000-06

FDI Policy in India – An Overview • • •

FDI permitted in almost all activities Up-to 100% FDI allowed in manufacturing Most FDI allowed on the ‘automatic route’- only to inform the Central Bank within 30 days of remittances



Liberal policy for foreign technology collaboration



Policy supported by a legal framework



National treatment to investment



Investments, profits and dividends fully repatriable





Ceilings and routes for investment being constantly reviewed and liberalized. Indian FDI policy regime assessed independently to be liberal and progressive.

Sectors where FDI is prohibited

™ Retail Trade (except Single Brand Retailing) ™ Gambling ™ Betting & lottery; ™ Atomic energy

Entry Options Incorporated Entity Under the Companies Act, 1956; Get National Treatment; Wholly owned subsidiaries also allowed in most activities;

Liaison Office Prior permission of the Reserve Bank required; Can collect and transmit information; Cannot undertake business activity except liaison work.

Branch Office Prior permission of the Reserve Bank required; Generally allowed from incorporated entities with 3 years operations; Can carry out the prescribed activities;

Project Office Prior permission of the Reserve Bank required; To execute specific projects in India; Project office is specific to the project being executed.

Investing in India – Entry Routes Investing in India

Automatic Route General rule

No prior permission required Inform Reserve Bank within 30 days of inflow/issue of share

Prior Permission By exception

Prior Government Approval needed. Decision generally Within 4-6 weeks

FDI Scheme- FEMA Regulations 

FDI includes investment by • a non-resident; • a non-resident incorporated entity (foreign company), • a non-resident Indian, • Person of Indian Origin,

‹

FDI includes investment through • Issue of Preference shares • American Deposit Receipts (ADR)/Global Deposit Receipts (GDR) • Foreign Currency Convertible Bonds

FDI Policy - Salient features • Industrial sector• Manufacturing- permitted up to 100% on the automatic route in all

manufacturing activities except for cigarettes ; defence related items; and items reserved for SSI sector.

• Mining Sector

-100% is permitted on the automatic route

exploration and mining of diamonds, precious stones, gold, silver and minerals. 100% in coal and lignite mining for captive consumption by power projects, and iron and steel, cement production and other activities permitted under the Coal Mines (Nationalisation) Act, 1973. • Electricity Sector- 100% is permitted on the automatic route in

generation, transmission, distribution of electricity and also power trading subject to the provisions of the Electricity Act, 2003.

FDI Policy - Salient features (contd.) • Infrastructure sector-

100% is permitted on the automatic route in roads and highways, ports and greenfield Airport projects. FDI up to 100% is permitted in existing airport project but the same requires prior approval for FDI beyond 74%.

• Services sector -

Many of the activities under the Services sector attract caps on foreign equity and are subject to sectoral regulations.

FDI Policy - Salient features (contd.) Services Sector- Caps ‹

26 % cap

‹

49 %

in Print media: Publishing newspaper and periodicals dealing with news and current affairs; and in Insurance in Broadcasting; Air transport services and Stock

Exchanges

51% ‹ 74% ‹

in single brand product retailing

in Telecommunication services; ISP with gateways, radio-paging, end-to-end bandwidth; Establishment and operation of satellites; and Private sector banks

FDI Policy - Salient features (contd.) ‹

AGRICULTURE- FDI is not allowed in agriculture and

plantation activities except tea plantation. In the tea sector FDI is allowed up to 100% with prior Government approval.

‹

‹

FDI is allowed in certain activities up to 100% on the automatic route. These are Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture, and Cultivation of Vegetables, Mushrooms under controlled conditions and services related to agro and allied sectors.

REAL ESTATE

-FDI is not permitted in Real Estate business

i.e. buying and selling of properties.

‹ 100% on the automatic route in Construction development

projects subject to prescribed conditions including inter-alia, minimum capitalization, minimum area requirements, and lock-in of original investments. These conditions are not application to NRIs, SEZs, and Hotel & Tourism sectors.

Foreign Technology Collaborations ‹

‹

‹

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Foreign technology collaboration allowed under: • Automatic route; • Government approval. Automatic Approval: • Lump sum fees not exceeding US$ 2 Million; • Royalty @ 5% on domestic sales and 8% on exports, net of taxes; • Royalty payment also permitted for use of Trade Marks and Brand name; No restriction on duration of royalty under the Automatic route; Other cases require prior Government approval.

India: FDI Outlook ‹

2nd most attractive investment destination AT Kearney FDI Confidence Index 2006

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The quality of the business environment in India has improved tangibly in recent years- Dun & Bradstreet

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India has improved its position by two places in the World Economic Forum's Global Competitive Index (GCI) rankings for 2006-07, coming in 43rd, well ahead of Brazil (66), China (54) and Russia (62)

FDI Equity Inflows – India (in US$ Billion) 15.7 16

14

12

10

8

5.55

4.22 3.68

6

4

2.77

3.08 2.43

2.9

3.13

2.63

3.2

2

0

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

New concept - Investment Regions ‹

Large geographical regions identified for specific industriesmaster planning of all facilities in the regions.

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First rate physical and social infrastructure being created

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Arrangements for clearances and permissions at one point.

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Special Economic Zones, Industrial Parks and Growth Centers offering fiscal and financial incentives within the regions. Policy for setting up Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR)has been announced. A policy for Manufacturing Investment Region is also under consideration.

Thank You

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