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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
‹ Services account for over 50% of GDP
‹ Manufacturing sector growing annually at over 9% (17.4% in
GDP)

‹ Foreign exchange reserve of over US $ 200 billion


‹ FDI inflows grew by 72% in 2005-06: the growth in 2006-
07 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
‹ Abundant availability of Skilled Human Resources
‹ Adequate natural resources and raw materials
‹ Large and growing domestic market
‹ 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 1991-
calibrated progressive liberalisation followed
• Technology collaboration liberalised
Liberalization of FDI Policy
New
sectors
opened

FDI up to FDI limits


100% allowed Increased
in most sectors

FDI up to Only Procedures


100% a small Further
allowed negative list simplified
in some sectors
FDI up to
Automatic 74/51/50%
Route allowed
introduced In 111 sectors
FDI up to 51%
Allowed
In 35 priority
sectors

FDI Allowed
selectively
up to 40%

Pre 1991 1991 1997 2000 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 Branch Office
in most activities; Prior permission of the Reserve Bank
required;
Generally allowed from incorporated
entities with 3 years operations;
Can carry out the prescribed activities;
Liaison Office
Prior permission of the Reserve Bank
required;
Can collect and transmit information; Project Office
Cannot undertake business activity
Prior permission of the Reserve Bank
except liaison work.
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 Prior Permission

General rule By exception


No prior permission Prior Government
required Approval needed.
Inform Reserve Bank Decision generally
within 30 days of Within 4-6 weeks
inflow/issue of share
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 in Print media: Publishing newspaper and
periodicals dealing with news and current affairs; and in
Insurance

‹ 49 % in Broadcasting; Air transport services and Stock


Exchanges

‹ 51% in single brand product retailing

‹ 74% 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

‹ 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

‹ The quality of the business environment in India has improved

tangibly in recent years- Dun & Bradstreet

‹ 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
6 3.68 3.13
3.08 2.9 2.63 3.2
2.77 2.43
4

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 industries-


master planning of all facilities in the regions.
‹ First rate physical and social infrastructure being created
‹ Arrangements for clearances and permissions at one point.
‹ 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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