FOREIGN DIRECT INVESTMENT AND ITS GROWTH IN INDIA
ABSTRACT Foreign direct investment(FDI) in all over the world in general and in India in particular after the opening up of our market with the adoption of the policies namely globalization, privatization and liberalization has no doubt emerged as one of the most significant source and contributor of external inflow of resources and is one of the most crucial contributors to the capital formation despite their share in the world arena still catching up !hen we talk about the term FDI we are talking about a bundle of resources that usually flow into a country including besides capital, production technology, global managerial skills, innovative marketing strategies and access to new markets In this pro"ect it has been tried to provide a comprehensive picture about the foreign direct investment ranging from its conception as a potent source of investment the world over, its various types, the methodology adopted top FDI countries and agencies engaged and other important aspects # cumulative and an exhaustive study of the over all scenario of FDI in India starting from the introduction of FDI in the country, share of top investing countries, sectors attracting highest FDI flows, sector wise technology transfer and approvals !e will also look at the determinants for attracting FDI in the country and also the causes for low flow of FDI and the mechanisms that can be undertaken to make our country attractive enough for investors $his study entirely relies on secondary data collected after a thorough and exhaustive study of various websites, text books, "ournals, newspapers, magazines and great inputs form various professors and professionals specializing In this area $hough the policy is reviewed fre%uently we lack when compared with countries like china, so it&s high time the government takes steps to further liberalize the economy and streamline and liberalize the policies to make India the most preferred FDI destination in the world
ACKNOWLEDGEMENT I take this opportunity to thank all those who have been of help to me in the completion of this pro"ect
I would like to appreciate the guidance and co'operation provided to me by our pro"ect guide (r ) ***** (faculty of +usiness (anagement) in the completion of this pro"ect
I am also grateful to ****, Director *** and all the faculty members who have directly or indirectly helped me in preparing this pro"ect report
TABLE OF CONTENTS: 1. LIST OF TABLES 2. LIST OF FIGURES 3. INTRODUCTION 4. REVIEW OF LITERATURE 5. DATA ANALYSIS AND PRESENTATION 6. SUMMARY AND CONCLUSION . BIBLOGRAPHY
OB!ECTIVES
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METHODOLOGY: $his pro"ect is entirely based on freelance work done by the student and therefore no organisation has been taken as a base for doing the pro"ect #- exhaustive amount of data available on the internet, from the text books, news papers, and various magazines and suggestions from a few experts in the field has been taken in doing this pro"ect #s this is a free lance pro"ect, the data has been entirely collected from secondary sources and therefore its authenticity can be vouched for only by going through the same literature which has been used SCOPE OF THE STUDY
as this study is aimed to analyze the trends in the FDI inflows, the main focus is given on the recent trends in the inward FDI inflows, sectors attracting highest FDI, and the share of top investing countries, it covers only e%uity capital components $he scope is limited to the availability of the secondary data LIMITATIONS OF THE STUDY the study is conducted in a short period, which was not detailed in all aspects -on'availability of accurate data to FDI Data in one secondary source do not match with that of another source
FOREIGN DIRECT INVESTMENT INTRODUCTION: Foreign direct investment (FDI) is defined as .investment made to ac%uire lasting interest in enterprises operating outside of the economy of the investor . $he FDI relationship consists of a parent enterprise and a foreign affiliate which together form a (ultinational corporation ((-/) In order to %ualify as FDI the investment must afford the parent enterprise control over its foreign affiliate $he 0- defines control in this case as owning ,12 or more of the ordinary shares or voting power of an incorporated firm or its e%uivalent for an unincorporated firm3 lower ownership shares are known as portfolio investment HISTORY: In the years after the 4econd !orld !ar global FDI was dominated by the 0nited 4tates, as much of the world recovered from the destruction brought by the conflict $he 04 accounted for around three' %uarters of new FDI (including reinvested profits) between ,567 and ,581 4ince that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of 9:/D countries FDI
has grown in importance in the global economy with FDI stocks now constituting over ;1 percent of global <D= TYPES OF FOREIGN DIRECT INVESTMENT: BY DIRECTION: I+/4*& Inward foreign direct investment is when foreign capital is invested in local resources I+/4*& FDI ,# )+1"%*40)& 9': > $ax breaks, subsidies, low interest loans, grants, lifting of certain restrictions > $he thought is that the long term gain is worth short term loss of income I+/4*& FDI ,# *)#$*,1$)& 9': > 9wnership restraints or limits > Differential performance re%uirements OUTWARD 9utward foreign direct investment, sometimes called .direct investment abroad., is when local capital is invested in foreign resources ?et it can also be used to invest in imports and exports from a foreign commodity country O%$/4*& FDI ,# )+1"%*40)& 9': > <overnment'backed insurance to cover risk O%$/4*& FDI ,# *)#$*,1$)& 9': > $ax incentives or disincentives on firms that invest outside of the home country or on repatriated profits > 4ubsidies for local businesses @eftist government policies that support the nationalization of industries (or at least a modicum of government control) 4elf'interested lobby groups and societal sectors who are supported by inward FDI or state investment, for example labour markets and agriculture 4ecurity industries are often kept safe from outwards FDI to ensure the localised state control of the military industrial complex BY TARGET: G*))+-,).& ,+2)#$3)+$ Direct investment in new facilities or the expansion of existing facilities <reenfield investments are the primary target of a host nation&s promotional efforts because they create new production capacity and "obs, transfer technology and know'how, and can lead to linkages to the global marketplace $he 9rganization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms)3 investments in research and development3 and additional capital investments /riticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms #nother criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinationalAs home economy /ritics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy
M)*0)*# 4+& A18%,#,$,"+# $ransfers of existing assets from local firms to foreign firms takes place3 the primary type of FDI /ross'border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity /ross'border ac%uisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company 0nlike greenfield investment, ac%uisitions provide no long term benefits to the local economy'' even in most deals the owners of the local firm are paid in stock from the ac%uiring firm, meaning that the money from the sale could never reach the local economy -evertheless, mergers and ac%uisitions are a significant form of FDI and until around ,55B, accounted for nearly 512 of the FDI flow into the 0nited 4tates (ergers are the most common way for multinationals to do FDI H"*,:"+$4. FDI Investment in the same industry abroad as a firm operates in at home V)*$,14. FDI Backward Vertical FDI !here an industry abroad provides inputs for a firmAs domestic production process Forward Vertical FDI !here an industry abroad sells the outputs of a firmAs domestic production By Motive FDI can also be categorized based on the motive behind the investment from the perspective of the investing firmC R)#"%*1)7S));,+0 Investments which seek to ac%uire factors of production that are more efficient than those obtainable in the home economy of the firm In some cases, these resources may not be available in the home economy at all (e g cheap labor and natural resources) $his typifies FDI into developing countries, for example seeking natural resources in the (iddle :ast and #frica, or cheap labor in 4outheast #sia and :astern :urope M4*
$7S));,+0 Investments which aim at either penetrating new markets or maintaining existing ones FDI of this kind may also be employed as defensive strategy3 it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one $his type of FDI can be characterized by the foreign (ergers and #c%uisitions in the ,5D1&s by #ccounting, #dvertising and @aw firms E--,1,)+1'7S));,+0 Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm
S$*4$)0,17A##)$7S));,+0 # tactical investment to prevent the loss of resource to a competitor :asily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it
OPPOSITION: $he late ,581s and early ,5B1s foreign direct investment became increasingly politicized 9rganized labor, convinced that foreign investment exported "obs, undertook a ma"or campaign to reform the tax provisions which affected foreign direct investment $he Foreign $rade and Investment #ct of ,5BE (or the +urke'Fartke +ill) would have eliminated both the tax credit and tax deferral $he -ixon #dministration, influential members of /ongress of both parties, and well'financed lobbying organizations came to the defense of the multinational $he massive counterattack of the multinational corporations and their allies defeated this first ma"or challenge to their interests L,#$ "- 1"%+$*,)# 9' *)1),2)& FDI: $his is a .,#$ "- 1"%+$*,)# 9' FDI in ;118 mostly based on /I# fact book accessed in Ganuary ;11D , , , , , , , , , , 0nited states 0nited kingdom Fong kong <ermany /hina France +elgium -etherlands 4pain /anada
INTERNATIONAL ACCREDITATIONS AND AGENCIES INTERNATIONAL INVESTMENT POSITIONC # countryAs ,+$)*+4$,"+4. ,+2)#$3)+$ 5"#,$,"+ (II=) is a financial statement setting out the value and composition of that countryAs external financial assets and liabilities $he II= is one component of the capital account of a countryAs balance of payments, containing for example stock of companies, real estate, financial instruments, and so on +y comparison, imports and exports of goods and services are part of the current account $he difference between a countryAs external financial assets and liabilities is the +)$ ,+$)*+4$,"+4. ,+2)#$3)+$ 5"#,$,"+ (-II=) International Investment =osition H domestically owned foreign assets ' foreign owned domestic
assets INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES <ICSID= $he I+$)*+4$,"+4. C)+$*) -"* S)$$.)3)+$ "- I+2)#$3)+$ D,#5%$)# (ICSID), an institution of the !orld +ank group based in !ashington, D / , was founded in ,588 pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID C"+2)+$,"+ or !ashington /onvention) #s of (ay ;117, ,77 countries had signed the I/4ID /onvention I/4ID has an #dministrative /ouncil, chaired by the !orld +ankAs =resident, and a 4ecretariat It provides facilities for the conciliation and arbitration of investment disputes between member countries and individual investors During the past decade, with the proliferation of bilateral investment treaties (+I$s), most of which refer present and future investment disputes to the I/4ID, the caseload of the I/4ID has substantially increased #s of Gune E1, ;117, I/4ID had registered ,D6 cases more than E1 of which were pending against #rgentina I #rgentinaAs economic crisis in the late ,551s and subse%uent #rgentine government measures led several foreign investors to file cases against #rgentina +olivia, -icaragua, :cuador and )enezuela have announced their intention to withdraw from the I/4ID World Association of Investment Promotion Agencies T() W"*.& A##"1,4$,"+ "- I+2)#$3)+$ P*"3"$,"+ A0)+1,)#, or WAIPA> is an international -<9 hosted by 0-/$#D that acts as a forum for investment promotion agencies, provides networking and promotes best practice in investment promotion Faving spoken elaborately about the definition, history, types, top countries and various types of agencies related to foreign direct investment the other aspect that gains importance is the factors that actually stand in favor or against a country&s interests in encouraging or discouraging countries from investing in that particular nation FACTORS THAT ENOCURAGE FDI: LOCATION SPECIFIC ADVANTAGES: $he location specific advantages involve a number of factors that favor a location in comparison to an alternative location $he factors deciding location of the foreign direct investment involve labor costs, marketing factors, trade barriers and government policy , MARKET FACTORS: $he size of a country&s market acts as the most important determinant for attracting foreign investors, market related variables are the most important fundamentals and the scope of investment depends upon two factors i e, current market size and potential market size while a large market size generates scale economies , a growing market improves the prospects of market potential and there by attracts FDI inflows In some markets domestic brands are preferred and a presence in a specific market is needed for success $he location of FDI in that specific market is essential to be able to label products Jmade locallyK ; TRADE BARRIERS:
$he existence of trade barriers is a factor that influences the choice of locations for FDI $rade barriers encourage companies to make FDI in markets that would be too expensive to export to due to tariffs and %uotas 3. LABOUR COSTS: @abor costs are affected by an imperfection in the international market for labor 4ince regulations for immigration exist worldwide, the mobility of labor is reduced and differences in wage costs arise $his creates different production clusters around the world, each specialized in different wage levels #n example of this is the low wage area in the south east #sia producing toys and clothing and on the other hand western :urope with its high tech production and high wage levels 4. COST FACTORS: /ost factors are nothing but factors that cause investment cost differentials across countries $hey usually include factors like cost of labour, cost of capital and cost of infrastructure /ost factors most significantly influence the choice of an investment location for the resource seeking and efficiency' seeking foreign direct investment 0sually it is seen that higher lending rates may have a positive impact on the FDI inflows i e higher the cost of capital in the host country the more capital can be brought in by the foreign firms #lternatively It can also be said that the hostr country&s cost of capital impact directly on the domestic consumption $hus the lower the interest rates, the higher the domestic consumption and hence higher the FDI inflows #s far as infrastructure costs are concerned, it is found that higher the availability of infrastructure lower is the infrastructure cost and higher is the ability of the host country to attract FDI 7 E?CHANGE RATES: $his factor presents a rather ambiguous picture as far as the impact of depreciation of real exchange rate in the host country on FDI inflows is concerned # devalued exchange rate may or may not be gainful for the foreign investors $he investor may gain because of factors like huge purchasing power of the host country, cheap production costs which would lead to easy exports and this surely catches the fancy of the resource and efficiency seeking investor +ut then the foreign firms may get taken aback if they believe that depreciation may continue to be too high to "ustify their investments in the first place and their continuation 8 MACRO ECONOMIC STABILITY: (acro economic variables like inflation, budget deficit, balance of payments etc have a big impact on the FDI across countries $he volatility of the macro economic conditions presents both opportunities and impediments to companies investing in the host country $hey re%uire not only the ability to manage the risk inherent in volatile countries but also present an opportunity of moving production to lower cost facilities :xchange rate volatility is one of the macro economic volatility where in if exchange rate changes merely offset price movements so that real purchasing power parity is maintained, the exchange rate movements would have little real effects B RATE OF INFLATION: @ow inflation is taken to be a sign of internal economic stability in the host country Figh
inflation indicates inability of the government to balance its budget and failures of the central bank to conduct appropriate monetary policy D OVERALL ECONOMIC STABILITY: $he financial well being of the host country is gauged by external debts to :xports It is expected that lower this ratio higher is the probability of economic stability in the country 5 RESEARCH AND DEVELOPMENT: $he location of FDI also depends a lot on the importance given to the research and development activities by the host country (any multi national companies would definitely look forward to investing in a country which provides very good incentives in the field of research and development in the form of tax cuts and provision of abundant raw material at affordable rates and so on as this would help the (-/4 to shift their activities from high cost countries to low cost ones ,1 POLICY INITIATIVES AND ENVIRONMENT: In the current era of liberalization where a host of countries are vying to attract foreign investors to invest in their respective nations, the FDI policies and other policy measures adopted by them have assumed great significance # multi national company or for that matter a country that wants to invest in a country would first of all look for the governments attitude towards FDI which is best reflected in its policies (easures like investor friendly incentives, lower rates of taxes or relaxation for a particular period of time or provision of rebates, provision of land and other infrastructure facilities at reasonable rates and other measures would surely go a long way in making a country a chosen location for parking FDI #part from the above mentioned factors and initiatives companies evaluate the investment climate in the home country, meaning the political, social and economic environment $his climate affects the perceived risk of locating operations in the specific location 11. INCENTIVES: $he FDI incentives offered by the host countries can be categorized into two main types, they are ,C fiscal incentives and ;C financial incentives Fiscal incentives refer to the policies designed to reduce tax burden of a firm and Fiscal incentives include tax concessions in the form of reduction of the standard corporate income tax rate, tax holidays, accelerated depreciation allowances on the capital taxes, exemption from import duties and duty drawbacks on exports Financial incentives refer to the direct contributions to the firm from the government including direct capital subsidies or subsidized loans $hey also include grants, subsidized loans and loan guarantees, publicly funded ventures capital participating in investment involving high commercial risks and governments insurance at preferential rates
ELIMINATION OF RESTRICTIONS: Developing countries have applied various forms of restrictions to FDI in the pre
liberalized era mostly because of their troubled past and exploitation by their colonial rulers )arious controls like ownership and control and other operational restrictions like closing down certain sectors to private enterprises, screening regularization authorization of investment and minimum capital re%uirements For example allowing only fixed percentage of foreign owned capital in an enterprise, compulsory "oint ventures, compulsory transfer of ownership to local private firms and restrictions on reimbursement of capital upon li%uidation :ven when the foreign firms enter the host country&s market they could face certain restrictions on their operations such as restrictions on employing key foreign personnel and performance re%uirements such as sourcing or local content re%uirements, training re%uirements and export targets $he best example is the erstwhile Indian economy which followed the license permit ra" before embarking upon economic reforms +ut the whole scenario of controlling the economy in most of the developing nations has been done away with, in most of the countries and they have seriously embarked upon many liberal measures like %uick licensing, many tax incentives and so on which have changed the economic scenario of many a nations FACTORS THAT DISCOURAGE FDI: /ountry experiences indicate that while favorable economic environment and regulatory or policy framework help induce foreign direct investment flows, there are a number of forces that tend to discourage such flows (any developing countries have, during the past decade or so, begun liberalizing their national policies to establish a hospitable regulatory framework for foreign direct investment by relaxing rules regarding market entry and foreign ownership, improving the standards of treatment accorded to foreign firms and improving the functioning of markets $hese core policies are important because FDI will not take place where it is forbidden or strongly impeded Fowever, changes in policies have an asymmetric effect on the location of foreign direct investment, changes in the direction of greater openness allows firms to establish themselves in a particular location In contrast, changes in the direction of less openness will ensure a reduction in foreign direct investment (0-/$#D, ,55D) $he regulatory restrictions including tariffs, %uotas tend to discourage cross'border ac%uisitions by multinational enterprises /ountries that impose restrictions on foreign entry and ownership and foreign transactions, as well as discriminatory tax provisions, tend to hamper foreign direct investment flows For example, in Lenya, foreign investors face multiple licensing re%uirements and high withholding taxes on royalties, and foreign direct investment remained less than 1 ; percent of <D= #lso, in ?emen where sizeable outflows of FDI have been recorded since the mid ,551&s, licensing re%uirements discouraged new investments, despite incentives like tax holidays and customs exemptions 4ome of the developing countries have not achieved the improvements in the investment climate necessary to encourage higher FDI flows !hile the poor prospect for growth and unfavourable economic environment have impeded the foreign direct investment flows to many countries, a number of other factors ( such as political and structural factors ) have also been the important discouraging factors For instance, the economic uncertainty has restrained <reenfield foreign direct investment in +razil, and private sector merger and ac%uisition transactions has slowed down with the
increasing economic difficulties in #rgentina In Indonesia, the severe recession, un certainty over economic policies, and political disturbances that reduce future economic prospects have discouraged foreign investment inflows since ,558 due to concerns over political developments In addition, recent analysis find that developing countries with stronger policy environments attract a larger share of the total foreign investments flows to developing countries, whereas the higher levels of corruption acts as a deterrent ( I(F ;11, ) (oreover, in Lorea, the process of corporate and financial restructuring has slowed the foreign direct investment flows FDI AND INDIA @ A COMPREHENSIVE STUDY. INTRODUCTION: TI
@I-: 9F $F: :/9-9(? 9F I-DI#C Pre-colonial period 7 +/
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4ilver punch'marked coins were minted by the (aha"anapadas IndiaAs economy had a E; 52 share of world income, the largest in the world IndiaAs economy had a ;D 52 share of world income, the largest in the world IndiaAs economy had a ;6 72 share of world income, the second largest in the world after /hina, which had a ;72 share India had an income of M,B 7 million, under #kbarAs (ughal :mpire, in contrast to the entire treasury of <reat +ritain in ,D11, which totalled M,8 million IndiaAs economy had a ;6 62 share of world income, the largest in the world, under #urangzebAs (ughal :mpire
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First estimation of IndiaAs national income by Dadabhai -aoro"i IndiaAs economy had a ,; ;2 share of world income under the +ritish :mpire IndiaAs economy had a B 82 share of world income under the +ritish :mpire Famine of +engal
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Post-Independence period Nehruvian era ,57;
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IndiaAs economy had a E D2 share of world income IndiaAs economy was N656 D billion, which accounted for a E ,2 share of world income
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:conomic liberalisation was initiated by Indian prime minister = ) -arasimha Oao and his finance minister (anmohan 4ingh in response to a macroeconomic crisis IndiaAs economy was N,,B1; B trillion, which accounted for a 72 share of world income IndiaAs economy is NE,D,7 8 trillion (purchasing power parity) which accounts for a 8 E2 share of world income, the fourth largest in the world in terms of real <D=
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$he )1"+"3' "- I+&,4, when measured in 04D exchange'rate terms, is the twelfth largest in the world, with a <D= of 04 N, ;7 trillion (;11D) It is the third largest in terms of purchasing power parity India is the second fastest growing ma"or economy in the world, with a <D= growth rate of 5 62 for the fiscal year ;118I;11B Fowever, IndiaAs huge population has a per capita income of N6,76; at === and N,,1D5 in nominal terms (revised ;11B estimate) $he !orld +ank classifies India as a low'income economy Indian economy is very diverse ranging from agriculture which provides direct and indirect employment to more than 872 of the population to the services sector which contributes about 772of the <D= and still growing strong India also ranks among the most
promising countries in other sectors like industry,manufacturing, telecommunications etc #fter independence India&s economy was influence by the colonial policy though exploitative and also by the Fabian socialist ideas of our leaders India followed a socialistic policy for most part of its independent history with strict governmental control over private sector participation, foreign trade and foreign direct investment, with a strong emphasis on import substitution, self sustainability and central planning which led to a lot of bottle necks being created in the way of the nations development with extremely low growth rate termed as the Findu rate of growth $he collapse of the soviet union as the ma"or trade partner and the first gulf war which spiked the oil prices caused a ma"or balance of payments crisis in India which found the prospect of defaulting on its loans In response, =rime (inister -arasimha Oao along with his finance minister (anmohan 4ingh initiated the economic liberalization of ,55, $he reforms did away with the @icence Oa" (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors 4ince ,551 India has emerged as one of the wealthiest economies in the developing world3 during this period, the economy has grown constantly, but with a few ma"or setbacks $his has been accompanied by increases in life expectancy, literacy rates and food security $he credit rating of India has been raised to investment level in ;11B by 4P= and (oodyAs In ;11E, <oldman 4achs predicted that IndiaAs <D= in current prices will overtake France and Italy by ;1;1, <ermany, 0L and Oussia by ;1;7 and Gapan by ;1E7 +y ;1E7, it was pro"ected to be the third largest economy of the world, behind 04 and /hina
FOREIGN DIRECT INVESTMENT #s the third'largest economy in === terms, India is a preferred destination for foreign direct investments (FDI) with strengths being information technology and other
significant areas such as auto components, chemicals, apparels, pharmaceuticals and "ewellery +ut its rigid FDI policies were a significant hindrance in this regard Fowever, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front'runners of the rapidly growing #sia =acific Oegion India has a large pool of skilled managerial and technical expertise $he size of the middle'class population at E11 million exceeds the population of both the 04 and the :0, and represents a powerful consumer market IndiaAs recently liberalized FDI policy (;117) allows up to a ,112 FDI stake in ventures Oeforms have substantially reduced industrial licensing re%uirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI $he upward moving growth curve of the real'estate sector owes some credit to a booming economy and liberalized FDI regime # number of changes were approved on the FDI policy to remove the caps in most sectors Oestrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit' information services and mining +ut this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing FDI inflows into India reached a record 04N,5 7bn in fiscal year ;118Q1B (#pril'(arch), according to the governmentAs 4ecretariat for Industrial #ssistance $his was more than double the total of 04NB Dbn in the previous fiscal year +etween #pril and 4eptember ;11B, FDI inflows were 04ND ;bn FACTORS MAKING INDIA A FAVOURED FDI DESTINATION: India, the largest democracy and 6th largest economy (in terms of purchase power parity) in the world is also the tenth most industrialized country in the world !ith its consistent growth performance and abundant high'skilled manpower, India provides enormous opportunities for investment, both domestic and foreign 4ince the beginning of economic reforms in ,55,, ma"or reform initiatives have been taken in the fields of investment, trade, financial sector, exchange control simplification of procedures, enactment of competition and amendments in the intellectual property rights laws, etc India provides a liberal, attractive, and investor friendly investment climate (ain features of policy on Foreign Direct Investment are dealt with in this chapter
16 *)4#"+# $" I+2)#$ ,+ INDIA % &'( NE)ER *A+ I, -' .''+/ • India is the 4th largest economy, in terms of purchasing power parity. Tenth most industrialized economy. • Strong macro-economic performance. • Political stability and broad consensus on reforms. Liberal and transparent foreign in estment regime.
!ell• de eloped ban"ing system. #ibrant capital mar"et. $ational Stoc" %&change third largest, 'ombay Stoc" %&change fifth largest in terms of number of trades. • Strong and independent (udicial system. • )mong the highest rates of returns on in estment. Profitability of *S in estments in India+ ,-.../ in 0111 2according to *S 3epartment of 4ommerce5. 0% INCRE+IB1E -2I11- 'N '33ER/ • Strong pool of scientific and technical manpower. Prowess of IITs, II6s well "nown. 077• 8ortune 711 companies getting ser ices. 0nd• largest %nglish-spea"ing population. • )bundant, high-9uality, cost-effecti e, competiti e manpower. : er ,11,111 IT professionals added each year. • India rated as the most attracti e destination for offshore business processing by global consultancy ) T ;earney. IT• Industry <,4 billion= growing at 71/ p.a. • %&ports <,0 billion= 011> e&ports target+ <?1 billion, to be .7/ of India@s total e&ports. Aob• creation+ a million direct B 0-. million indirect 4% *I.*1& C'MPE,I,I)E EN,REPRENE(R-*IP/ • Pre alence of foreign technology licensing - Can" , in the world. • ) ailability of scientist and engineers - Can" 0. • Duality of management schools - Can" -. 8irm• le el inno ation - Can" ,0. 8irm• le el technology absorption - Can" ,?. • 4ompany spending on CB3 - Can" .0. 2Source+ Elobal 4ompetiti eness Ceport, 011.5 • India amongst the leading entrepreneurial hotbeds globally. 2 Red Herring clubs India with Israel 5% .REA, MACR'$EC'N'MIC -*'W/ • India among world@s fastest growing economies. (Graph on top left shows Indian GDP growth since 1996-97). • ) erage E3P 2gross domestic product5 growth of 7.4/ during the -th 8i e-Fear Plan 2,--G-01105. • %&ports registered growth of o er ,-/ in 0110-1.. • 8oreign e&change reser es at an all-time high of o er <-1 billion. • Increase in fore& during the fiscal year in 0110-1.+ <01 billion. • India@s economic growth is sustained. The• nation@s E3P is e&pected to grow by o er G.1 / this year.
6% EA-& IN+(-,RIA1 1ICEN-IN. P'1IC&/ *nder the Industries 23e elopment B Cegulation5 )ct, ,-7,, industrial license is needed only for items+ • 8alling under the list of compulsory licensing. Ceser ed for small-scale sector. If location attracts restriction. )ll• industries e&empt from industrial licensing re9uired to file an Industrial %ntrepreneur 6emorandum. $o• appro al is re9uired= :nly notification need. Industries retained under compulsory licensing under the Industrial 23BC5 )ct, ,-7,+ • 3istillation and brewing of alcoholic drin"s. • 4igars and cigarettes of tobacco and manufactured tobacco substitutes. • %lectronic aerospace and defence e9uipment. • Industrial e&plosi es= Hazardous chemicals. 7% MA8'R 3INANCIA1 -EC,'R RE3'RM-/ • Setting up of the 4ompetition 4ommission= )mendments to 4ompanies )ct, 8iscal Cesponsibilities, and Securitization )ct for creditors@ security. • 'oard for Industrial B 8inancial Ceconstruction to be repealed. 4omputerization of 4ustoms interface. • Stable ta& regime. :nly . rates of indirect ta&. Trade facilitation measures introduced. • 8oreign %&change 6anagement )ct, ,--- pro ides a liberal regime= fore& procedures eased. • Stoc"s can be sold on the without prior appro al. • Profits, di idends and capital in estment can be repatriated. • Coyalties can be paid by wholly owned arms to parent companies. 9% ,RA+E P'1IC& RA,I'NA1I:A,I'N/ • Trade policy liberalized. 6ost items on
en Eeneral License. • Policies fully compatible with !T:. • 8unctioning of the 3irector Eeneral 8oreign Trade 23E8T5 computerized+ )ll• .. locations are !eb-enabled. G1/• of the total transactions of e&portersIimporters are !eb-enabled. • Transaction time has reduced to (ust ? hours. • :n-line ban"ing fully integrated. "% A PR'AC,I)E 3+I P'1IC&/ 83I under J)utomatic Coute,K e&cept in areas+ • )ttracting compulsory licensing= or for ac9uisition of shares in an e&isting company. • Sectors not open to 83I. 2Eambling, lottery, et cetera.5 • In estor can bring automatic route cases for 8oreign In estment Promotion 'oard
appro al. • 8oreign technology collaborations freely allowed under automatic and go ernment appro al routes. India 3+I 'utloo; • India rated best destination for outsourcing and ?th most attracti e destination for 83I, according to )T ;earney. • Elobal competiti e report ran"s India at first place in terms of pre alence of foreign technology licensing. • )mong top ,1 tourist destinations. 6a(or destination for foreign enture capital funds. Pie chart left !otto" shows co#ntr$-wise %DI inflows. !% .REA, IN3RA-,R(C,(RE< AN+ A *E1PIN. *AN+/ <,0• billion Highways 3e elopment Programme. : er ,.,111 ;ms of Highways being de eloped. The• %lectricity )ct, 011. in place to facilitate reforms in power sector. Permits trading in electricity, capti e generation freed from prior appro al. • *pgradation of airports at $ew 3elhi and 6umbai. • JSagar 6ala,K a ma(or programme aimed at de eloping ports and shipping sector at an estimated in estment of <00 billion. • 6a(or ad ances in telecommunications sector. 'andwidths of terabit a ailable. Sharp decline in telecommunications costs. • 8oreign In estment Implementation )uthority helps sol e foreign in estors@ problems. It meets periodically with in estors to sort out operational difficulties and facilitates implementation. )n• %mpowered Sub-4ommittee of the $ational 3e elopment 4ouncil set up on creating an in estor friendly climate and remo ing regulatory barriers to in estments. • 6odernization of legislations on intellectual property. )ll IPC Laws are TCIPS compliant. Intellectual Property )ppellate Tribunal functional. • Simplification and re-engineering of wor" procedures. 6ore• information on www.ipindia.com #% B''MIN. -EC,'R- = 'PP'R,(NI,IE- .A1'RE/ • Roads/ 4apacity enhancement of highways. G111 "ms of $ational Highways being offered during the current year. 6any more opportunities in the States.portunities for e9uipment manufacturers. technical support. • (r>an Infrastructure/ 3e elopment of townships for the rapidly growing, increasingly affluent urban middle class. 4ity le el infrastructure. roads, bridges, IT Par"s, sanitation and water supply, etc. 4onsultancy in urban planning. • Ports/ Eo ernment of India@s initiati e of de eloping ports L JSagar 6ala@ with an in estment of <00 billion. 3e elopment of Ports. Shipping. *p gradation and operation of cruise terminal. eration of 3ry Port at 6umbai. • Po?er/ )ddition of ,11,111 6! re9uired o er the ne&t ,1 years. Installed capacity ,1?,111 6!. Hydro-electric initiati e to de elop 71,111 6!. 3etailed pro(ect reports to
be prepared to facilitate pri ate in estment. • ,elecommunications/ 4ellular phones increasing M ,.7 million e ery month. To increase by 01 million this year. 8igure to rise to ,11 million in the ne&t .-4 years. Telephone connections to rise to G7 million by 0117 and ,G7 million by 01,1. In estmentportunities. Setting up manufacturing base. #alue-added ser ices. # number of studies in the recent past have highlighted the growing attractiveness of India as an investment destination #ccording to the study RDreaming with +OI/4& by <oldman 4achs, Indian economy is expected to continue growing at the rate of 72 or more till ;171 4ome of these conclusions are listed belowC S ;nd most attractive destination I # $ L:#O-:? +usiness /onfidence Index, ;117 S ;nd most attractive investment destination among $ransnational /orporations I 0-/$#D&s R!orld Investment Oeport, ;117& S (ost attractive location for .offshoring. of services activities ' # $ Learney <lobal 4ervices @ocation Index ;117 India has among the most liberal and transparent policies on FDI among the emerging economies FDI up to ,112 is allowed under the automatic route in all activitiesQsectors except the following which re%uire prior approval of the <overnmentC i (anufacture of /igars P /igarettes of tobacco and manufactured tobacco substitutes3 ii (anufacture of :lectronic aerospace and defence e%uipmentsC all types iii (anufacture of items exclusively reserved for 4mall 4cale 4ector with more than ;62 FDI3 iv =roposals in which the foreign collaborator has an existing financial Q technical collaboration in India in the Rsame& field TOefer =ress -ote -o , (;117 series)U3 v #ll proposals falling outside notified sectoral policyQcaps FDI policy is reviewed on continued basis and changes in sectoral policyQsectoral e%uity cap are notified through =ress -otes by the 4ecretariat for Industrial #ssistance (4I#), Department of Industrial =olicy P =romotion (DI==) #ll =ress -otes are available at DI== website (www dipp gov in) FDI =olicy is also notified by Oeserve +ank of India (O+I) under Foreign :xchange (anagement #ct (F
#) ,555 FDI up to ,112 is permitted on the automatic route in most sectors Investments under the automatic route do not re%uire any prior approval and re%uire only post'entry notification to the Oeserve +ank of India In limited sectors re%uiring prior <overnment approval, proposals are considered in a time bound and transparent manner $here is no restriction on repatriation of original investment and returns on investment 4ome of the ma"or sectors where FDI up to ,112 is allowed under the #utomatic route include most infrastructure sectors, viz , roads and highways, ports and harbours, power generation except nuclear power3 almost all manufacturing activity except few activities under compulsory licensing or reserved for exclusive manufacture in small scale sector3 and a large number of services $he =olicy also encourages ac%uisition of technology by the Indian companies to become globally competitive Foreign technology collaborations are also allowed on automatic route within specified ceilings for payment of royalties /ompanies, who have entered into foreign
technology collaboration agreements on automatic route, can make royalty payments without any restriction on duration #ll foreign investments, dividends and profits thereon are fully repatriable FOREIGN INVESTMENT ACTS7 FERA AND FEMA: India&s foreign investment policy since independence has been guided by two important acts namely foreign exchange regulation act ,5BE and Foreign exchange management act ,555 among other acts and regulations #s we discuss elaborately the various factors of foreign direct investment it is pertinent to have an overview of these two acts FOREIGN E?CHANGE REGULATION ACT71A 3 $he Foreign :xchange Oegulation #ct, ,56B, was enacted as a temporary measure and later placed permanently in the year ,57B #t that time the limited ob"ective of the #ct was to regulate the inflow of foreign capital in the form of branches and concerns with the substantial non' resident interest, and the the employment of foreigners $he country attained freedom in ,56B, after two centuries of foreign rule and protracted freedom struggle stretched over decades $he prevailing mood then was one of preserving and consolidating the freedom and not to permit once again any type of foreign domination, political or economic Initial approach on foreign capital was negative to a not'interested attitude =rime (inister explained that .the stress on the need to regulate, in the national interest, the scope and manner of foreign capital and control (as per the Industrial =olicy 4tatement 6D) arose from the past association of foreign capital and control with foreign domination of the economy of the country . Fowever after initiation of a process of rapid industrialization of the country, the need to conserve foreign exchange was keenly felt :xports were not picking up and imports were surging, putting the country to severe balance of trade and balance of payment crisis $his in trn led to the need to tap the donors or Foreign #id <ivers $his background induced the <overnment of India to re'focus the F:O# act with the main aim of conservation of foreign exchange rather than regulation of entry of foreign capital $he Foreign :xchange Oegulation #ct, ,5BE, (hereinafter referred to as F:O#) was drafted with the ob"ect of introducing the changes felt necessary for the effective implementation of the <overnment policy and removing the difficulties faced in the working of the previous enactment F:O# is crisis'driven regulation and naturally it contained several draconian provisions #ny offence under F:O# was a criminal offence liable for imprisonment Fowever in the early -ineties due to the ma"or changes in Indian economy and liberalization of industrial and trade policies, consistent with the fast changing international economic and trade relations the need for a more conducive climate for increased inflow of foreign investment and capital in the country to accelerate industrial growth and promotion of trade (especially exports) was felt In order to remove the special restrictions in respect of companies registered in India and to simplify the regulations in regard to foreign investment to attract better flow of foreign capital and investment was paramount $he #mending #ct ;5 of ,55E was enacted in order to remove unnecessary restrictions and simplify procedure $hereby certain provisions dealing with emergencies of different kinds, which were no longer relevant, were removed for improving the climate for investment in India FOREIGN E?CHANGE MANAGEMENT ACT71AAA #s the crisis of foreign exchange melted once for all and the country came to be endowed with
sizeable reserves of foreign exchange, the basic aim of foreign exchange policy shifted from one of control and conservation to that of effective management, to facilitate external tradeQpayment and promote the orderly development and maintenance of the forex market in India $he #ct was thoroughly revised and replaced by the by the Foreign :xchange (anagement #ct, ,555 $he latter has dropped many of the stringent provisions of the older #ct, in the area of transactions involving foreign exchange $he F# ,555 took effect from Gune ,, ;111 $o investigate due adherence to the provisions of the #ct by the market participants, the /entral <ovt have established the Directorate of :nforcement with a Director and other officers as officers of the :nforcement $his #ct extends to the whole of India and will also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India It will also be applicable to any contravention committed outside India by any person to whom this #ct is applicable INVESTMENT PROMOTION AND FACILITATION: $he ministry of Finance, ministry of corporate affairs and the ministry of commerce and industries are the most important ministries which with the help of Oeserve bank of India look after the foreign direct investment operations in the country $hese ministries have an elaborate set of institutions and agencies to facilitate the flow of foreign direct investment into the country and remove the procedural bottlenecks if any that would take place in the promotion of foreign direct investment SECRETARIAT FOR INDUSTRIAL ASSISTANCE: 4I# has been set up by the <overnment of India in the Department of Industrial =olicy and =romotion in the (inistry of /ommerce and Industry to provide a single window for :ntrepreneurial assistance, investor facilitation, receiving and processing all applications which re%uire <overnment approval, conveying <overnment decisions on applications filed, assisting entrepreneurs and investors in setting up pro"ects, (including liaison with other organizations and 4tate <overnments) and in monitoring implementation of pro"ects It also notifies all <overnment =olicy relating to investment and technology, and collects and publishes monthly production data for ;15 select industry groups FOREIGN INVESTMENT PROMOTION BOARD <FIPB=: $he FI=+ is the competent body to consider and recommend Foreign Direct Investment proposals, which do not come into the country through the automatic route $he board has been transferred to Department of economic affairs in the (inistry of Finance from the (inistry of commerce and industries $he functions of the board areC
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to ensure expeditious clearance of the proposals for foreign investment3 to review periodically the implementation of the proposals cleared by the +oard3 to review, on a continuous basis, the general and sectoral policy regimes relating to FDI and in consultation with the #dministrative (inistries and other concerned agencies, evolve a set of transparent guidelines for facilitating foreign investment in various sectors3 to undertake investment promotion activities including establishment of contact with and inviting selected international companies to invest in India in the appropriate pro"ects3 to interact with the Industry #ssociationQ+odies and other concerned government and
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non'government agencies on relevant issues in order to facilitate increased inflow of FDI3 to identify sectors into which investment may be sought keeping in view the national priorities and also the specific regions of the world from which investment may be invited through special efforts3 to interact with the Foreign Investment =romotion /ouncil (FI=/) being constituted separately in the (inistry of Industry3 and $o undertake all other activities for promoting and facilitating foreign direct investment, as considered necessary from time to time $he +oard will submit its recommendations to the <overnment for suitable action within six weeks
FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY <FIIA=: FII# was established in the Department of Industrial policy and =romotion, (inistry of commerce and Industry to facilitate %uick translation of Foreign Direct Investment approvals in implementation, provide a proactive one' stop after care service to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various government agencies to find solution to problems of the investors $he FII# may co' opt other secretaries to the <overnment of India, /hief /ommissioner (-OI), top functionaries of financial institutions and professional experts from industry and commerce, as and when necessary $he secretariat for Industrial #ssistance (4I#) functions as the secretariat of the FII# FOREIGN INVESTMENT PROMOTION COUNCIL <FIPC=: #part from making the policy framework investor friendly and $ransparent, promotional measures are also taken to attract Foreign Direct Investment into the country $he <overnment has constituted a Foreign Investment =romotion /ouncil (FI=/) in the Department of Industrial =olicy and =romotion, (inistry of /ommerce and Industry $his comprises of professionals from industry and trade It has been set up to have a more target oriented approach toward Foreign Direct Investment promotion $he basic functions of the /ouncil are to identify the sectorsQpro"ects within the country re%uiring Foreign Direct Investment and target specific regionsQ countries of the world from where FDI can be brought in through special efforts
INVESTMENT PROMOTION B INFRASTRUCTURE DEVELOPMENT CELL <IPBIDC=: /onse%uent upon the Department of Industrial =olicy and =romotion having assumed a promotional role as against the regulatory one prior to the process of liberalization initiated in the year ,55,, an Investment =romotion and Infrastructure Development /ell was created in ,558 to give further impetus to facilitation and monitoring of investment as well as for better coordination of infrastructural re%uirements of industry $he activities
handled by the /ell relates to organization of JDestination IndiaK events in foreign countries in collaboration with FI//I, dissemination of information on investment climate in India through publications, promotional films and /D'O9(4 Investment facilitation and coordination of progress made in infrastructure pro"ects, promotion of private investment including foreign investment, compilation of sectoral policy, strategies and guidelines in the infrastructure sector are also the responsibilities assigned to this /ell =rocessing and approval of proposals pertaining to setting up of Industrial =arks and Industrial (odel $owns is also undertaken by this /ell ENTREPRENEURIAL ASSISTANCE UNIT <EAU=: $he :ntrepreneurial #ssistance 0nit functioning under the 4ecretariat for Industrial #ssistance, Department of Industrial =olicy and =romotion provides assistance to entrepreneurs on various sub"ects concerning investment decisions $he unit receives all papersQapplications related to industrial approvals and immediately issues a computerised acknowledgement, which also has an identityQreference number #ll correspondence with the 4I# should %uote this number In case of papers filed by post, the acknowledgement will be sent by post $he 0nit extends this facility to all papersQapplications relating to Is, Industrial @icenses, Foreign Investment, Foreign $echnology #greements, ,11 per cent :90s, :F$=, 4$= 4chemes, etc $he 0nit also attends to en%uiries from entrepreneurs relating to a wide range of sub"ects concerning investment decisions It furnishes clarifications and arranges meetings with nodal officers in concerned (inistriesQ9rganizations $he 0nit also provides information regarding the current status of applications filled for various industrial approvals. INVESTOR EDUCATION AND PROTECTION FUND: INVESTMENT COMMISSION: $he Investment commission was set up in ;116 with a view to make the environment in India attractive for investors $he commission has the broad authority of the government to engage, discuss with and invest in India $he recommendations of the commission are to be processed in the (inistry of finance and will be put up to the competent authority for approval #ll policy decisions emerging from the recommendations of the /ommission would be put up to /abinet /ommittee 9n :conomic #ffairs for approval $he commission studied ;7 key sectors spanning Infrastructure, (anufacturing, 4ervices, -atural Oesources and the Lnowledge :conomy $hese sectors are significant and would re%uire an aggregate investment of 04 N 771 billion over the next five years $he commission has recommended a need to identify a few -ational $hrust #reas where all impediments for growth are removed, and where appropriate incentives are provided, to encourage investment $he $hrust #reas could includeC , , $ourism =ower
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$extiles #gro'processing
NRI UNIT: (a"or functions of the -OI 0nit which is a part of the Investment Division are as underC (a) (a) (a) (a) :uro'e%uityQforeign currency convertible bonds policy Foreign Institutional Investors =ortfolio Investment =olicy Investment policy for -on'Oesident Indian =olicy governing opening up of branchQliaisonQpro"ect office by the foreign companies and coordination in respect of individual proposals referred to <overnment by O+I (atters related to Indian Investment /entre, an autonomous body under the (inistry of Finance FOREIGN DIRECT INVESTMENT POLICY: $he government of India has recently undertaken a comprehensive review of the FDI policy and associated procedures #s a result, a number of rationalization measures like dispensing with the need of multiple approvals from <overnment andQor regulatory agencies that exist in certain sectors, extending the automatic route to more sectors, and allowing FDI in new sectors #s per the extant policy, FDI up to ,112 is allowed, under the automatic route in most sectorsQ activities FDI under the automatic route does not re%uires prior approval either by the government or the reserve bank of India Investors are only re%uired to notify the concerned Oegional office of O+I within E1 days of issue of shares to foreign investors 0nder the <overnment approval route, applications for FDI proposals, other than by -on' Oesident Indians, and proposals for FDI in J4ingle +randK product retailing, are received in the Department of :conomic #ffairs, (inistry of Finance =roposals for FDI in J4ingle +randK product retailing and the -OI&4 are received in the Department of Industrial policy and =romotion, (inistry of /ommerce and Industry Foreign investments in e%uity capital of an Indian company under the =ortfolio Investment 4cheme are not within the ambit of FDI policy and are government by separate regulations of O+IQ 4ecurities and :xchange +oard of India (4:+I) #t present FDI is prohibited in the following sectorsC ,' ;' E' 6' Oetail trading (except single brand product retailing) #tomic energy @ottery business <ambling and betting
#ll activitiesQ sectors would re%uire period government approval in the following
circumstancesC , where provisions of press note (;117 series) are attracted , !here more than ;6 percent foreign e%uity is proposed to be inducted for manufacture of items reserved for the small scale sector FDI is permitted up to ,11 percent in the automatic route in most sectors sub"ect to sectoral rulesQ regulations applicable SECTOR SPECIFIC GUIDELINES FOR FDI IN INDIA: , FDI up to ,112 is allowed under the automatic route in all activitiesQsectors except the following which will re%uire approval of the followingC , #ctivities or items that re%uire an industrial license3 , =roposals in which the foreign collaborator has a previousQ existing ventureQ tie up in India or allied field , #ll proposals relating to ac%uisitions of shares in an existing Indian company by a foreignQ -OI investor , #ll proposals falling outside notified sectoral policyQ caps or under sectors in which FDI is not permitted
AUTOMATIC ROUTE: #ll activities which are not covered under the automatic route according to para ; ,, prior approval of the <overnment for FDI shall be compulsory #reasQ 4ectorsQ #ctivities hitherto not open to FDI investment shall continue to be so unless otherwise decided and notified by <overnment #n investor can make an application for prior government approval even when the proposed activity is under the automatic route PROCEDURE TO GET GOVERNMENT APPROVAL: $he Foreign Investment =romotion +oard (FI=+) considers approving all proposals for foreign investment, which re%uires <overnment approval $he FI=+ also grants composite approvals involving foreign investment, foreign technical collaboration For seeking the approval for FDI other than -OI Investments and ,112 :90, applications in form F/'I@ should be submitted to the department of :conomic #ffairs (D:#), (inistry of Finance #pplication for proposals re%uiring prior government approval should be submitted to FI=+ in F/'I@ from, plain paper applications carrying all relevant particulars are also accepted, no fee is charged $he following information should form part of the proposals submitted to FI=+C , , , !hether the applicant has had or has any previousQ existing financialQ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought3 and If so, details thereof and the "ustification for proposing the new ventureQ technical collaboration (including trademarks) #pplications can also be submitted with Indian missions abroad who will forward them
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to the department of :conomic affairs for further processing Foreign investment proposals received in the D:# are placed before the Foreign Investment =romotion +oard (FI=+) within ,7 days of receipt
$he decision of the government in all the cases is usually conveyed by the D:# within E1 days R)#)*2) B4+; O- I+&,4C# 0)+)*4. 5)*3,##,"+ %+&)* FEMA> RBI looks after granting of general permission under the Foreign :xchange (anagement #ct in respect of proposals approved by the government, Indian companies getting foreign investment approval through FI=+ route do not re%uire any further clearance from O+I for the purpose of receiving inward remittances and issue of shares to the foreign investors $he companies are, however re%uired to notify the Oegional office concerned of the O+I of receipt of inward remittances within E1 days of such receipt and to file the re%uired documents with the concerned Oegional offices of the O+I within E1 days after issue to the foreign investors or -OIs +esides new companies, automatic route for FDIQ-OI investment if also available to the existing companies proposing to induct foreign e%uity For existing companies with an expansion programme, the additional re%uirements are as underC , , , $he increase in e%uity level resulting from the expansion of the e%uity base of the existing company without the ac%uisition of existing shares by -OIQforign investors $he money to be remitted should be in foreign currency and =roposed expansion programme should be in the sectors under the automatic route 9therwise, the proposal would need <overnment approval through the FI=+ For this a board Oesolution of the existing Indian company must suppost the proposal
For companies already existing without an expansion programme, the additional re%uirements for eligibility for automatic approval areC $hat they are engaged in the industries under automatic route $he increase in e%uity level must be from expansion of the e%uity base and the foreign e%uity must be in foreign currency $he earlier 4:+I regulation that was applicable to public limited companies, that shares allotted on preferential basis shall not be transferable in any manner for a period of 7 years from the date of their allotment has now been modified to the extent that not more than ;1 percent of the entire contribution brought in by the promoter cumulatively in public or preferential issues shall be locked in e%uity participation by international financial institutions such as #D+, IF/, /D/, D:< etc in the domestic companies is permitted through automatic route sub"ect to 4:+IQO+I regulations and sector specific cap on FDI AMERICAN DEPOSITORY RECEIPTS OR GLOBAL DEPOSITORY RECEIPTS <ADRDGDR=:
#n Indian corporate can raise foreign currency resources abroad through the issue of #merican Depository Oeceipts (#DOs) or <lobal Depository Oeceipts (<DOs) by issuing its Oupee denominated shares to a person resident outside India being a depository for the purpose of issuing <lobal Depository Oeceipts (<DOs) andQ or #merican Depository Oeceipts (#DOs), sub"ect to the conditions thatC #) $he #DOsQ<DOs are issued in accordance with the 4cheme for issue of Foreign /urrency /onvertible +onds and 9rdinary 4hares ($hrough Depository Oeceipt (echanism) 4cheme, ,55E and guidelines issued by the /entral <overnment there under from time to time +) $he Indian company issuing such shares has an approval from the (inistry of Finance, <overnment of India to issue such #DOs andQor <DOs or is eligible to issue #DOsQ <DOs in terms of the relevant scheme in force or notification issued by the (inistry of Finance, and /) Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Oegulations $here is no limit up to which an Indian company can raise #DOsQ<DOs Fowever, the Indian company has to be otherwise eligible to raise foreign e%uity under the extant FDI policy $here are no end'use restrictions on <DOQ#DO issue proceeds, except for an express ban on investment in real estate and stock markets $he F//+ issue proceeds need to conform to external commercial borrowing end use re%uirements In addition, ;7 per cent of the F//+ proceeds can be used for general corporate restructuring Oegulation 6 of 4chedule'I of F# -otification -o ;1 deal with the issue of #DOQ<DO by an Indian company , ,B # company engaged in the manufacture of items covered under #utomatic route, whose direct foreign investment after a proposed <DOsQ#DOsQF//+s issue is likely to exceed the e%uity limits under the automatic route, or which is implementing a pro"ect falling under <overnment approval route, would need to obtain prior <overnment clearance through FI=+ before seeking final approval from the (inistry of Finance FOREIGN CURRENCY CONVERTIBLE BONDS: F//+s are issued in accordance with the T4cheme for issue of Foreign /urrency /onvertible +onds and 9rdinary 4hares ($hrough Depository Oeceipt (echanism) 4cheme, ,55E, and subscribed by a non'resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any e%uity related warrants attached to debt instruments3 $he eligibility for issue of /onvertible +onds or 9rdinary 4hares of Issuing /ompany is as underC
#) #n issuing company desirous of raising foreign funds by issuing Foreign /urrency /onvertible +onds or ordinary shares for e%uity issues through <lobal Depositary Oeceipt i /an issue F//+s up to 04N71 (illion under the #utomatic route, ii From 04N71 I,11 (illion, the companies have to take O+I approval, iii From 04N,11 (illion and above, prior permission of the Department of :conomic #ffairs is re%uired PREFERENCE SHARES: Foreign investment through preference shares isC V treated as Foreign Direct e%uity for the purposes of sectoral caps on foreign e%uity, where such caps are prescribed, provided they carry a conversion option =reference shares structured without such conversion option fall outside the foreign direct e%uity cap V considered as part of the share capital and fall outside the :xternal /ommercial +orrowing/+) guidelinesQcap $he route, whether #utomatic or <overnment approval depends upon the activity Q sector of the company $he Duration of conversion shall be as per the maximum limit prescribed under the /ompanies #ct or what has been agreed to in the shareholders agreement, whichever is less $he dividend rate would not exceed the limit prescribed by the (inistry of Finance Issue of preference shares should conform to the guidelines prescribed by the 4:+I and and other statutory re%uirements INDUSTRIAL LICENSING: I+&%#$*,4. .,1)+#,+0 5".,1': Industrial @icenses are regulated under the Industries (Development P Oegulation) #ct, ,57, !ith progressive liberalization and deregulation of the economy the re%uirement of industrial licensing have been substantially reduced #t present industrial license for manufacturing is re%uired only for the followingC i Industries retained under compulsory licensing, ii (anufacture of items reserved for small scale sector by non'44I units3 and iii !hen the proposed location attracts locational restriction O+I
I+&%#$*,)# R)8%,*,+0 C"35%.#"*' L,1)+#,+0: $he following industries re%uire compulsory industrial license under I (DPO) #ct Q appropriate authorityC i Distillation and brewing of alcoholic drinks ii /igars and cigarettes of tobacco and manufactured tobacco substitutes3 iii :lectronic #erospace and defence e%uipmentC all types3 iv Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches3 v Fazardous chemicals3 a Fydrocyanic acid and its derivatives b =hosgene and its derivatives c Isocyanates and di'isocyanates of hydrocarbon, not elsewhere specified (exampleC (ethyl Isocyanate) S34..7S14.) S)1$"*: #n industrial undertaking is defined as a small'scale unit if the capital investment in plant and machinery does not exceed Os ,1 million 4mall'scale units can get registered with the Directorate of IndustriesQDistrict Industries /entre of the 4tate <overnment 4uch units can manufacture any item, and are also free from locational restrictions $he <overnment has reserved certain items for exclusive manufacture in the small'scale sector (@ist available at www dipp gov in) M4+%-41$%*) "- ,$)3# *)#)*2)& -"* #34..7#14.) #)1$"*: -on 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 re%uired to undertake an obligation to export 71 per cent of the production of 44I reserved items L"14$,"+4. R)#$*,1$,"+#: Industrial undertakings are free to select the location of their pro"ects Industrial @icense is re%uired if the proposed location is within ;7 L( of the 4tandard 0rban #rea limits of ;E cities having population of , million as per ,55, census $hese cities are 0rban area limits of <reater (umbai, Lolkata, Delhi, /hennai, Fyderabad, +angalore, #hmedabad, =une, Lanpur, -agpur, @ucknow, 4urat, Gaipur, Lochi, /oimbatore, )adodara, Indore, =atna, (adurai, +hopal, )isakhapatnam, )aranasi and (unicipal /orporation limits of @udhiana
. T() L"14$,"+4. *)#$*,1$,"+ &")# +"$ 455.'C i) If the unit were to be located in an area designated as an R&industrial area&& before the ;7th Guly, ,55, ii) In the case of :lectronics, /omputer software and =rinting and any other industry, this may be notified in future as Jnon polluting industryK $he location of industrial units is sub"ect to applicable local zoning and land use regulations and environmental regulations Procedure for o>taining Industrial 1icense/ Industrial @icense is granted by the 4ecretariat for Industrial #ssistance (4I#) on the recommendation of the @icensing /ommittee #pplication in the prescribed form (Form F/'I@) accompanied with a crossed demand draft of Os ;711Q' may be submitted to the =OP/ section in 4I# Decisions are usually taken within 6'8 weeks of filing the application P".,1' -"* I+&%#$*,)# )E)35$ -*"3 .,1)+#,+0 7 IEM Industrial undertakings exempt from industrial license are only re%uired to file an Industrial :ntrepreneur (emoranda (I) in =art R#&, in the prescribed format (Form I) P*"1)&%*) -"* IEM: $he #pplication in the prescribed form (Form I) can be filed with the =OP/ section in 4I# either in person or by post $he I should be submitted along with a crossed demand draft of Os ,111Q' for up to ,1 items proposed to be manufactured For more than ,1 items, an additional fee of Os ;71 for up to ,1 additional items needs to be paid 9n filing the I, an acknowledgement containing the 4I# Oegistration -umber, for future reference, is issued In case I is sent by post, the acknowledgement is sent by post P no further approval is re%uired #n I would stand cancelled if the proposal re%uires compulsory license 0pon commencement of commercial production, Industrial undertakings need to file information in =art R+& of the I to =OP/ 4ection in 4I# -o fee is to be paid for filing =art + #ll industrial undertakings whether or not exempt from compulsory industrial licensing, are statutorily re%uired to submit monthly production return in the prescribed proforma every month $his should reach the Industrial 4tatistics 0nit (I40) of the Department positively by the ,1th of the following month -oteC F/'I@ and I forms are available in the =ublic Oelation and /omplaint 4ection (=OP/) of the 4I#, all outlets dealing in <overnment =ublications, Indian :mbassies, and can be
downloaded from the web site httpCQQwww dipp gov in C4**' "+ B%#,+)## <COB= L,1)+#): 4mall' scale units by virtue of their natural growth may exceed the investment limit prescribed for small'scale units In such cases these units need to obtain a /arry'on'+usiness (/9+) @icense based on the best production in the preceding three years -o export obligation is fixed on the capacity for which the /9+ license is granted $he application for /9+ licence should be submitted in revised form J::K, which can be downloaded from the web site httpCQQwww dipp gov in along with a crossed demand draft of Os ;711Q' Fowever, on further expansion of its capacity beyond the capacity included in /9+ license, the unit would need to obtain an industrial license
P4'3)+$ "- 5*)#1*,9)& -)): $he fee prescribed for various applications, licenses are to be paid through crossed demand draft drawn in favor of the =ay P #ccounts 9fficer, Department of Industrial =olicy P =romotion, (inistry of /ommerce P Industry, payable at -ew Delhi E+2,*"+3)+$4. C.)4*4+1)#: :ntrepreneurs are re%uired to obtain 4tatutory clearances relating to =ollution /ontrol and :nvironment as may be necessary, for setting up an industrial pro"ect for E, categories of industries in terms of -otification 4 9 81) dated ;B , 56 as amended from time to time, issued by the (inistry of :nvironment P Forests under $he :nvironment (=rotection) #ct, ,5D8 $his list includes petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper, etc Fowever, if investment in the pro"ect is less than Os , billion, such :nvironmental clearance is not necessary, except in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining pro"ects, tourism pro"ects of certain parameters, tarred roads in Fimalayan areas, distilleries, dyes, foundries and electroplating industries 4etting up industries in certain locations considered ecologically fragile (e g #ravalli Oange, coastal areas, Doon valley, Dahanu, etc ) are guided by separate guidelines issued by the (inistry of :nvironment and Forests Details can be obtained at the website of (inistry of :nvironment and Forests (httpCQQenvfor nic in ) FOREIGN TECHNOLOGY AGREEMENTS G)+)*4. P".,1':
For promoting technological capability and competitiveness of the Indian industry, ac%uisition of foreign technology is encouraged through foreign technology collaboration agreements Induction of know'how through such collaborations is permitted either through automatic route or with prior <overnment approval
S1"5) "- T)1(+"."0' C"..49"*4$,"+: $he terms of payment under foreign technology collaboration, which are eligible for approval through the automatic route and by the <overnment approval route, includes technical know how fees, payment for design and drawing, payment for engineering service and royalty =ayments for hiring of foreign technicians, deputation of Indian technicians abroad, and testing of indigenous raw material, products, and indigenously developed technology in foreign countries are governed by separate O+I procedures and rules pertaining to current account transactions and are not covered by the foreign technology collaboration approval For details please refer to the website of the O+I A%$"34$,1 R"%$): =ayments for foreign technology collaboration by Indian companies are allowed under the automatic route sub"ect to the following limitsC (i) $he lump sum payments not exceeding 04N; million3 (ii) Ooyalty payable being limited to 7 per cent for domestic sales and D per cent for exports, without any restriction on the duration of the royalty payments $he royalty limits are net of taxes and are calculated according to standard conditions T=ress -ote -o ,5 (,55D series) and =ress -ote -o ; (;11E series)U $he royalty will be calculated on the basis of the net ex'factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought'out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc
U#) "- T*4&)34*;# 4+& B*4+& +43): =ayment of royalty up to ;2 for exports and ,2 for domestic sales is allowed under automatic route for use of trademarks and brand name of the foreign collaborator without technology transfer Ooyalty on brand nameQtrade mark shall be paid as a percentage of net sales, viz , gross
sales less agents&Qdealers& commission, transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts and components imported from the foreign licensor or its subsidiaryQaffiliated company(=ress -ote -o , of ;11 In case of technology transfer, payment of royalty includes the payment of royalty for use of trade mark and brand name of the foreign collaborator P*"1)&%*) -"* A%$"34$,1 R"%$): #uthorized Dealers (#Ds) appointed by the O+I allow remittances for royalty, payment of lump' sum fee and remittance for use of $rade mark QFranchise in India within the limits prescribed under the automatic route O+I&s prior approval is re%uired for remittance towards purchase of trade markQfranchise G"2)*+3)+$ A55*"24. @ P*"F)1$ A55*"24. B"4*& <PAB=: Ooyalty payment in the following cases re%uires prior <ovt approval (through =#+ when only technical collaboration is proposed and FI=+ where both financial P technical collaboration are proposed)C 4ectorsQactivities which are not on the automatic route for FDI P*"1)&%*) -"* G"2)*+3)+$ A55*"24.: =roposals for foreign technology collaboration not covered under the automatic route are considered by the =ro"ect #pproval +oard (=#+) in the Department of Industrial =olicy and =romotion #pplication in such cases should be submitted in Form F/'I@ to the 4ecretariat for Industrial #ssistance =roposals where both financial P technical collaboration are proposed, application is to be submitted to FI=+ -o fee is payable ENTRY OPTIONS FOR FOREIGN INVESTOR E+$*' O5$,"+#: # foreign company planning to set up business operations in India has the following optionsC #s an Incorporated :ntity i) +y incorporating a company under the /ompanies #ct,,578 through i Goint )entures3 or ii !holly 9wned 4ubsidiaries
Foreign e%uity in such Indian companies can be up to ,112 depending on the re%uirements of the investor, sub"ect to any e%uity caps prescribed in respect of the area of activities under the Foreign Direct Investment (FDI) policy #s an 0nincorporated :ntity ii) #s a foreign /ompany through i @iaison 9fficeQOepresentative 9ffice ii =ro"ect 9ffice iii +ranch 9ffice 4uch offices can undertake activities permitted under the Foreign :xchange (anagementstablishment in India of +ranch 9ffice of other place of business) Oegulations, ;111 I+1"*5"*4$,"+ "- C"354+': For registration and incorporation, an application has to be filed with Oegistrar of /ompanies (O9/) 9nce a company has been duly registered and incorporatedas an Indian company, it is sub"ect to Indian laws and regulations as applicable toother domestic Indian companies For details please visit the website of (inistry of /ompany #ffairs athttpCQQdca nic in L,4,#"+ O--,1)DR)5*)#)+$4$,2) O--,1): $he role of liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers It can promote exportQimport fromQto India and also facilitate technicalQfinancial collaboration between parent company andcompanies in India @iaison office can not undertake any commercial activitydirectly or indirectly and can not, therefore, earn any income in India #ll expenses of @iasion offices have to be met by inward remittances #pproval for establishing a liaison office in India is granted by Oeserve +ank of India (O+I) P*"F)1$ O--,1): Foreign /ompanies planning to execute specific pro"ects in India can set up temporary pro"ectQsite offices in India O+I has now granted general permission to foreign entities to establish =ro"ect 9ffices sub"ect to specified conditions 4uch offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the pro"ect =ro"ect 9ffices may remit outside India the surplus of the pro"ect, after meeting the tax liabilities, on its completion B*4+1( O--,1):
Foreign companies engaged in manufacturing and trading activitiesabroad are allowed to set up +ranch 9ffices in India for t he following purposesC a :xportQImport of goods b Oendering professional or consultancy services c /arrying out research work, in which the parent company is engaged d =romoting technical or financial collaborations between Indian companies and parent or overseas group company e Oepresenting the parent company in India and acting as buyingQselling agents in India f Oendering services in Information $echnology and development ofsoftware in India g Oendering technical support to the products supplied by the parentQ groupcompanies h Foreign airlineQshipping company +ranch 9ffices established with the approval of O+I may remit outside India profit of the branch, net of applicable Indian taxes and sub"ect to O+I guidelines =ermission for setting up branch offices is granted by the Oeserve +ank of India (O+I) B*4+1( O--,1) "+ GS$4+& A."+) B4#,#H ,+ SEI: 4uch +ranch 9ffices would be isolated and restricted to 4pecial :conomic Wone (4:W) alone and no business activityQtransaction will be allowed outside the 4:Ws in India, which include branchesQsubsidiaries of its parent office in India -o approval shall be necessary from O+I for a company to establish a branchQunitin 4:Ws to undertake manufacturing and service activities sub"ect to the following conditionsC a 4uch units are functioning in those sectors where ,112 FDI is permitted, b 4uch units comply with part *I of the /ompany&s #ct (4ection 75; to 81, c 4uch units function on a stand'alone basis, d In the event of winding up of business and for remittance of winding'up proceeds, the branch shall approach an authorized dealer in foreign exchange with the documents re%uired as per F# #pplication for setting up @iaison 9fficeQ =ro"ect 9fficeQ +ranch 9ffice may besubmitted to /hief <eneral (anager, :xchange /ontrol Department(ForeignInvestment Division), O+I
/entral 9ffice, (umbai'61111,, in form F-/ , (available at O+I website at www rbi org in )
E?CHANGE CONTROL F"*),0+ EE1(4+0) M4+40)3)+$ A1$: $he Oeserve +ank of India&s :xchange /ontrol Department, administers Foreign :xchange (anagement #ct, ,555, (F#) R)54$*,4$,"+ "- I+2)#$3)+$ C45,$4. 4+& P*"-,$# E4*+)& ,+ I+&,4: (i) #ll foreign investments are freely repatriable, sub"ect to sectoral policies and except for cases where -OIs choose to invest specifically under non'repatriable schemes Dividends declared on foreign investments can be remitted freely through an #uthorized Dealer
(ii) -on'residents can sell shares on stock exchange without prior approval of O+I and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary -9/Qtax clearance certificate issued by Income $ax authorities (iii) For sale of shares through private arrangements, Oegional offices of O+I grant permission for recognized units of foreign e%uity in Indian company in terms of guidelines indicated in Oegulation ,1 + of -otification -o F# ;1Q;111 O+ dated (ay R;111 $he sale price of shares on recognized units is to be determined in accordance with the guidelines prescribed under Oegulation ,1+ ( of the above -otification (iv) =rofits, dividends, etc ,(which are remittances classified as current account transactions) can be freely repatriated C%**)+$ A11"%+$ T*4+#41$,"+# /urrent account transactions are regulated under the Foreign :xchange (anagement (/urrent #ccount $ransactions) Oules ;111 X -o < 4 O ED,),dated E 7 ;111U =rior approval of the O+I is re%uired for ac%uiring foreign currency above specified limits for the following purposesC a Foliday travel over 04N,1,111 p a b <ift Q donation over 04N7,111 Q 04N,1,111 per beneficiary p a c +usiness travel over 04N;7,111 per person d Foreign studies as per estimate of institution or 04N,11,111 per academic year e #rchitectural Q consultancy services procured from abroad over 04N,,111,111 per pro"ect f Oemittance for purchase of $rade (ark Q Franchise g Oeimbursement of pre incorporation expenses over 04N,11,111 h Oemittances exceeding 04N;7,111 p a (over and above ceilings prescribed for other remittances mentioned above) by a resident individual for any current account or capital account transaction $he above figures are for the purpose of general guidance of the investors It is suggested that investors must reconfirm, the permissible limits before undertaking transactions A18%,#,$,"+ "- I33"249.) P*"5)*$' B' N"+7R)#,&)+$C # person resident outside India, who has been permitted by Oeserve +ank of India to establish a branch, or office, or place of business in India (excluding a @iaison 9ffice), has general permission of Oeserve +ank of India to ac%uire immovable property in India, which is necessary for, or incidental to, the activity Fowever, in such cases a declaration, in prescribed form (I=I),
is re%uired to be filed with the Oeserve +ank, within 51 days of the ac%uisition of immovable property Foreign nationals of non'Indian origin who have ac%uired immovable property in India with the specific approval of the Oeserve +ank of India can not transfer such property without prior permission from the Oeserve +ank of India =lease refer to the Foreign :xchange (anagement (#c%uisition and transfer of Immovable =roperty in India) Oegulations& ;111 T-otification -o F# ;,Q;111'O+ dated (ay E, ;111U #c%uisition of Immovable =roperty +y -OI #n Indian citizen resident outside India (-OI) can ac%uire by way of purchase any immovable property in India other than agriculturalQ plantation Qfarm house Fe may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a =erson of Indian 9rigin resident outside India or a person resident in India
PORTFOLIO INVESTMENT P"*$-".," I+2)#$3)+$ S1()3)<PIS=: Foreign Institutional Investors (FIIs) registered with 4:+I and -on'Oesident Indians are eligible to purchase shares and convertible debentures under the =ortfolio Investment scheme $he FII should apply to the designated #D for opening a foreign currency account andQor a -on Oesident Oupee #ccount Investment by FIIs is regulated under 4:+I (FII) Oegulations, ,557 and Oegulation 7( of F# -otification -o ;1 dated (ay E, ;111 4:+I acts as the nodal point in the entire process of FII registration FIIs are re%uired to apply to 4:+I in a common application form in duplicate O+I approval is also re%uired under F# to enable an FII to buyQsell securities on 4tock :xchanges and open foreign currency and Indian Oupee accounts with a designated bank branch F"*),0+ I+#$,$%$,"+4. I+2)#$"*# <FII=:
FIIs include #sset (anagement /ompanies, =ension Funds, (utual Funds, Investment $rusts as -ominee /ompanies, IncorporatedQInstitutional =ortfolio (anagers or their =ower of #ttorney holders, 0niversity Funds, :ndowment Foundations, /haritable $rusts and /haritable 4ocieties P".,1' O+ FII I+2)#$3)+$# (ain features of the policy on investment by FII areC a FIIs are re%uired to allocate their investment between e%uity and debt instruments in the ratio of B1CE1 Fowever, it is also possible for an FII to declare itself a ,112 debt FII in which case it can make its entire investment in debt instruments b FIIs can buyQsell securities on 4tock :xchanges $hey can also invest in listed and unlisted securities outside 4tock :xchanges where the price has been approved by O+I c -o individual FIIQsub'account can ac%uire more than ,12 of the paid up capital of an Indian company d #ll FIIs and their sub'accounts taken together cannot ac%uire more than ;62 of the paid up capital of an Indian /ompany e Indian /ompanies can raise the above mentioned ;62 ceiling to the 4ectoral /ap Q 4tatutory /eiling as applicable by passing a resolution by its +oard of Directors followed by passing a 4pecial Oesolution to that effect by its <eneral +ody in terms of =ress Oelease dated 4ept ;1, ;11, and F# -otification -o 67 dated 4ept ;1, ;11, -o permission from O+I is needed so long as the FIIs purchase and sell on recognized stock exchange #ll non'stock exchange salesQpurchases re%uire O+I permission P"*$-".," I+2)#$3)+$# 9' NRI# -OIsQ=I9s are permitted to purchaseQsell sharesQconvertible debentures of Indian companies on 4tock :xchanges under =ortfolio Investment 4cheme For this purpose, the -OIQ=I9 has to apply to a designated branch of a +ank which deals in =ortfolio Investment #ll the saleQpurchase transaction is routed through the designated branch #n -OI can purchase shares up to 72 of the paid up capital of an Indian company #ll -OIs taken together cannot purchase more than ,12 of the paid up value of the company $his limit can be increased by the Indian company to ;62 by passing a <eneral +ody resolution Investment can be made both on repatriation basis or non'repatriation basis the sale of shares will be sub"ect to payment of applicable taxes Details regarding portfolio investment scheme available at the websites of O+I (www rbi org in) and 4:+I (www sebi gov in)
INCORPORATION OF COMPANY C"354+'C# A1$ 1A56: Incorporation of a company in India is governed by the /ompanies #ct, ,578 =art II of the #ct deal with the incorporation of a company and matters related to P*,24$) C"354+': =rivate company means a company which has a minimum paid'up capital of Os,,,11,111Q' or such higher paid'up capital as may be prescribed, and by its articles, (a) restricts the rights to transfer its shares, if any3 (b) @imits the number of its members to fifty, not including i) =ersons who are in the employment of the company3 and 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 ceased3 and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company3 (d) =rohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives P%9.,1 C"354+': # public company is a company which is not a private company and has a minimum paid'up capital of Os,7,11,111Q'or such higher paid'up capital, as may be prescribed F"*34$,"+ "- 4 P*,24$) L,3,$)& C"354+':
# private /ompany can be formed either by i incorporation of a new company for doing a new business , or ii /onversion of existing business of a sole proprietary concern or partnership firm into a company N43) "- C"354+': $he name of a corporation is the symbol of its personal existence #ny suitable name may be selected for registration sub"ect to the following guidelinesC a $he promoters should select three to four alternative names, %uite distinct from each other b $he names should include, as far as possible, activity as per the main ob"ects of the proposed company c $he names should not too closely resemble with the name of any other registered company d $he official guidelines issued by the /entral <overnment should be followed while selecting the names +esides, the names so selected should not violate the provisions of the :mblems and -ames (=revention of Improper 0se) #ct, ,571 e #pply in form ,'# to the Oegistrar of /ompanies having "urisdiction along with a filing fee of Os 711 M)3"*4+&%3 "- A##"1,4$,"+: #n important step in the formation of a company is to prepare a document called (emorandum of #ssociation It is the charter of the company and it contains the basic conditions on which the company is incorporated $he (emorandum contains the name, the 4tate in which the registered office is to be situated, main ob"ects of the company to be pursued by the company on its incorporation and ob"ects incidental or ancillary to the attainment of the main ob"ects, liability of the members and the authorized capital of the company $he main purpose of the memorandum is to state the scope of activities and powers of the company A*$,1.)# "- A##"1,4$,"+: #rticles of #ssociation of the company contain rules, regulation and bye'laws for the general management of the company It is compulsory to get the #rticles of #ssociations registered along with the (emorandum of #ssociation in case of a private company $he #rticles are subordinate to the (emorandum of #ssociation $herefore, the #rticles should not contain any regulation, which is contrary to provisions of the (emorandum or the /ompanies #ct $he #rticles are binding on the members in relation to the company as well as on the company in its relation to members R)0,#$*4$,"+ "- C"354+' 4+& I##%) "- C45,$4.: #fter completion of the preliminaries, as enumerated above, the application with necessary documents are re%uired to be filed with the Oegistrar of /ompanies of the 4tate in which the company is proposed to be incorporated $hese includeC a (emorandum of #ssociation (duly stamped) and a duplicate thereof b #rticles of #ssociation (duly stamped) and a duplicate thereof
c $he 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 # copy of the letter of the Oegistrar of /ompanies 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 Oegistered 9ffice in Form E; and Form ,D respectively and declaration of compliance with re%uirements of the /ompanies #ct in Form -o , and Form ;5 for giving consent to act as a Director in case of public company are also given $he amount of registration fee payable is regulated with reference to the amount of authorized capital of the proposed company /ertificate of Incorporation 0pon compliance with all re%uirements, the Oegistrar will register the company and issue a /ertificate of Incorporation of company It brings the company into existence as a legal entity I##%) "- S(4*) C45,$4.: #fter obtaining registration, the company proceeds with its business for which it re%uires funds In case of a private company, the capital is to be raised by way of private arrangements whereas a =ublic @td company can raise funds from the public First of all, the company will issue shares to the subscribers to its memorandum and other members of the company $he issued capital must not exceed the authorized capital of the company It is necessary for a public limited company to obtain the /ertificate of /ommencement of +usiness before commencing the business SPECIAL ECONOMIC IONES <SEI#= AND E?PORT ORIENTED UNITS <EOU#= P".,1' -"* S)$$,+0 %5 S5)1,4. E1"+"3,1 I"+) <SEI=: 4:W is a specifically delineated duty free enclave and is deemed to be foreign territory for the purposes to trade operations and duties and tariffs <oods and services going into the 4:W area form D$# are treated as exports and goods coming from the 4:W area into D$# are to be treated as if these are being imported # 4:W may be set up in the =ublic, =rivate or Goint 4ector or by 4tate government(s) =roposals as per criteria under appendix ,6 II 9 available at D<F$ website (httpCQQdgft delhi nic in) is considered by +oard of #pprovals and Department of /ommerce issues the letter of permission P*"1)&%*): $he applicant should follow the following procedureC a 4ubmission of ,1 copies of application along with pro"ect report to /hief 4ecretary of the concerned 4tate b Forwarding of application along with comments by the 4tate government to +oard of #pprovals in the Department of /ommerce c Issue of letter of permission by Department of /ommerce
P".,1' -"* FDIDNRI I+2)#$3)+$ -"* #)$$,+0 %5 SEIDFTWI: ,112 FDI is permitted under automatic route for setting up 4pecial :conomic Wones and Free $rade !arehousing Wones sub"ect to 4pecial :conomic Wones #ct, ;117 and the Foreign $rade =olicy FDI in setting up of 4:Ws P units in 4:W are exempt from =ress -ote -o ; (;117), governing FDI in /onstruction Development pro"ects P".,1' -"* #)$$,+0 %5 EOU#DU+,$# ,+ SEI %+&)* A%$"34$,1 R"%$): Development /ommissioners (D/s) of 4pecial :conomic Wones (4:Ws) accord automatic approval to pro"ects where (a) #ctivity proposed does not attract compulsory licensing or falls in the services sector except OPD3 4oftware P I$ enabled services3 (b) @ocation is in conformity with the prescribed parameters3 (c) 0nits undertake to achieve positive net foreign exchange earning3 #n :90 unit may be shifted to 4:W with the approval of D/s provided the :90 unit has achieved pro'rata obligation under the :90 scheme If the 0nit is amenable to bonding by customs authorities3 conversion of existing Domestic $ariff #rea (D$#) units into :90 is also permitted under automatic route, if the D$# unit satisfies the parameters in =ara D , In case there is an outstanding export commitment under the :=/< scheme, it will be subsumed in the export performance of the unit If the unit is having outstanding export commitment under the #dvance @icensing 4cheme, it will apply to #@/ for reducing its export commitment in proportion of the %uantum of duty free material actually utilized for production and permitted to carry forward the unutilized material imported against the #dvance @icense P".,1' -"* S)$$,+0 %5 EOU#D U+,$# ,+ SEI %+&)* G"2)*+3)+$ R"%$): =roposals not covered by the automatic route are forwarded by the Development /ommissioner to the +oard of #pproval (+o#), Department of /ommerce for consideration 9n consideration of the proposal by the +oard, the decision would normally be conveyed within 67 days P*"1)&%*) -"* A55*"24.: #pplications in the prescribed form for :90s and units in 4:W should be submitted to the concerned D/s of the 4:Ws $he application should be submitted along with a crossed demand draft of Os 7111Q' drawn in favour of the Jthe =ay P #ccounts 9fficer, Department of /ommerce, (inistry of /ommerce and IndustryK, payable at -ew Delhi #pplication form and detailed procedure may be obtained from the website of Department of commerce at httpCQQcommerce nic in $he form is also available at all outlets dealing in <overnment publications P".,1' -"* FDID NRI I+2)#$3)+$ -"* EOU#D U+,$# ,+ SEI: Details about the type of activities permitted are given in the Foreign $rade =olicy issued by Department of /ommerce (web site ' httpCQQcommerce nic in) =roposals not covered under the automatic route are considered by the FI=+
SETTING UP OF INDUSTRIAL PARKS> INDUSTRIAL MODEL TOWNS AND GROWTH CENTRES P".,1' %+&)* A%$"34$,1 R"%$): $he <overnment notified Industrial =ark scheme on , 6 ;11; (available at www dipp gov in) for setting up Industrial =arksQ Industrial (odel $owns 4I# in DI== accord approval to set up the Industrial =arksQ Industrial (odel $owns, which meet the criteria laid down for approval under the automatic route within fifteen days
A55*"24. 9' E35"/)*)& C"33,$$)): =roposals not meeting any or all of the parameters for automatic route re%uire approval of :mpowered /ommittee set up in the DI==, (inistry of /ommerce P Industry $he decision of the /ommittee is usually conveyed within six weeks P*"1)&%*) -"* A55*"24. 4+& 424,.,+0 166J T4E EE)35$,"+: #pplication in the Form'I=4',, available on this Department&s web site (httpCQQdipp gov in), for obtaining approval for setting up an Industrial =ark and for availing ,112 tax exemption available under section D1 I# of the Income $ax #ct, should be made to the =OP/ 4ection of the DI== #pplication for automatic route has to be submitted in duplicate and for non' automatic approval, in six sets $he application must be accompanied by a fee of Oupees 8,111Q' by a demand draft drawn in favor of the =ay and #ccounts 9fficer, DI== payable at -ew Delhi P".,1' -"* FDIDNRI I+2)#$3)+$: ,112 FDI is permitted under automatic route for setting up of Industrial =arksQ Industrial (odel $owns $he procedure mentioned in para , 7 will be applicable for seeking re%uisite approval E.)1$*"+,1 H4*&/4*) T)1(+"."0' P4*; <EHTP= 4+& S"-$/4*) T)1(+"."0' P4*; <STP= S1()3)#: In order to provide impetus to the electronics industry, to enhance its export potential and to develop an efficient electronic component industry, :F$= and 4$= schemes offer a package of incentives and facilities like duty free imports on the lines of the :90 4cheme, deemed exports benefits and tax holidays A%$"34$,1 R"%$): $he Directors of 4$=s in respect of 4$= proposals3 and the Designated 9fficers in respect of :F$= proposals accord automatic approval within ; weeks ifC (a) Items do not attract compulsory licensing3 (b) @ocation is in conformity with the prescribed parameters3 (c) 0nits undertake to achieve positive net foreign exchange earning3 G"2)*+3)+$ A55*"24.: #ll proposals for setting up of these pro"ects, which do not meet any or all of the parameters for automatic approval, need to be considered and approved by the (inistry of Information
$echnology through the Inter'(inisterial 4tanding /ommittee $he decision of the /ommittee is usually conveyed within six weeks =rocedureC #pplication, in the prescribed form, should be submitted to the concerned Directors of 4$=s or the Designated 9fficers of :F$=s and to the (inistry of Information $echnology for <overnment approval $he application should be submitted along with a crossed demand draft for Os 7111Q' drawn in favor of the Jthe =ay P #ccounts 9ffer, Department of /ommerce, (inistry of /ommerce P IndustryK, payable at -ew Delhi $he form is available in any outlet dealing with <overnment =ublications P*"1)&%*) -"* FDIDNRI I+2)#$3)+$: #ll proposals for FDIQ-OI investment in :F$=Q4$= 0nits are eligible for approval under automatic route sub"ect to parameters listed in =ara , E For proposals not covered under automatic route, the applicant should seek separate approval of the FI=+, as per the procedure outlined in =ara , 8
TA?ATION IN INDIA T4E4$,"+ S'#$)3 ,+ I+&,4: India has a well developed tax structure Income $ax (except tax on agricultural income, which the 4tate <overnments can levy), /ustoms duties, /entral :xcise and 4ales $ax and 4ervice $ax are the main taxes levied by the /entral <overnment )alue #dded $ax, (4ales $ax where )#$ is yet not in force), 4tamp Duty, 4tate :xcise, @and Oevenue, and $ax on =rofessions are the principal taxes levied by the 4tate <overnments @ocal +odies are empowered to levy tax on properties, 9ctroi and for utilities like water supply, drainage, etc P)*#"+4. I+1"3) T4E:
The rates of personal income ta& are+ Income range 2Cupee5 1 -,, 11,111 ,, 11,111 -,, 71,111 ,, 71,111 - 0, 71,111 0, 71,111 and abo e
Ta& rate2/5 $IL ,1 01 .1
) surcharge of ,1/ is le ied on income e&ceeding Cs.,1, 11,111. Senior citizens with income up to Cs.,, >7,111 are e&empt from Income Ta&. Rates of Withholding ,a@/ Current rates for ?ithholding ta@ for payment to non$residents are/ (i) Interest (ii)Dividends (iii)Ooyalties (iv) $echnical 4ervices (v) #ny 9ther 4ervices ;12 Dividends paid by domestic companiesC -il ;12 ,12
IndividualsC E12 of the income /ompaniesC 612 of the net income $he above rates are general and in respect of countries with which India does not have a Double $axation #voidance #greement (D$##) C"*5"*4$) T4E: C%**)+$ *4$)# "- 1"*5"*4$) $4E 4*): V E1 2 in the case of domestic companies and surcharge Y ,12 of the tax /ompanies incorporated in India under the applicable law are treated as domestic company for the purpose of taxation V 612 in the case of foreign companies and surcharge Y ; 72 of the tax V :ducation cess is levied Y ;2 on the amount of tax and surcharge in all cases 4pecial :conomic Wones (4:Ws) TA? CONCESSIONS:
India offers attractive tax incentives to encourage investments in 4pecial :conomic Wones, priority industries and to promote industrialization of industrially dis'advantageous areas S5)1,4. E1"+"3,1 I"+)# <SEI#=: R$F: 4=:/I#@ :/9-9(I/ W9-:4 #/$, ;117&, notified by the <overnment of India in Gune ;117, provides following concessions for the establishment, development and management of the 4pecial :conomic Wones for the promotion of exports $he tax concessions available to developers of 4pecial :conomic Wones and units located in such zones are as followsC 0nits which begin to manufacture or produce articles or things or provide any services, on or after 1,'16';117 are eligible for ,7 year tax benefit in relation to export profits, in the following manner C' (i) ,11 2 deduction for 7 years, 71 2 deduction for next 7 years, 71 2 deduction of the profits ploughed back into business for the next 7 years (ii) ,11 2 deduction of profits derived by an undertaking Q enterprise from the business of developing an 4:W, notified on or after ,st #pril, ;117 $he deduction is available for ,1 out of ,7 years beginning from the year in which 4:W has been notified (iii) :xemption of capital gains arising on transfer of capital assets in case of shifting of industrial undertaking from urban area to any 4pecial :conomic Wone (iv) (inimum #lternate $ax (chargeable Y B 7 2 of the book profit) is not applicable to the income arising on or after ,st #pril, ;117 to 4:W units or developers of 4:Ws (v) :xemption of developers of 4:W from dividend distribution tax on dividends to be distributed by them on or after ,st #pril, ;117 (vi) :xemption of interest income received by a non'resident or not ordinarily resident on deposits made on or after 1,'16';117 with 9ffshore +anking 0nits (vii) -o tax to be deducted by 9ffshore +anking 0nits from the interest paid on deposit made by, or borrowing from, a non'resident or a person not ordinarily resident in India, on or after 1,'16' ;117 C45,$4. G4,+# O+ I+-*4#$*%1$%*) F%+&#: Income by way of dividend, interest, or long'term capital gain of an infrastructure capital company or an infrastructure capital fund is ,112 tax'exempt Fowever infrastructure capital companies are liable to pay minimum alternative tax Income of )enture /apital /ompany or venture capital fund set up to raise funds for investment in a venture capital undertaking is also tax'exempt T4E EE)35$,"+#:
Following tax exemptions are available for priority sectors and incentives to industries located in special areaQregionsC Deduction of ,112 of the profit from business of a Development or operation and maintenance of ports, airports , roads, highways, bridges, rail systems, inland waterways, inland ports, water supply pro"ects, water treatment systems, irrigation pro"ects, sanitation and sewage pro"ects, solid waste management systems b <eneration, distribution and transmission of power c Development, operation and maintenance of an Industrial =ark or 4:W d +y undertakings set up in certain notified areas or in certain thrust sector industries in the -orth'eastern states and 4ikkim e +y undertakings set up in certain notified areas or in certain thrust sector industries in 0ttaranchal P Fimachal =radesh f +y undertakings set up in Gammu P Lashmir g Derived from export of articles or software by undertakings in F$W Q :F$= Q 4$= h Derived from export of articles or software by undertakings in 4:W i Derived from export of articles or software by ,112 :90 " #n offshore banking unit situated in a 4:W from business activities with units located in the 4:W k Derived by undertakings engaged in the business of developing and building housing pro"ects l +y undertakings from the business of operating and maintaining Fospital m Derived by an undertaking engaged in the integrated business of handling, storage and transportation of food grains n Derived by an undertaking engaged in the commercial production or refining of mineral oil o Derived by an undertaking from export of woodbased handicraft D"%9.) T4E4$,"+ R).,)-: India has entered into D$## with 85 countries including countries like 0 4 # , 0 L , Gapan, France, <ermany, etc In case of countries with which India has double taxation avoidance
agreements $he /omprehensive D$##&s, country wise, may please be seen thru website of Income $ax India at httpCQQincometaxindia gov in AUTHORITY FOR ADVANCE RULING: !ith a view to avoid a dispute in respect of assessment of income'tax liability in the case of a non'resident ( and also specified categories of residents), a 4cheme of #dvance Ouling was incorporated in the Income $ax #ct $he #uthority for #dvance ruling (##O) pronounces rulings on the applications of the non'residentQresidents submitted and such rulings are binding both on the applicant and the Income'$ax Department $hus, the applicant can avoid expensive and time consuming litigation which would have arisen from normal income tax assessment proceedings $he application in such cases should be addressed toC $he /ommissioner of Income'$ax #uthority of #dvance Oulings, 7th Floor, - D ( / +uilding, ?ashwant =lace, 4atya (arg, /hankyapuri, -ew Delhi ',,11;,
INVESTMENT GUIDANCE AND FACILITATION: INVESTMENT GUIDANCEC S)1*)$4*,4$ -"* I+&%#$*,4. A##,#$4+1) <SIA= 4ecretariat for Industrial #ssistance (4I#) has been set up in the Department of Industrial =olicy P =romotion (DI==) in the (inistry of /ommerce and Industry to provide a single window for entrepreneurial assistance, investor facilitation, conveying <overnment decisions on applications filed, assisting entrepreneurs and investors in setting up pro"ects, (including liaison with other organisations and 4tate <overnments) and in monitoring implementation of pro"ects It also notifies all <overnment policy relating to investment and technology A##,#$4+1) $" E+$*)5*)+)%*# =OP/ 4ection of the 4I# provides assistance to entrepreneurs on various sub"ects concerning investment decisions It receives all papersQ applications related to industrial approvals i e Is, Industrial @icenses, Foreign Investment, Foreign $echnology #greements, :F$=, 4$= 4chemes, etc and immediately issues a computerized acknowledgement, which also has an identityQreference number #ll correspondence with the 4I# should %uote this number It also provides information regarding the current status of applications filed for various industrial approvals
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D&,55.0"2.,+= DI==&s website www dipp gov in ensures easy availability of information to the investors about investment policies and procedures, investment climate, state industrial policies, publications, notifications and press notesQreleases $he web site contains the followingC S (anual on Foreign Direct Investment in India ' =olicy and =rocedures (also available in :nglishQFrenchQ<ermanQ4panishQLoreanQGapaneseQ/hinese and Italian language) S 4I# -ewsletter'monthly issues S 4I# 4tatistics' monthly issues S FDI 4tatistics S =ress -otes, -otifications and =ress Oeleases S @ist of 44I reserved items P -I/ /odes S Industrial =olicy 4tatements S @atest #nnual Oeport S Information about Intellectual =roperty Oights S 4tatus of 4I# applications S Important @egislations S Information about #ttached and 4ubordinate 9ffices S =rofile of selected industrial sectors S @ink to websites of other (inistriesQDepartments S @ink to websites of all 4tatesQ0nion $erritories S #ll relevant application forms N4$,"+4. I+&%#$*,4. C.4##,-,14$,"+ <NIC= C"&): In all the forms re%uired for various approvals including FDI, description of activities are re%uired to be given as per the -ational Industrial /lassification of #ll :conomic #ctivities (-I/), ,5DB,
O+.,+) C(4$ A+& B%..)$,+ B"4*& S)*2,1)#: DI== website provides a link this list for the benefit of the users $he web site has the facility of on line chat between ,,#( to ,; -oon P 6 11 to 7 11 = ( (Indian 4tandard $ime, <($Z7 [) on all working days where investors can seek clarification on any issue relating to FDI =olicies and related issues $he web site also has provision of bulletin board service If the investor cannot avail the on line chat facility, heQshe can post the %uestion on bulletin board at any time #ll efforts are made to send a reply within ;6 hours I+-"*34$,"+ 49"%$ V4*,"%# O$()* C.)4*4+1)# 4+& A55*"24.#: In addition to the approval for bringing FDI in India, other clearances and approvals, such as registration of company, environment and forest clearance, land ac%uisition, power and water connection, etc , may be re%uired for starting a business in India Details of concerned DepartmentsQ#gencies along with their web site addresses are given in #nnex'I) P%9.,14$,"+#: Following publications are brought out by DI== and updated regularly for the guidance of investorsC a Foreign Direct Investment in India I =olicy P =rocedure b Investing in India IFlyer c :ntry 4trategies for foreign Investors IFlyer d $axation in India IFlyer e Investment 9pportunities in infrastructure sectors 4ingle !indow 4ystem in 4tates P 0nion $erritories g /ompendium of =ress notes on FDI policy $hese publications are available through the =OP/ of the 4I# or Investment =romotion /ell, DI==3 as also from Indian (issions abroad $hese can also be down loaded from the web site www dipp gov in SIA N)/# L)$$)*: $his is a monthly publication on Foreign Direct Investment Q -OI Investment Q sectoral breaks' ups Q country'wise break'ups, all actual FDI inflows and policy notifications issued during the
month $he monthly publication is uploaded on Department&s website at www dipp gov in #nnual issues of 4I# -ewsletter are also published and available on payment from /ontroller of =ublications, ,, /ivil @ines, Delhi ' ,,1 176 or from any outlet dealing in <overnment publications SIA S$4$,#$,1#: $his is also a monthly publication on data relating to Industrial @icences, Foreign $echnical /ollaboration, etc , monthly data on industrial production of ;15 select industry groups, as well as policy announcements by <overnment during the month #nnual issues of 4I# 4tatistics are available on payment from /ontroller of =ublications, , /ivil lines, Delhi ' ,,1 176 or from any outlet dealing in <overnment publications
INVESTMENT FACILITATION: F"*),0+ I+2)#$3)+$ I35.)3)+$4$,"+ A%$("*,$' <FIIA= FII# has been established to facilitate %uick implementation of FDI approvals and assist foreign investors in getting necessary approvals Fast $rack /ommittees have been set up in E1 (inistriesQDepartments for regular review of FDI mega pro"ects (with proposed investment of Os , billion and above), and resolution of any difficulties Details of the fast track committees set up in various ministries is available at httpCQQdipp gov in Investors can approach FII# through website httpCQQdipp gov in Foreign Investment =romotion +oard (FI=+) $he <overnment has set up the FI=+ to consider FDI proposals re%uiring prior <overnment approval $he reconstituted FI=+ comprises ofC (i) 4ecretary, Department of :conomic #ffairs ' /hairman (ii) 4ecretary, Department of Industrial =olicy P =romotion ' (ember (iii) 4ecretary, Department of /ommerce ' (ember (iv) 4ecretaryconomic Oelations), (inistry of :xternal #ffairs ' (ember (v) 4ecretary, (inistry of 9verseas Indian #ffairs, ' (ember
B%#,+)## O39%)*#"+: $o facilitate expeditious redressal of grievances and attend to complaints relating to delays in grant and implementation of industrial approvals and facilitate their disposal, the <overnment has appointed a +04I-:44 9(+0D4=:O49- in the (inistry of /ommerce P Industry #dditional 4ecretary P Financial #dviser, (inistry of /ommerce and Industry, 0dyog +havan, -ew Delhi',,11,, has been nominated to act as +usiness 9mbudsperson(e mailC ncYub nic in) G*,)24+1)# O--,1)*7C%37!",+$ S)1*)$4*': <rievances and complaints are also received by the <rievances 9fficer'cum'Goint 4ecretary, DI==, (inistry of /ommerce and Industry, 0dyog +havan, -ew Delhi',,11,,, either through post or through the mail box in the =OP/ of the 4I#, or at Oeception of the (inistry of /ommerce and Industry at <ate -o ,;, 0dyog +havan, -ew Delhi',,11,, 4uch communications are handled expeditiously and steps are taken to redress the grievance S)1$"* S5)1,-,1 G%,&).,+)# F"* F"*),0+ D,*)1$ I+2)#$3)+$:
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)utomatic Sub(ect to conditions notified ide Press $ote 0 20117 Series5 including+ , ). minimum capitalization of *S< ,1 million for wholly owned subsidiaries and *S< 7 million for (oint enture. The funds would ha e to be brought within si& months of commencement of business of the 4ompany. 0 b. 6inimum area to be de eloped under each pro(ect- in ,1 hectares in case of de elopment of ser iced housing plots and built up area of 71,111 s9 mts. in case of construction de elopment pro(ect and any of the abo e in case of a combination pro(ect.
P$ 0 I 0117 B P$ 0 I 011?
> .
Courier services for ## carrying pac"ages, parcels C and other items which do not come within the ambit of the Indian Post :ffice )ct, ,>->.
8IP'
.
+efence production
07C 8IP'
, 1 .
3loriculture< *orticulture, ## +evelopment of -eeds< C Animal *us>andry, Pisciculture< aBua$ culture< cultivation of vegeta>les<< mushrooms< under controlled conditions under services related to agro and allied sectors%
)utoma tic
Sub(ect to e&isting laws and e&clusion of acti ity relating to distribution of letters, which is e&clusi ely reser ed for the State. www.indiapost.g o .in Sub(ect to licensing under Industries 23e elopment B Cegulation5 )ct, ,-7, and guidelines on 83I in production of arms B ammunition. P$ 4 I 011?
P$ 4 I 011,
P$ 4 I 011, B P$ 0 I 0110
, ,.
*aHardous ## chemicals< iz., C hydrocyanic acid and its deri ati es= phosgene and its deri ati es= and isocyanates and di-isocyantes of hydrocarbon.
)utomatic Sub(ect to industrial P$ 4 I license under the 011? Industries 23e elopment B Cegulation5 )ct, ,-7, and other sectoral regulations.
, 0.
Industrial e@plosives6anufacture
## C
)utomatic Sub(ect to industrial P$ 4 I license under Industries 011? 23e elopment B Cegulation5 )ct, ,-7, and regulations under %&plosi es )ct, ,>-> )utomatic Sub(ect to licensing by P$ the Insurance Cegulatory ,1 I B 3e elopment )uthority 0111 www.irda.nic.in. 8IP' 8oreign in estment in an in esting company will not be counted towards sectoral cap in infrastructure Iser ices sector pro ided the in estment is up to 4-/ and the management of the company is in Indian hands. P$ 0 I 0111 B P$ 7 I 0117
, ..
Insurance
07C
, 4.
Investing 5!C companies in infrastructure A services sector Ee@cept telecom sectorF
, 7.
Mining co ering ## e&ploration and C mining of diamonds B precious stones= gold, sil er and minerals.
)utomatic Sub(ect to 6ines B 6inerals 23e elopment B Cegulation5 )ct, ,-7G www.mines.nic.in Press $ote ,> 2,-->5 and Press $ote , 201175 are not applicable for setting up ,11/ owned subsidiaries in so far as the mining sector is concerned sub(ect to a declaration from the applicant that he has no e&isting (oint enture for the same area andI or the particular mineral.
P$ 0 I 0111, P$ . I 0117,B P$ 4 I 011?
, ?.
Petroleum = Natural .as sector
a.
b.
:ther than ##C Cefining and including mar"et study and formulation= in estmentI financing= setting up infrastructure for mar"eting in Petroleum B $atural Eas sector. Cefining 07C in case of P-(s ##C in case of Private companies
)utomatic
Sub(ect to sectoral regulations issued by 6inistry of Petroleum B $atural Eas= and in the case of actual trading and mar"eting of petroleum products, di estment of 0?/ e9uity in fa our of Indian partnerIpublic within 7 years. www.petroleum.nic.in
P$ , I 0114 B P$ 4 I 011?
8IP' Sub(ect to Sectoral P$ 0 2in case of policy I PS*s5 www.petroleum.nic.in 0111 )utomatic 2in case of pri ate companies.
, G a.
Print Media$ Publishing of 07C ne?spaper and periodicals dealing with news and current affairs 8IP'
b.
Pu>lishing of scientific magaHinesA specialty journalsA periodicals Po?er including generation 2e&cept )tomic energy5= transmission, distribution and Power Trading.
##C
8IP'
, >
##C
Sub(ect to guidelines issued by 6inistry of Information B 'roadcasting. www.mib.nic.in )utomatic Sub(ect pro isions of the %lectricity )ct, 011. www.powermin.nic.in
P$ , I 0114
, -.
,ea including plantation
-ector, tea
##C
8IP'
P$ 0 I ,-->, P$ I G 0111, B P$ 4 I 011? Sub(ect to P$ di estment of 0?/ ? I e9uity in fa our of 0110 Indian partnerIIndian public within 7 years and prior appro al of State Eo ernment for change in land use.
0 1. a.
,elecommunication 'asic and cellular, *nified )ccess Ser ices, $ationalIInternational Long 3istance, #Sat, Public 6obile Cadio Trun"ed Ser ices 2P6CTS5, Elobal 6obile Personal 4ommunications Ser ices 2E6P4S5 and other alue added telecom ser ices 95C 2Including 83I, 8II, $CI, 844's, )3Cs, E3Cs, con ertible preference shares, and proportionate foreign e9uity in Indian promotersI in esting company5 )utomatic up to 4-/. 8IP' beyond 4-/ Sub(ect to P$ guidelines notified 7 I in the P$ 7 I 0117 0117 Series
FDI P)*3,$$)& ,+ V4*,"%# S)1$"*#D A1$,2,$,)# E ; I. FDI 5*"(,9,$)&' i Oetail trading()E1)5$ S,+0.) B*4+& P*"&%1$ *)$4,.,+0) ii #tomic energy iii @ottery business iv <ambling and betting sector 6 II. FDI %5 $" 26 J 4.."/)&7 i B*"4&14#$,+0 (a) F( Oadio I FDI Z FII investment up to ;12 with prior <overnment approval sub"ect to guidelines by (inistry of Information P +roadcasting (b) 0plinking news and current affairs $) /hannel I up to ;82 (FDI Z FII) with prior FI=+ approval ,. P*,+$ 3)&,4: =ublishing newspaper and periodicals dealing with news and current affairs ' FDI up to ;82 with prior <overnment approval ,,,. D)-)+1) ,+&%#$*,)# ' FDI up to ;82 with prior <overnment approval ,2. I+#%*4+1) ' Foreign e%uity (FDIZFII) up to ;82 under the automatic route 2. P)$*".)%3 4+& N4$%*4. G4# S)1$"* I Oefining in case of =40sC up to ;82 with prior FI=+ approval III. FDI %5 $" 4A J 4.."/)&7 ,. B*"4&14#$,+07 a 4etting up hardware facilities such as up'linking, F0+, etc ' FDIZFII e%uity up to 652 with prior <overnment approval sub"ect to up'linking =olicy notified by (inistry of Information P +roadcasting b /able network' Foreign e%uity (FDIZFII) up to 652 with prior <overnment approval sub"ect to /able $elevision -etwork Oules (,556) notified by (inistry of Information P +roadcasting
7 8 B
c D$F ' Foreign e%uity (FDIZFII) up to 652 with prior <overnment approval FDI can not exceed ;12 sub"ect to guidelines by (inistry of Information P +roadcasting ,,. D"3)#$,1 4,*.,+)# 4+& A,* T*4+#5"*$ S)*2,1)# ' FDI up to 652 under the automatic route with no direct or indirect participation of foreign airlines ,,,. T).)1"33%+,14$,"+ #)*2,1)#: 94#,1 4+& 1)..%.4* - FDI up to 652 is under automatic route +eyond 652 and upto B62 re%uires FI=+ approval Foreign e%uity includes FDI, FII, -OI, F//+s, #DOs, <DOs, convertible preference shares, and proportionate foreign e%uity in Indian promotersQ Investing /ompanyF ,2. I+2)#$,+0 1"354+,)# ,+ ,+-*4#$*%1$%*)D#)*2,1) #)1$"* <)E1)5$ T).)1"3 S)1$"*= I FDI up to 652 with prior <overnment approval 2. A##)$ *)1"+#$*%1$,"+ 1"354+,)# I up to 652 (only FDI) with prior FI=+ approval I) FDI up to B62 allowed' ,. D)2)."53)+$ "- )E,#$,+0 A,*5"*$#7 %5 $" 4J %+&)* $() 4%$"34$,1 *"%$)K 5*,"* G"2)*+3)+$ 455*"24. 9)'"+& 4J #%9F)1$ $" #)1$"*4. *)0%.4$,"+# +"$,-,)& 9' M,+,#$*' "C,2,. A2,4$,"+. ,,. ISP /,$( 04$)/4'#> *4&,"7540,+0> )+&7$"7)+& 94+&/,&$( I FDI up to B62 with FDI beyond 652 re%uiring prior <overnment approval ,,,. E#$49.,#(3)+$ 4+& "5)*4$,"+ "- #4$)..,$)# ' FDI up to B62 with prior <overnment approval ,2. A$"3,1 3,+)*4.# ' FDI up to B62 with prior <overnment approval 2. P*,24$) #)1$"* 94+;# ' Foreign e%uity (FDI Z FII) up to B62 under the automatic route 2,. S,+0.) 9*4+& *)$4,.,+0 I up to 7,2 with prior <overnment approval V. FDI %5 $" 166 J 4.."/)& #%9F)1$ $" 1"+&,$,"+#7 ,. D)2)."53)+$ "- G*))+-,).& A,*5"*$# 7 FDI %+&)* 4%$"34$,1 *"%$) #%9F)1$ $" #)1$"*4. *)0%.4$,"+# +"$,-,)& 9' M,+,#$*' "- C,2,. A2,4$,"+ ,,. EE5."*4$,"+ 4+& 3,+,+0 "- 1"4. 4+& .,0+,$) -"* 145$,2) 1"+#%35$,"+ @ FDI %5 $" 166J %+&)* 4%$"34$,1 *"%$) S%9F)1$ $" 5*"2,#,"+# "- C"4. M,+)# <N4$,"+4.,:4$,"+= A1$> 1A 3 iii =etroleum sectorC market study and formulation, investment Qfinancing (inimum ;82 Indian e%uity within 7 years for actual trading and marketing ,2. T*4&,+0: /(".)#4.) 14#( 4+& 14**'K 4+& $*4&,+0 -"* )E5"*$# %+&)* $() 4%$"34$,1 *"%$) #%9F)1$ $" 0%,&).,+)# ,##%)& 9' DIPP.
v $radingC $rading of items sourced from small scale sector under <ovt approval route 2,. $radingC $est marketing of such items for which a company has approval for manufacture under <ovt approval route 2,,. C"%*,)* #)*2,1)# -"* 14**',+0 541;40)#> 54*1).# 4+& "$()* ,$)3# /(,1( &" +"$ 1"3) /,$(,+ $() 439,$ "- $() I+&,4+ P"#$ O--,1) A1$> 1LAL.7 5*,"* G"2)*+3)+$ 455*"24. S%9F)1$ $" )E,#$,+0 .4/# 4+& #%9F)1$ $" )E,#$,+0 .4/# 4+& )E1.%#,"+ "- 41$,2,$' *).4$,+0 $" &,#$*,9%$,"+ "- .)$$)*#> /(,1( ,# )E1.%#,2).' *)#)*2)& -"* $() S$4$). 2,,,. T)4 S)1$"*> ,+1.%&,+0 $)4 5.4+$4$,"+ I prior <overnment approval sub"ect to divestment of ;82 e%uity within five years ,E. N"+ B4+;,+0 F,+4+1) C"354+,)# I FDI up to ,112 under the automatic route sub"ect to minimum capitalization norms E. ISP /,$("%$ 04$)/4'> ,+-*4#$*%1$%*) 5*"2,&)* 5*"2,&,+0 &4*; -,9*)> ).)1$*"+,1 34,. 4+& 2",1) 34,. I FDI up to 652 under automatic route +eyond 652 and up to ,112 sub"ect to FI=+ approval sub"ect to divestment of ;82 e%uity in 7 years if the investing companies are listed in other parts of the world E,. D"3)#$,1 4,*.,+)#DA,* $*4+#5"*$ #)*2,1)# I -OI investment up to ,112 permitted under the automatic route with no direct or indirect participation of foreign airlines E,,. P"/)* $*4&,+0 Iupto ,112 sub"ect to compliance with Oegulations under the :lectricity #ct, ;11E3 E,,,. C,04*# B C,04*)$$)# I up to ,112 with prior FI=+ approval and 4ub"ect to industrial license under the Industries (Development P Oegulation) #ct, ,57, E,2. A.1"(". &,#$,..4$,"+ 4+& 9*)/,+0 ' ,112 FDI under automatic route sub"ect to licence by appropriate authority
FACT SHEET ON FOREIGN DIRECT INVESTMENT <FDI= F*"3 AUGUST 1AA1 $" S)5$)39)* 266
I. FDI EMUITY INFLOWS/ A. CUMULATIVE FDI EMUITY INFLOWS (equity capital components only):
, Cumulative amount of 3+I inflo?s . (fro" &#g#st 1991 to 'arch ())7) 0 Amount of 3+I inflo?s during 0##7$ . 0##9 (d#ring &pril-*epte"!er ())7) . Cumulative amount of 3+I inflo?s . (#pdated #p to *epte"!er ())7)
Cs. 0,.0,14, crore Cs. 0-,G.G crore Cs. 0,?,,GG> crore
(-I 65%70" million (-I 9<06# million (-I 7 <"9" million
Note / %DI inflows incl#de a"o#nt recei+ed on acco#nt of ad+ances pending for iss#e of shares for the $ears 1999 to ()),. B. FDI EMUITY INFLOWS <WITH COMPANY7WISE= AVAILABLE 26667266 : , Cumulative amount of 3+I inflo?s . (fro" &pril ())) to *epte"!er ())7) Cs. 0,1,,,G. crore (-I 56< 9! million
C. FDI EMUITY INFLOWS DURING FINANCIAL YEAR 266 7266L: Amount of FDI inflows (In Rs. crore) 7<!0" >,?40 7,14> 0,>4.,.-4 0,>G? 0!<949 (In US$ mn) <754 0< 0# <04" 9#6 "4 9 4 9<06#
,. 0. .. 4. 7. ?.
)pril 011G 6ay 011G Aune 011G Auly 011G )ugust 011G September 011G
0##9$0##" Eup to -ept% 0##9F
011?-011G 2up to Sept. 011?5 Cage gro?th over last year
01,,77 EGF 5" C
4,.>0 EGF 76 C
D. FDI EMUITY INFLOWS DURING CALENDAR YEAR 266 : Amount of FDI inflows (In Rs. Crore) (In US$ mn) ,. Aanuary 011G >,7,7 <!0 0. 8ebruary 011G .,1>, 7!" .. 6arch 011G O ,?,>-? 4<"4" 4. )pril 011G ?,-0> <754 7. 6ay 011G >,?40 0< 0# ?. Aune 011G 7,14> <04" G. Auly 011G 0,>49#6 >. )ugust 011G .,.-4 "4 -. September 011G 0,>G? 9 4 &ear 0##9 Eupto -ept% 0##9F 6"<00! 4<9#9 Fear 011? 2upto Sept. 011?5 0>,.G4 ?,0.0 Cage gro?th over last year EGF 0" C EGF " C E. SHARE OF TOP INVESTING COUNTRIES FDI EMUITY INFLOWS (Financial yearwise): Amount Rupees in crore (US$ in Ran s million) Countr! "##$#% (April&arc' ) "##%#( (April&arc') "##(#) (April&arc') "##)#* (AprilSept. "##)) Cumulati+ e Inflows (from April. "### to ,a-e wit' total Inflows (in terms
Sept. "##))
of rupees )
0>,G7- ,.,710 G-,.-0 55%"0 E 9<"5#F E7<474F E4<4# F 0. (%-%A% .,>?, ,,?-7 ,G,0G? !%96 E4<"67F E"67F E5 0F .. (%2% >,.>G,, ,7,1>7 "%60 E4<47 F E <"9"F E 96F 4. Netherlands 0,-17 ?>-,>., 6%66 E755F E 79F E0< 99F 7. 8apan .>0 0,1G1 >,1?5%66 E"6F E5!7F E <"#9F ?. -ingapore 0,??0 0,17G,>?7 5%55 E69"F E6#7F E <9!#F G. .ermany 741 ,,1>> 7,G70 4%06 E 0#F E077F E <0!7F >. 3rance 70> ,>, 0,>0 %7" E 9F E55F E77#F -. -?itHerland 07G >,7 0,G4? %66 E67F E !!F E700F ,1. Cyprus 0?? ,,7?, 0,04. %09 E6"F E495F E606F ,',A1 3+I 9#<74# 0!<947 0# < 94 IN31'W- J E 6<907 E9<06#F E56< 9!F F N"$). (i) *Includes inflows under NRI Schemes of RBI stock swa!!ed and ad"ances !endin# for issue of shares$ (ii) %umulati"e country-wise FDI inflows (from pril !""" to September !""#) & 'nne(-)'*. F. SECTORS ATTRACTING HIGHEST FDI EMUITY INFLOWS: Ran ks Sector +,,-,. ('!ril/arch ) +,,.,0 ('!ril/arch ) +,,0,1 ('!ril/arch ) +,,1,2 ('!rilSe!t$ +,,1) %umulati" e Inflows ( pril !""" to Sept$ !""#) 3 a#e with total Inflows (In terms of ru!ees)
,.
Mauritius
7,,4, ,,,44, E < 0!F E0<69#F .,177 0,0,1 E77!F E6#0F 47> ,,,?4 E # F E077F ,,0,G .41 E079F E97F 7G7 -07 E 07F E0#"F >00 ,,0,> E "5F E096F ??. ,,.47 E 56F E4#4F 7.G >0 E 9F E "F .7. 40? E99F E!7F ,0 .,1 E4F E9#F 9< 4" 05<7 4 E4<965F E6<657F
,
; E
S)*2,1)# S)1$"* (financial P non' financial) C"35%$)* S"-$/4*) B H4*&/4*) T).)1"33%+,14$,"+# (radio paging, cellular mobile, basic telephone services) C"+#$*%1$,"+ 41$,2,$,)# (including roads P highways) A%$"3"9,.) I+&%#$*' P"/)*
;,,18 <46A= ;,66, <53A= 7DD <12A=
;,787 <5L1=
;,,6E6 <4> 4A=
D,,B7 <1>AA6= ,,771 <3 L= E,78B <L 5=
EB,;D; <L>432= ;D,156 <6>246= ,7,;,; <3>455=
21.65
8,,B; ,,,BD8 <1>3 5= <2>614= E,1;E ;,E76 <6L6= <521=
15.L6 L.5A
6
858 <152=
88B <151=
6,6;6 <AL5=
;,BD1 <6L2=
5,,B8 <2>162=
5.1L
7 8 B D 5 ,1
C()3,14.# (other than fertilizers) H"%#,+0 N R)4. E#$4$) D*%0# B P(4*341)%$,14.# E.)1$*,14. E8%,53)+$#
775 <122= ;6, <53= 515 <1AL= 1 <6= ,,E6E <2A2= 665 <AL=
8E1 <143= ED8 <L = ,,5B5 <44 = ,B, <3L= B81 <1 2= ,78 <35=
,,;76 <2 6= B,E <15 = 5E1 <266= ;,,;, <46 = 5B1 <215= E7E < =
818 <14L= ,5B <4L= 665 <123= ;,5,7 < 16= ,5, <4 = ;,,BB <526=
B,B87 <1> 16= 7,565 <1>2L5= 7,B;; <1>2 A= 7,E;B <1>242= 6,6B; <ALA= 6,;D8 <ALA=
4.3L 3.36 3.23 3.61 2.52 2.42
Amount Rupees in crore (US$ in million) N"$): (i) %umulati"e Sector- wise FDI inflows (from 'nne(-)B*$ pril !""" to September !""#) -
STATEMENT ON RBICS REGION7WISE <WITH STATE COVERED= FDI EMUITY INFLOWS1 (from pril !""" to September !""#)% 'mount of FDI Inflows 3a#e with FDI inflow s (in rupee terms)
,
(0(+#I
; E 6 7 8 B
-:! D
FI +#-<#@9O: /F:--#I F?D:O#+#D #FD#+#D /F#-DI<#OF\
D
L9@L#$#
5 ,1 ,, ,; ,E ,6 ,7
=#-#GI +F9=#@ L9/FI +F0+#-:4F!#O G#I=0O L#-=0O <0!#F#$I
MAHARASHTRA > DADRA B NAGAR HAVELI> DAMAN B DIU DELHI> PART OF UP AND HARYANA KARNATAKA TAMIL NADU> PONDICHERRY ANDHRA PRADESH GU!ARAT CHANDIGARH> PUN!AB> HARYANA> HIMACHAL PRADESH WEST BENGAL> SIKKIM> ANDAMAN B NICOBAR ISLANDS GOA MADHYA PRADESH> CHATTISGARH KERALA> LAKSHADWEEP ORISSA RA!ASTHAN UTTAR PRADESH> UTTRANCHAL ASSAM> ARUNACHAL PRADESH> MANIPUR> MEGHALAYA> MIIORAM> NAGALAND> TRIPURA
Ru!ees in 4S5 in crore million 6E,BDE 5B A>L 6.33 ;6 B;
61,5BD ;, ,;,D,1 75 ,;,887 6 8,BD5 E 7,,E6 8B ,,B76 B
A>236.5A 2>A66. 5 2>L34.A2 1>523.LA 1>13L. 5 3L4.22
;E ,E B ;E B ,7 E DE ; 51 1 55
,,8EE ,;
361.46
1 5;
D;8 E6 66; D8 6;6 7E E57 7; ;5E 85 7B B 7; E6
1 A.2A 161.6 A6.4A LL.6L 65.11 12.L3 11.6L
1 6B 1 ;7 1 ;E 1 ;; 1 ,B 1 1E 1 1E
,8 ,B
=#$-# -9$ I-DI/#$E
BIHAR> !HARKHAND
, B5 65,,1B E1
6.3A
1 11 ;B B6 166.66 '
SUB TOTAL ,D ,5 4tock 4wapped #dvance of Inflows (from ;111 to ;116)
16>AA3.2 L 1 >152.2 3A> AL.6 4 L 14>525.44 3>2A5.L L>A62.22 1>A62.L 533.66 261>1 2.A 6 121.3 45>1 L.5 L
;1 O+I&s'-OI 4chemes GRAND TOTAL (&rom pril !""" to September !""#) III. FOREIGN TECHNOLOGY TRANSFER: (From 'u#ust 6776 to Se!tem8er +,,1) A. NUMBER OF CUMULATIVE FTC APPROVALS: N". O- C%3%.4$,2) FTC A55*"24.# <from august ,55, to 4eptember ;11B= N". O- FTC A55*"24.# D%*,+0 266676 <from #pril ;118 to march ;11B) N". O- FTC A55*"24.# D%*,+0 266 76L <from #pril ;11B to 4eptember ;11B=
' 7
9<""7 " 5#
B. COUNTRY7WISE TECHNOLOGY TRANSFER APPROVALS: R4+;# 1 2 3 4 5 6 C"%+$*' U. S. A G)*34+' !454+ U. K I$4.' O$()* C"%+$*,)# TOTAL OF ALL COUNTRIES N". "- $)1(+,14. 1"..49"*4$,"+# 455*"2)& 1> 56 1>163 L61 L56 4L4 2>L32 >LL6 J /,$( T"$4. T)1(. A55*"24.#. 22.1A 13.AA 16.A2 16.L5 6.14 35.A1 166.66
C. SECTORS7WISE TECHNOLOGY TRANSFER APPROVALS: R4+ ;# S)1$"* N". "- T)1(+,14. C"..49"*4$,"+# A55*"2)& J W,$( T"$4. T)1( A55*"24.#
1
2 3 4 5 6
E.)1$*,14. E8%,53)+$#<,+1.%&,+ 0 #"-$/4*) B ).)1$*"+,1#= C()3,14.# "$()* $(4+ -)*$,.,*. I+&%#$*,4. M41(,+)*' T*4+#5"*$4$,"+ I+&%#$*' M,#1. 3)1( )+0,+))*,+0 ,+&%#$*' O$()* S)1$"*# T"$4. O- A.. S)1$"*#
1>253 LL3 LLA 36 441 3> 16 >LL6
15.LA 11.26 11.62 A.26 5.5A 4 .64 166.66
D. STATE7WISE TECHNOLOGY TRANSFER APPROVALS: R4+;# 1 2 3 4 5 6 S$4$) M4(4*4#$*4 T43,.+4&% G%F4*4$ H4*'4+4 D).(, O$()* S$4$)#. T"$4. O- A.. S$4$)# N" O- T)1(+,14. C"..49"*4$,"+# A55*"2)& 1>364 656 662 354 313 4>663 >LL6 J W,$( T"$4. T)1( A55*"24.# 1 .36 L.24 .64 4.4A 3.A6 5L.3 166.66
STATEMENT ON COUNTRY7WISE FOR FDI INFLOWS FROM APRIL 2666 TO SEPTEMBER 266 4 -9 , ; E 6 7 8 B D 5 ,1 ,, ,; ,E /ountry (auritius 04# 0L -etherlands Gapan 4ingapore <ermany France 4witzerland /yprus 0#: +ermuda 4weden #mount 9f FDI Inflows In Oupees B5E,5;,,7B B;,B78 B1 ,71,D65 8, 5D,E1B 7B D1,85; 71 BD,87; BD 7B,7,8 ;D ;5,D;, ;, ;B,67D EE ;;,6E, 1, ;;,E7, DB ;1,67B E8 ,D,615 D7 In 04N ,B,DE5,B7 ED78 ,7 E,E8, E7 ;,,BB ;8 , D18 7, ,,BD5 B, ,,;57 5D 875 85 8;, D5 7;6 5D 71; B; 677 87 6,8 6E 2age with total inflows 66 D; 5 B7 D 7; 7 77 6 77 6 66 E ;7 , 8D , 77 , ;B , ;8 , ,7 , 16
,6 ,7 ,8 ,B ,D ,5 ;1 ;, ;; ;E ;6 ;7 ;8 ;B ;D ;5 E1
Lorea(south) Italy +ritish )irginia /ayman Islands +elgium #ustralia Fong Long 4pain Denmark (alaysia /anada 4outh #frica @uxembourg Oussia Finland !est Indies $hailand
,E,B,B ;E 5,5E8 8; 5,DD1 ,8 B,857 16 B,87; D1 B,777 1B B,7EE 51 8,,1, ,5 6,86B EE 6,8E1 6, 6,7B7 88 E,1D5 7B ;,565 66 ;,8B1 58 ;,157 B, ,,BDD 8; ,,B8; EB
E18 86 ;;, B5 ;;B 18 ,B1 16
1 BB 1 78 1 6E 1 6E 1 6E 1 6E 1 E6 1 ;8 1 ,B 1 ,B 1 ,7 1 ,; 1 ,1 1 ,1 1 1D 1 1B 1 1B
INTERPRETATIONS $he FDI scenario in India has changed drastically in the last decade For the first time in ,7 years, the government has simplified and rationalized FDI procedures while liberalizing the existing sectors such as retail, television, diamond and coal mining, airports, wholesale and export trading, and opening new ones such as power trading, processing and warehousing of coffee and rubber to foreign investment #ggregate FDI inflows into India were somewhat lower during ;11E'16 as compared to that during ;11;'1E, FDI inflows into India, improved from 04N ;8E6 million to 04N EB77 million from the year ;11E'16 to ;116'17 -otwithstanding the upturn, India&s capital account in recent years has gained far more strength from short'term portfolio flows that from long' term FDI flows $his probably necessitates revisiting the FDI policy and identifying constraints impeding higher FDI inflows =rocedural simplifications are likely to encourage much greater FDI flows Foreign direct investments (FDI) inflows into India during the fiscal year ;117'18 were Os ;68,E crore, this was higher by 6E2 to its corresponding previous year -et FDI into India picked up on the back of sustained growth in economic activity and positive investment climate, with inflows going into the manufacturing as well as services sectors FDI inflows into India during December ;118 registered an unprecedented increase of 6D12 over the inflows in December of the previous year ;117, the month of December ;118 received e%uity inflow of Os 5,1D /rores in December ;118 compared to Os ,7DB crore in December
;117 $his is the highest inflow ever into the country in a single month !ith this, the total inflows from #pril ;118 to December ;118 are now about Os 6;,ED crores, as compared to Os ,8E56 crores received during this period last year $he inflows in the year ;117'18 were Os ;68,E crores $he sectors attracting highest FDI were :%uipments (including computer software P electronics), services sector (financial and non' financial) and $elecommunications (radio paging, cellular mobile, basic telephone services) !hile (auritius is the top most investing country followed by 04#, 0L, -etherlands, Gapan, 4ingapore, and <ermany In case of no of technological transfers 04# is at first position with share of ;, 5D2 followed by <ermany, Gapan, and 0L S%334*' 4+& C"+1.%#,"+ $he most important determinants for attracting FDI are the /ost Factors, (arket 4ize, Oeal :xchange Oates, (acro :conomic 4tability, Oate of Inflation, 9verall :conomic 4tability, -ational FDI =olicy, Investment Incentive, and Oemoval of Oestrictions like #ccess to few industries, foreign ownership restrictions, ease of entry performance re%uirements $he policy on Foreign Direct Investment has been reviewed on a continuing basis and several measures announced from time to time for rationalizationQ liberalization of the policy and simplification of procedures #s a result, a number if rationalization measures have been undertaken which, inter alia include, dispensing with the need to multiple approvals from <overnment andQor regulatory agencies that exist in certain sectors, extending the automatic route to more sectors and allowing FDI in new sectors $he <overnment should take a series of steps to further liberalize and streamline the procedures and mechanism for approval of both domestic and foreign direct investment In fulfillment of its commitment to provide greater transparency in decision making It announces a set of guidelines for the consideration of foreign direct investment proposals by the Foreign Investment =romotion +oard I+ 4 9,& $" #$,3%.4$) $() #)1$"* -%*$()*> $() 0"2)*+3)+$ ,# /"*;,+0 "+ 4 #)*,)# "- 439,$,"%# )1"+"3,1 *)-"*3#. , , , $he centre has divested some of tis own powers of approving foreign investments that it exercised through the Foreign Investment =romotion +oard and has handed them over to the general permission route under the O+I $he FDI cap for telecommunications has been increased to B62, up from prevailing ceiling of 65 percent It has set up an Investment /ommission that will garner investments in the infrastructure sectors among other sectors, and plans to increase the limit for investment in the
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infrastructure sector $he <overnment approved sweeping reforms in FDI with a first step towards partially opening retail markets to foreign investors It will now allow 7,2 FDI in single brand products in the retail sector +esides retail, other sectors are being opened ,112 is allowed in new sectors such as power trading, processing and warehousing of coffee and rubber FDI limit raised to ,112 under automatic route in mining of diamonds and precious stones, development of new airports, cash and carry wholesale trading and export trading, laying of natural gas pipelines, petroleum infrastructure, captive mining of coal and lignite 4ub"ect to other regulations, ,11 percent FDI is allowed in distillation and brewing of potable alcohol, industrial explosives and hazardous chemicals Indian investor is allowed to transfer shares in an existing company to foreign investors $he <overnment is looking at reviewing regulation involving foreign investments into the country #imed at simplifying the investment from foreign institutional investors (FII) and FDI in the same light
BIBLIOGRAPHY: PRASSANA CHANDRA: FINANCIAL MANAGEMENT THEORY AND PRACTICE> TATA MC GRAW HILL 1AA !OHN ! HAMPTON: FINANCIAL DECISION MAKING PRENTICE HALL INDIA> 1AA2 INDIA YEAR BOOK7PUBLICATIONS DIVISION> GOVERNMENT OF INDIA 266 PRATIYOGITA DARPAN ECONOMY EDITION WEBSITES: ///.&,55.+,1.,+ ///.1"33)*1).+,1.,+
///.-,+3,+.+,1.,+ ///.,+&,4.0"2.,+ ///.*9,."*0.,+ ///./,;,5)&,4."*0 D,*)1$"*' "- 0"2)*+3)+$ /)9#,$)#.
doc_236095202.doc
ABSTRACT Foreign direct investment(FDI) in all over the world in general and in India in particular after the opening up of our market with the adoption of the policies namely globalization, privatization and liberalization has no doubt emerged as one of the most significant source and contributor of external inflow of resources and is one of the most crucial contributors to the capital formation despite their share in the world arena still catching up !hen we talk about the term FDI we are talking about a bundle of resources that usually flow into a country including besides capital, production technology, global managerial skills, innovative marketing strategies and access to new markets In this pro"ect it has been tried to provide a comprehensive picture about the foreign direct investment ranging from its conception as a potent source of investment the world over, its various types, the methodology adopted top FDI countries and agencies engaged and other important aspects # cumulative and an exhaustive study of the over all scenario of FDI in India starting from the introduction of FDI in the country, share of top investing countries, sectors attracting highest FDI flows, sector wise technology transfer and approvals !e will also look at the determinants for attracting FDI in the country and also the causes for low flow of FDI and the mechanisms that can be undertaken to make our country attractive enough for investors $his study entirely relies on secondary data collected after a thorough and exhaustive study of various websites, text books, "ournals, newspapers, magazines and great inputs form various professors and professionals specializing In this area $hough the policy is reviewed fre%uently we lack when compared with countries like china, so it&s high time the government takes steps to further liberalize the economy and streamline and liberalize the policies to make India the most preferred FDI destination in the world
ACKNOWLEDGEMENT I take this opportunity to thank all those who have been of help to me in the completion of this pro"ect
I would like to appreciate the guidance and co'operation provided to me by our pro"ect guide (r ) ***** (faculty of +usiness (anagement) in the completion of this pro"ect
I am also grateful to ****, Director *** and all the faculty members who have directly or indirectly helped me in preparing this pro"ect report
TABLE OF CONTENTS: 1. LIST OF TABLES 2. LIST OF FIGURES 3. INTRODUCTION 4. REVIEW OF LITERATURE 5. DATA ANALYSIS AND PRESENTATION 6. SUMMARY AND CONCLUSION . BIBLOGRAPHY
OB!ECTIVES
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METHODOLOGY: $his pro"ect is entirely based on freelance work done by the student and therefore no organisation has been taken as a base for doing the pro"ect #- exhaustive amount of data available on the internet, from the text books, news papers, and various magazines and suggestions from a few experts in the field has been taken in doing this pro"ect #s this is a free lance pro"ect, the data has been entirely collected from secondary sources and therefore its authenticity can be vouched for only by going through the same literature which has been used SCOPE OF THE STUDY
as this study is aimed to analyze the trends in the FDI inflows, the main focus is given on the recent trends in the inward FDI inflows, sectors attracting highest FDI, and the share of top investing countries, it covers only e%uity capital components $he scope is limited to the availability of the secondary data LIMITATIONS OF THE STUDY the study is conducted in a short period, which was not detailed in all aspects -on'availability of accurate data to FDI Data in one secondary source do not match with that of another source
FOREIGN DIRECT INVESTMENT INTRODUCTION: Foreign direct investment (FDI) is defined as .investment made to ac%uire lasting interest in enterprises operating outside of the economy of the investor . $he FDI relationship consists of a parent enterprise and a foreign affiliate which together form a (ultinational corporation ((-/) In order to %ualify as FDI the investment must afford the parent enterprise control over its foreign affiliate $he 0- defines control in this case as owning ,12 or more of the ordinary shares or voting power of an incorporated firm or its e%uivalent for an unincorporated firm3 lower ownership shares are known as portfolio investment HISTORY: In the years after the 4econd !orld !ar global FDI was dominated by the 0nited 4tates, as much of the world recovered from the destruction brought by the conflict $he 04 accounted for around three' %uarters of new FDI (including reinvested profits) between ,567 and ,581 4ince that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of 9:/D countries FDI
has grown in importance in the global economy with FDI stocks now constituting over ;1 percent of global <D= TYPES OF FOREIGN DIRECT INVESTMENT: BY DIRECTION: I+/4*& Inward foreign direct investment is when foreign capital is invested in local resources I+/4*& FDI ,# )+1"%*40)& 9': > $ax breaks, subsidies, low interest loans, grants, lifting of certain restrictions > $he thought is that the long term gain is worth short term loss of income I+/4*& FDI ,# *)#$*,1$)& 9': > 9wnership restraints or limits > Differential performance re%uirements OUTWARD 9utward foreign direct investment, sometimes called .direct investment abroad., is when local capital is invested in foreign resources ?et it can also be used to invest in imports and exports from a foreign commodity country O%$/4*& FDI ,# )+1"%*40)& 9': > <overnment'backed insurance to cover risk O%$/4*& FDI ,# *)#$*,1$)& 9': > $ax incentives or disincentives on firms that invest outside of the home country or on repatriated profits > 4ubsidies for local businesses @eftist government policies that support the nationalization of industries (or at least a modicum of government control) 4elf'interested lobby groups and societal sectors who are supported by inward FDI or state investment, for example labour markets and agriculture 4ecurity industries are often kept safe from outwards FDI to ensure the localised state control of the military industrial complex BY TARGET: G*))+-,).& ,+2)#$3)+$ Direct investment in new facilities or the expansion of existing facilities <reenfield investments are the primary target of a host nation&s promotional efforts because they create new production capacity and "obs, transfer technology and know'how, and can lead to linkages to the global marketplace $he 9rganization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms)3 investments in research and development3 and additional capital investments /riticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms #nother criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinationalAs home economy /ritics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy
M)*0)*# 4+& A18%,#,$,"+# $ransfers of existing assets from local firms to foreign firms takes place3 the primary type of FDI /ross'border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity /ross'border ac%uisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company 0nlike greenfield investment, ac%uisitions provide no long term benefits to the local economy'' even in most deals the owners of the local firm are paid in stock from the ac%uiring firm, meaning that the money from the sale could never reach the local economy -evertheless, mergers and ac%uisitions are a significant form of FDI and until around ,55B, accounted for nearly 512 of the FDI flow into the 0nited 4tates (ergers are the most common way for multinationals to do FDI H"*,:"+$4. FDI Investment in the same industry abroad as a firm operates in at home V)*$,14. FDI Backward Vertical FDI !here an industry abroad provides inputs for a firmAs domestic production process Forward Vertical FDI !here an industry abroad sells the outputs of a firmAs domestic production By Motive FDI can also be categorized based on the motive behind the investment from the perspective of the investing firmC R)#"%*1)7S));,+0 Investments which seek to ac%uire factors of production that are more efficient than those obtainable in the home economy of the firm In some cases, these resources may not be available in the home economy at all (e g cheap labor and natural resources) $his typifies FDI into developing countries, for example seeking natural resources in the (iddle :ast and #frica, or cheap labor in 4outheast #sia and :astern :urope M4*
$7S));,+0 Investments which aim at either penetrating new markets or maintaining existing ones FDI of this kind may also be employed as defensive strategy3 it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one $his type of FDI can be characterized by the foreign (ergers and #c%uisitions in the ,5D1&s by #ccounting, #dvertising and @aw firms E--,1,)+1'7S));,+0 Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firmS$*4$)0,17A##)$7S));,+0 # tactical investment to prevent the loss of resource to a competitor :asily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it
OPPOSITION: $he late ,581s and early ,5B1s foreign direct investment became increasingly politicized 9rganized labor, convinced that foreign investment exported "obs, undertook a ma"or campaign to reform the tax provisions which affected foreign direct investment $he Foreign $rade and Investment #ct of ,5BE (or the +urke'Fartke +ill) would have eliminated both the tax credit and tax deferral $he -ixon #dministration, influential members of /ongress of both parties, and well'financed lobbying organizations came to the defense of the multinational $he massive counterattack of the multinational corporations and their allies defeated this first ma"or challenge to their interests L,#$ "- 1"%+$*,)# 9' *)1),2)& FDI: $his is a .,#$ "- 1"%+$*,)# 9' FDI in ;118 mostly based on /I# fact book accessed in Ganuary ;11D , , , , , , , , , , 0nited states 0nited kingdom Fong kong <ermany /hina France +elgium -etherlands 4pain /anada
INTERNATIONAL ACCREDITATIONS AND AGENCIES INTERNATIONAL INVESTMENT POSITIONC # countryAs ,+$)*+4$,"+4. ,+2)#$3)+$ 5"#,$,"+ (II=) is a financial statement setting out the value and composition of that countryAs external financial assets and liabilities $he II= is one component of the capital account of a countryAs balance of payments, containing for example stock of companies, real estate, financial instruments, and so on +y comparison, imports and exports of goods and services are part of the current account $he difference between a countryAs external financial assets and liabilities is the +)$ ,+$)*+4$,"+4. ,+2)#$3)+$ 5"#,$,"+ (-II=) International Investment =osition H domestically owned foreign assets ' foreign owned domestic
assets INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES <ICSID= $he I+$)*+4$,"+4. C)+$*) -"* S)$$.)3)+$ "- I+2)#$3)+$ D,#5%$)# (ICSID), an institution of the !orld +ank group based in !ashington, D / , was founded in ,588 pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID C"+2)+$,"+ or !ashington /onvention) #s of (ay ;117, ,77 countries had signed the I/4ID /onvention I/4ID has an #dministrative /ouncil, chaired by the !orld +ankAs =resident, and a 4ecretariat It provides facilities for the conciliation and arbitration of investment disputes between member countries and individual investors During the past decade, with the proliferation of bilateral investment treaties (+I$s), most of which refer present and future investment disputes to the I/4ID, the caseload of the I/4ID has substantially increased #s of Gune E1, ;117, I/4ID had registered ,D6 cases more than E1 of which were pending against #rgentina I #rgentinaAs economic crisis in the late ,551s and subse%uent #rgentine government measures led several foreign investors to file cases against #rgentina +olivia, -icaragua, :cuador and )enezuela have announced their intention to withdraw from the I/4ID World Association of Investment Promotion Agencies T() W"*.& A##"1,4$,"+ "- I+2)#$3)+$ P*"3"$,"+ A0)+1,)#, or WAIPA> is an international -<9 hosted by 0-/$#D that acts as a forum for investment promotion agencies, provides networking and promotes best practice in investment promotion Faving spoken elaborately about the definition, history, types, top countries and various types of agencies related to foreign direct investment the other aspect that gains importance is the factors that actually stand in favor or against a country&s interests in encouraging or discouraging countries from investing in that particular nation FACTORS THAT ENOCURAGE FDI: LOCATION SPECIFIC ADVANTAGES: $he location specific advantages involve a number of factors that favor a location in comparison to an alternative location $he factors deciding location of the foreign direct investment involve labor costs, marketing factors, trade barriers and government policy , MARKET FACTORS: $he size of a country&s market acts as the most important determinant for attracting foreign investors, market related variables are the most important fundamentals and the scope of investment depends upon two factors i e, current market size and potential market size while a large market size generates scale economies , a growing market improves the prospects of market potential and there by attracts FDI inflows In some markets domestic brands are preferred and a presence in a specific market is needed for success $he location of FDI in that specific market is essential to be able to label products Jmade locallyK ; TRADE BARRIERS:
$he existence of trade barriers is a factor that influences the choice of locations for FDI $rade barriers encourage companies to make FDI in markets that would be too expensive to export to due to tariffs and %uotas 3. LABOUR COSTS: @abor costs are affected by an imperfection in the international market for labor 4ince regulations for immigration exist worldwide, the mobility of labor is reduced and differences in wage costs arise $his creates different production clusters around the world, each specialized in different wage levels #n example of this is the low wage area in the south east #sia producing toys and clothing and on the other hand western :urope with its high tech production and high wage levels 4. COST FACTORS: /ost factors are nothing but factors that cause investment cost differentials across countries $hey usually include factors like cost of labour, cost of capital and cost of infrastructure /ost factors most significantly influence the choice of an investment location for the resource seeking and efficiency' seeking foreign direct investment 0sually it is seen that higher lending rates may have a positive impact on the FDI inflows i e higher the cost of capital in the host country the more capital can be brought in by the foreign firms #lternatively It can also be said that the hostr country&s cost of capital impact directly on the domestic consumption $hus the lower the interest rates, the higher the domestic consumption and hence higher the FDI inflows #s far as infrastructure costs are concerned, it is found that higher the availability of infrastructure lower is the infrastructure cost and higher is the ability of the host country to attract FDI 7 E?CHANGE RATES: $his factor presents a rather ambiguous picture as far as the impact of depreciation of real exchange rate in the host country on FDI inflows is concerned # devalued exchange rate may or may not be gainful for the foreign investors $he investor may gain because of factors like huge purchasing power of the host country, cheap production costs which would lead to easy exports and this surely catches the fancy of the resource and efficiency seeking investor +ut then the foreign firms may get taken aback if they believe that depreciation may continue to be too high to "ustify their investments in the first place and their continuation 8 MACRO ECONOMIC STABILITY: (acro economic variables like inflation, budget deficit, balance of payments etc have a big impact on the FDI across countries $he volatility of the macro economic conditions presents both opportunities and impediments to companies investing in the host country $hey re%uire not only the ability to manage the risk inherent in volatile countries but also present an opportunity of moving production to lower cost facilities :xchange rate volatility is one of the macro economic volatility where in if exchange rate changes merely offset price movements so that real purchasing power parity is maintained, the exchange rate movements would have little real effects B RATE OF INFLATION: @ow inflation is taken to be a sign of internal economic stability in the host country Figh
inflation indicates inability of the government to balance its budget and failures of the central bank to conduct appropriate monetary policy D OVERALL ECONOMIC STABILITY: $he financial well being of the host country is gauged by external debts to :xports It is expected that lower this ratio higher is the probability of economic stability in the country 5 RESEARCH AND DEVELOPMENT: $he location of FDI also depends a lot on the importance given to the research and development activities by the host country (any multi national companies would definitely look forward to investing in a country which provides very good incentives in the field of research and development in the form of tax cuts and provision of abundant raw material at affordable rates and so on as this would help the (-/4 to shift their activities from high cost countries to low cost ones ,1 POLICY INITIATIVES AND ENVIRONMENT: In the current era of liberalization where a host of countries are vying to attract foreign investors to invest in their respective nations, the FDI policies and other policy measures adopted by them have assumed great significance # multi national company or for that matter a country that wants to invest in a country would first of all look for the governments attitude towards FDI which is best reflected in its policies (easures like investor friendly incentives, lower rates of taxes or relaxation for a particular period of time or provision of rebates, provision of land and other infrastructure facilities at reasonable rates and other measures would surely go a long way in making a country a chosen location for parking FDI #part from the above mentioned factors and initiatives companies evaluate the investment climate in the home country, meaning the political, social and economic environment $his climate affects the perceived risk of locating operations in the specific location 11. INCENTIVES: $he FDI incentives offered by the host countries can be categorized into two main types, they are ,C fiscal incentives and ;C financial incentives Fiscal incentives refer to the policies designed to reduce tax burden of a firm and Fiscal incentives include tax concessions in the form of reduction of the standard corporate income tax rate, tax holidays, accelerated depreciation allowances on the capital taxes, exemption from import duties and duty drawbacks on exports Financial incentives refer to the direct contributions to the firm from the government including direct capital subsidies or subsidized loans $hey also include grants, subsidized loans and loan guarantees, publicly funded ventures capital participating in investment involving high commercial risks and governments insurance at preferential rates
ELIMINATION OF RESTRICTIONS: Developing countries have applied various forms of restrictions to FDI in the pre
liberalized era mostly because of their troubled past and exploitation by their colonial rulers )arious controls like ownership and control and other operational restrictions like closing down certain sectors to private enterprises, screening regularization authorization of investment and minimum capital re%uirements For example allowing only fixed percentage of foreign owned capital in an enterprise, compulsory "oint ventures, compulsory transfer of ownership to local private firms and restrictions on reimbursement of capital upon li%uidation :ven when the foreign firms enter the host country&s market they could face certain restrictions on their operations such as restrictions on employing key foreign personnel and performance re%uirements such as sourcing or local content re%uirements, training re%uirements and export targets $he best example is the erstwhile Indian economy which followed the license permit ra" before embarking upon economic reforms +ut the whole scenario of controlling the economy in most of the developing nations has been done away with, in most of the countries and they have seriously embarked upon many liberal measures like %uick licensing, many tax incentives and so on which have changed the economic scenario of many a nations FACTORS THAT DISCOURAGE FDI: /ountry experiences indicate that while favorable economic environment and regulatory or policy framework help induce foreign direct investment flows, there are a number of forces that tend to discourage such flows (any developing countries have, during the past decade or so, begun liberalizing their national policies to establish a hospitable regulatory framework for foreign direct investment by relaxing rules regarding market entry and foreign ownership, improving the standards of treatment accorded to foreign firms and improving the functioning of markets $hese core policies are important because FDI will not take place where it is forbidden or strongly impeded Fowever, changes in policies have an asymmetric effect on the location of foreign direct investment, changes in the direction of greater openness allows firms to establish themselves in a particular location In contrast, changes in the direction of less openness will ensure a reduction in foreign direct investment (0-/$#D, ,55D) $he regulatory restrictions including tariffs, %uotas tend to discourage cross'border ac%uisitions by multinational enterprises /ountries that impose restrictions on foreign entry and ownership and foreign transactions, as well as discriminatory tax provisions, tend to hamper foreign direct investment flows For example, in Lenya, foreign investors face multiple licensing re%uirements and high withholding taxes on royalties, and foreign direct investment remained less than 1 ; percent of <D= #lso, in ?emen where sizeable outflows of FDI have been recorded since the mid ,551&s, licensing re%uirements discouraged new investments, despite incentives like tax holidays and customs exemptions 4ome of the developing countries have not achieved the improvements in the investment climate necessary to encourage higher FDI flows !hile the poor prospect for growth and unfavourable economic environment have impeded the foreign direct investment flows to many countries, a number of other factors ( such as political and structural factors ) have also been the important discouraging factors For instance, the economic uncertainty has restrained <reenfield foreign direct investment in +razil, and private sector merger and ac%uisition transactions has slowed down with the
increasing economic difficulties in #rgentina In Indonesia, the severe recession, un certainty over economic policies, and political disturbances that reduce future economic prospects have discouraged foreign investment inflows since ,558 due to concerns over political developments In addition, recent analysis find that developing countries with stronger policy environments attract a larger share of the total foreign investments flows to developing countries, whereas the higher levels of corruption acts as a deterrent ( I(F ;11, ) (oreover, in Lorea, the process of corporate and financial restructuring has slowed the foreign direct investment flows FDI AND INDIA @ A COMPREHENSIVE STUDY. INTRODUCTION: TI
@I-: 9F $F: :/9-9(? 9F I-DI#C Pre-colonial period 7 +/•
4ilver punch'marked coins were minted by the (aha"anapadas IndiaAs economy had a E; 52 share of world income, the largest in the world IndiaAs economy had a ;D 52 share of world income, the largest in the world IndiaAs economy had a ;6 72 share of world income, the second largest in the world after /hina, which had a ;72 share India had an income of M,B 7 million, under #kbarAs (ughal :mpire, in contrast to the entire treasury of <reat +ritain in ,D11, which totalled M,8 million IndiaAs economy had a ;6 62 share of world income, the largest in the world, under #urangzebAs (ughal :mpire
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•
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•
,811
•
,B11
•
Colonial period East India Company ,B5E
•
,B5E /ornwallisA =ermanent 4ettlement Instituted in +engal IndiaAs economy had a ,82 share of world income, the second largest in the world after Gapan
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•
British Raj ,D8D
•
First estimation of IndiaAs national income by Dadabhai -aoro"i IndiaAs economy had a ,; ;2 share of world income under the +ritish :mpire IndiaAs economy had a B 82 share of world income under the +ritish :mpire Famine of +engal
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•
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•
,56E
•
Post-Independence period Nehruvian era ,57;
•
IndiaAs economy had a E D2 share of world income IndiaAs economy was N656 D billion, which accounted for a E ,2 share of world income
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!"# $ !! )irtually /losed !! $present ,55,
•
:conomic liberalisation was initiated by Indian prime minister = ) -arasimha Oao and his finance minister (anmohan 4ingh in response to a macroeconomic crisis IndiaAs economy was N,,B1; B trillion, which accounted for a 72 share of world income IndiaAs economy is NE,D,7 8 trillion (purchasing power parity) which accounts for a 8 E2 share of world income, the fourth largest in the world in terms of real <D=
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;117
•
$he )1"+"3' "- I+&,4, when measured in 04D exchange'rate terms, is the twelfth largest in the world, with a <D= of 04 N, ;7 trillion (;11D) It is the third largest in terms of purchasing power parity India is the second fastest growing ma"or economy in the world, with a <D= growth rate of 5 62 for the fiscal year ;118I;11B Fowever, IndiaAs huge population has a per capita income of N6,76; at === and N,,1D5 in nominal terms (revised ;11B estimate) $he !orld +ank classifies India as a low'income economy Indian economy is very diverse ranging from agriculture which provides direct and indirect employment to more than 872 of the population to the services sector which contributes about 772of the <D= and still growing strong India also ranks among the most
promising countries in other sectors like industry,manufacturing, telecommunications etc #fter independence India&s economy was influence by the colonial policy though exploitative and also by the Fabian socialist ideas of our leaders India followed a socialistic policy for most part of its independent history with strict governmental control over private sector participation, foreign trade and foreign direct investment, with a strong emphasis on import substitution, self sustainability and central planning which led to a lot of bottle necks being created in the way of the nations development with extremely low growth rate termed as the Findu rate of growth $he collapse of the soviet union as the ma"or trade partner and the first gulf war which spiked the oil prices caused a ma"or balance of payments crisis in India which found the prospect of defaulting on its loans In response, =rime (inister -arasimha Oao along with his finance minister (anmohan 4ingh initiated the economic liberalization of ,55, $he reforms did away with the @icence Oa" (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors 4ince ,551 India has emerged as one of the wealthiest economies in the developing world3 during this period, the economy has grown constantly, but with a few ma"or setbacks $his has been accompanied by increases in life expectancy, literacy rates and food security $he credit rating of India has been raised to investment level in ;11B by 4P= and (oodyAs In ;11E, <oldman 4achs predicted that IndiaAs <D= in current prices will overtake France and Italy by ;1;1, <ermany, 0L and Oussia by ;1;7 and Gapan by ;1E7 +y ;1E7, it was pro"ected to be the third largest economy of the world, behind 04 and /hina
FOREIGN DIRECT INVESTMENT #s the third'largest economy in === terms, India is a preferred destination for foreign direct investments (FDI) with strengths being information technology and other
significant areas such as auto components, chemicals, apparels, pharmaceuticals and "ewellery +ut its rigid FDI policies were a significant hindrance in this regard Fowever, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front'runners of the rapidly growing #sia =acific Oegion India has a large pool of skilled managerial and technical expertise $he size of the middle'class population at E11 million exceeds the population of both the 04 and the :0, and represents a powerful consumer market IndiaAs recently liberalized FDI policy (;117) allows up to a ,112 FDI stake in ventures Oeforms have substantially reduced industrial licensing re%uirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI $he upward moving growth curve of the real'estate sector owes some credit to a booming economy and liberalized FDI regime # number of changes were approved on the FDI policy to remove the caps in most sectors Oestrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit' information services and mining +ut this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing FDI inflows into India reached a record 04N,5 7bn in fiscal year ;118Q1B (#pril'(arch), according to the governmentAs 4ecretariat for Industrial #ssistance $his was more than double the total of 04NB Dbn in the previous fiscal year +etween #pril and 4eptember ;11B, FDI inflows were 04ND ;bn FACTORS MAKING INDIA A FAVOURED FDI DESTINATION: India, the largest democracy and 6th largest economy (in terms of purchase power parity) in the world is also the tenth most industrialized country in the world !ith its consistent growth performance and abundant high'skilled manpower, India provides enormous opportunities for investment, both domestic and foreign 4ince the beginning of economic reforms in ,55,, ma"or reform initiatives have been taken in the fields of investment, trade, financial sector, exchange control simplification of procedures, enactment of competition and amendments in the intellectual property rights laws, etc India provides a liberal, attractive, and investor friendly investment climate (ain features of policy on Foreign Direct Investment are dealt with in this chapter
16 *)4#"+# $" I+2)#$ ,+ INDIA % &'( NE)ER *A+ I, -' .''+/ • India is the 4th largest economy, in terms of purchasing power parity. Tenth most industrialized economy. • Strong macro-economic performance. • Political stability and broad consensus on reforms. Liberal and transparent foreign in estment regime.
!ell• de eloped ban"ing system. #ibrant capital mar"et. $ational Stoc" %&change third largest, 'ombay Stoc" %&change fifth largest in terms of number of trades. • Strong and independent (udicial system. • )mong the highest rates of returns on in estment. Profitability of *S in estments in India+ ,-.../ in 0111 2according to *S 3epartment of 4ommerce5. 0% INCRE+IB1E -2I11- 'N '33ER/ • Strong pool of scientific and technical manpower. Prowess of IITs, II6s well "nown. 077• 8ortune 711 companies getting ser ices. 0nd• largest %nglish-spea"ing population. • )bundant, high-9uality, cost-effecti e, competiti e manpower. : er ,11,111 IT professionals added each year. • India rated as the most attracti e destination for offshore business processing by global consultancy ) T ;earney. IT• Industry <,4 billion= growing at 71/ p.a. • %&ports <,0 billion= 011> e&ports target+ <?1 billion, to be .7/ of India@s total e&ports. Aob• creation+ a million direct B 0-. million indirect 4% *I.*1& C'MPE,I,I)E EN,REPRENE(R-*IP/ • Pre alence of foreign technology licensing - Can" , in the world. • ) ailability of scientist and engineers - Can" 0. • Duality of management schools - Can" -. 8irm• le el inno ation - Can" ,0. 8irm• le el technology absorption - Can" ,?. • 4ompany spending on CB3 - Can" .0. 2Source+ Elobal 4ompetiti eness Ceport, 011.5 • India amongst the leading entrepreneurial hotbeds globally. 2 Red Herring clubs India with Israel 5% .REA, MACR'$EC'N'MIC -*'W/ • India among world@s fastest growing economies. (Graph on top left shows Indian GDP growth since 1996-97). • ) erage E3P 2gross domestic product5 growth of 7.4/ during the -th 8i e-Fear Plan 2,--G-01105. • %&ports registered growth of o er ,-/ in 0110-1.. • 8oreign e&change reser es at an all-time high of o er <-1 billion. • Increase in fore& during the fiscal year in 0110-1.+ <01 billion. • India@s economic growth is sustained. The• nation@s E3P is e&pected to grow by o er G.1 / this year.
6% EA-& IN+(-,RIA1 1ICEN-IN. P'1IC&/ *nder the Industries 23e elopment B Cegulation5 )ct, ,-7,, industrial license is needed only for items+ • 8alling under the list of compulsory licensing. Ceser ed for small-scale sector. If location attracts restriction. )ll• industries e&empt from industrial licensing re9uired to file an Industrial %ntrepreneur 6emorandum. $o• appro al is re9uired= :nly notification need. Industries retained under compulsory licensing under the Industrial 23BC5 )ct, ,-7,+ • 3istillation and brewing of alcoholic drin"s. • 4igars and cigarettes of tobacco and manufactured tobacco substitutes. • %lectronic aerospace and defence e9uipment. • Industrial e&plosi es= Hazardous chemicals. 7% MA8'R 3INANCIA1 -EC,'R RE3'RM-/ • Setting up of the 4ompetition 4ommission= )mendments to 4ompanies )ct, 8iscal Cesponsibilities, and Securitization )ct for creditors@ security. • 'oard for Industrial B 8inancial Ceconstruction to be repealed. 4omputerization of 4ustoms interface. • Stable ta& regime. :nly . rates of indirect ta&. Trade facilitation measures introduced. • 8oreign %&change 6anagement )ct, ,--- pro ides a liberal regime= fore& procedures eased. • Stoc"s can be sold on the without prior appro al. • Profits, di idends and capital in estment can be repatriated. • Coyalties can be paid by wholly owned arms to parent companies. 9% ,RA+E P'1IC& RA,I'NA1I:A,I'N/ • Trade policy liberalized. 6ost items on
en Eeneral License. • Policies fully compatible with !T:. • 8unctioning of the 3irector Eeneral 8oreign Trade 23E8T5 computerized+ )ll• .. locations are !eb-enabled. G1/• of the total transactions of e&portersIimporters are !eb-enabled. • Transaction time has reduced to (ust ? hours. • :n-line ban"ing fully integrated. "% A PR'AC,I)E 3+I P'1IC&/ 83I under J)utomatic Coute,K e&cept in areas+ • )ttracting compulsory licensing= or for ac9uisition of shares in an e&isting company. • Sectors not open to 83I. 2Eambling, lottery, et cetera.5 • In estor can bring automatic route cases for 8oreign In estment Promotion 'oardappro al. • 8oreign technology collaborations freely allowed under automatic and go ernment appro al routes. India 3+I 'utloo; • India rated best destination for outsourcing and ?th most attracti e destination for 83I, according to )T ;earney. • Elobal competiti e report ran"s India at first place in terms of pre alence of foreign technology licensing. • )mong top ,1 tourist destinations. 6a(or destination for foreign enture capital funds. Pie chart left !otto" shows co#ntr$-wise %DI inflows. !% .REA, IN3RA-,R(C,(RE< AN+ A *E1PIN. *AN+/ <,0• billion Highways 3e elopment Programme. : er ,.,111 ;ms of Highways being de eloped. The• %lectricity )ct, 011. in place to facilitate reforms in power sector. Permits trading in electricity, capti e generation freed from prior appro al. • *pgradation of airports at $ew 3elhi and 6umbai. • JSagar 6ala,K a ma(or programme aimed at de eloping ports and shipping sector at an estimated in estment of <00 billion. • 6a(or ad ances in telecommunications sector. 'andwidths of terabit a ailable. Sharp decline in telecommunications costs. • 8oreign In estment Implementation )uthority helps sol e foreign in estors@ problems. It meets periodically with in estors to sort out operational difficulties and facilitates implementation. )n• %mpowered Sub-4ommittee of the $ational 3e elopment 4ouncil set up on creating an in estor friendly climate and remo ing regulatory barriers to in estments. • 6odernization of legislations on intellectual property. )ll IPC Laws are TCIPS compliant. Intellectual Property )ppellate Tribunal functional. • Simplification and re-engineering of wor" procedures. 6ore• information on www.ipindia.com #% B''MIN. -EC,'R- = 'PP'R,(NI,IE- .A1'RE/ • Roads/ 4apacity enhancement of highways. G111 "ms of $ational Highways being offered during the current year. 6any more opportunities in the States.
portunities for e9uipment manufacturers. technical support. • (r>an Infrastructure/ 3e elopment of townships for the rapidly growing, increasingly affluent urban middle class. 4ity le el infrastructure. roads, bridges, IT Par"s, sanitation and water supply, etc. 4onsultancy in urban planning. • Ports/ Eo ernment of India@s initiati e of de eloping ports L JSagar 6ala@ with an in estment of <00 billion. 3e elopment of Ports. Shipping. *p gradation and operation of cruise terminal. eration of 3ry Port at 6umbai. • Po?er/ )ddition of ,11,111 6! re9uired o er the ne&t ,1 years. Installed capacity ,1?,111 6!. Hydro-electric initiati e to de elop 71,111 6!. 3etailed pro(ect reports tobe prepared to facilitate pri ate in estment. • ,elecommunications/ 4ellular phones increasing M ,.7 million e ery month. To increase by 01 million this year. 8igure to rise to ,11 million in the ne&t .-4 years. Telephone connections to rise to G7 million by 0117 and ,G7 million by 01,1. In estment
portunities. Setting up manufacturing base. #alue-added ser ices. # number of studies in the recent past have highlighted the growing attractiveness of India as an investment destination #ccording to the study RDreaming with +OI/4& by <oldman 4achs, Indian economy is expected to continue growing at the rate of 72 or more till ;171 4ome of these conclusions are listed belowC S ;nd most attractive destination I # $ L:#O-:? +usiness /onfidence Index, ;117 S ;nd most attractive investment destination among $ransnational /orporations I 0-/$#D&s R!orld Investment Oeport, ;117& S (ost attractive location for .offshoring. of services activities ' # $ Learney <lobal 4ervices @ocation Index ;117 India has among the most liberal and transparent policies on FDI among the emerging economies FDI up to ,112 is allowed under the automatic route in all activitiesQsectors except the following which re%uire prior approval of the <overnmentC i (anufacture of /igars P /igarettes of tobacco and manufactured tobacco substitutes3 ii (anufacture of :lectronic aerospace and defence e%uipmentsC all types iii (anufacture of items exclusively reserved for 4mall 4cale 4ector with more than ;62 FDI3 iv =roposals in which the foreign collaborator has an existing financial Q technical collaboration in India in the Rsame& field TOefer =ress -ote -o , (;117 series)U3 v #ll proposals falling outside notified sectoral policyQcaps FDI policy is reviewed on continued basis and changes in sectoral policyQsectoral e%uity cap are notified through =ress -otes by the 4ecretariat for Industrial #ssistance (4I#), Department of Industrial =olicy P =romotion (DI==) #ll =ress -otes are available at DI== website (www dipp gov in) FDI =olicy is also notified by Oeserve +ank of India (O+I) under Foreign :xchange (anagement #ct (F#) ,555 FDI up to ,112 is permitted on the automatic route in most sectors Investments under the automatic route do not re%uire any prior approval and re%uire only post'entry notification to the Oeserve +ank of India In limited sectors re%uiring prior <overnment approval, proposals are considered in a time bound and transparent manner $here is no restriction on repatriation of original investment and returns on investment 4ome of the ma"or sectors where FDI up to ,112 is allowed under the #utomatic route include most infrastructure sectors, viz , roads and highways, ports and harbours, power generation except nuclear power3 almost all manufacturing activity except few activities under compulsory licensing or reserved for exclusive manufacture in small scale sector3 and a large number of services $he =olicy also encourages ac%uisition of technology by the Indian companies to become globally competitive Foreign technology collaborations are also allowed on automatic route within specified ceilings for payment of royalties /ompanies, who have entered into foreigntechnology collaboration agreements on automatic route, can make royalty payments without any restriction on duration #ll foreign investments, dividends and profits thereon are fully repatriable FOREIGN INVESTMENT ACTS7 FERA AND FEMA: India&s foreign investment policy since independence has been guided by two important acts namely foreign exchange regulation act ,5BE and Foreign exchange management act ,555 among other acts and regulations #s we discuss elaborately the various factors of foreign direct investment it is pertinent to have an overview of these two acts FOREIGN E?CHANGE REGULATION ACT71A 3 $he Foreign :xchange Oegulation #ct, ,56B, was enacted as a temporary measure and later placed permanently in the year ,57B #t that time the limited ob"ective of the #ct was to regulate the inflow of foreign capital in the form of branches and concerns with the substantial non' resident interest, and the the employment of foreigners $he country attained freedom in ,56B, after two centuries of foreign rule and protracted freedom struggle stretched over decades $he prevailing mood then was one of preserving and consolidating the freedom and not to permit once again any type of foreign domination, political or economic Initial approach on foreign capital was negative to a not'interested attitude =rime (inister explained that .the stress on the need to regulate, in the national interest, the scope and manner of foreign capital and control (as per the Industrial =olicy 4tatement 6D) arose from the past association of foreign capital and control with foreign domination of the economy of the country . Fowever after initiation of a process of rapid industrialization of the country, the need to conserve foreign exchange was keenly felt :xports were not picking up and imports were surging, putting the country to severe balance of trade and balance of payment crisis $his in trn led to the need to tap the donors or Foreign #id <ivers $his background induced the <overnment of India to re'focus the F:O# act with the main aim of conservation of foreign exchange rather than regulation of entry of foreign capital $he Foreign :xchange Oegulation #ct, ,5BE, (hereinafter referred to as F:O#) was drafted with the ob"ect of introducing the changes felt necessary for the effective implementation of the <overnment policy and removing the difficulties faced in the working of the previous enactment F:O# is crisis'driven regulation and naturally it contained several draconian provisions #ny offence under F:O# was a criminal offence liable for imprisonment Fowever in the early -ineties due to the ma"or changes in Indian economy and liberalization of industrial and trade policies, consistent with the fast changing international economic and trade relations the need for a more conducive climate for increased inflow of foreign investment and capital in the country to accelerate industrial growth and promotion of trade (especially exports) was felt In order to remove the special restrictions in respect of companies registered in India and to simplify the regulations in regard to foreign investment to attract better flow of foreign capital and investment was paramount $he #mending #ct ;5 of ,55E was enacted in order to remove unnecessary restrictions and simplify procedure $hereby certain provisions dealing with emergencies of different kinds, which were no longer relevant, were removed for improving the climate for investment in India FOREIGN E?CHANGE MANAGEMENT ACT71AAA #s the crisis of foreign exchange melted once for all and the country came to be endowed with
sizeable reserves of foreign exchange, the basic aim of foreign exchange policy shifted from one of control and conservation to that of effective management, to facilitate external tradeQpayment and promote the orderly development and maintenance of the forex market in India $he #ct was thoroughly revised and replaced by the by the Foreign :xchange (anagement #ct, ,555 $he latter has dropped many of the stringent provisions of the older #ct, in the area of transactions involving foreign exchange $he F
# ,555 took effect from Gune ,, ;111 $o investigate due adherence to the provisions of the #ct by the market participants, the /entral <ovt have established the Directorate of :nforcement with a Director and other officers as officers of the :nforcement $his #ct extends to the whole of India and will also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India It will also be applicable to any contravention committed outside India by any person to whom this #ct is applicable INVESTMENT PROMOTION AND FACILITATION: $he ministry of Finance, ministry of corporate affairs and the ministry of commerce and industries are the most important ministries which with the help of Oeserve bank of India look after the foreign direct investment operations in the country $hese ministries have an elaborate set of institutions and agencies to facilitate the flow of foreign direct investment into the country and remove the procedural bottlenecks if any that would take place in the promotion of foreign direct investment SECRETARIAT FOR INDUSTRIAL ASSISTANCE: 4I# has been set up by the <overnment of India in the Department of Industrial =olicy and =romotion in the (inistry of /ommerce and Industry to provide a single window for :ntrepreneurial assistance, investor facilitation, receiving and processing all applications which re%uire <overnment approval, conveying <overnment decisions on applications filed, assisting entrepreneurs and investors in setting up pro"ects, (including liaison with other organizations and 4tate <overnments) and in monitoring implementation of pro"ects It also notifies all <overnment =olicy relating to investment and technology, and collects and publishes monthly production data for ;15 select industry groups FOREIGN INVESTMENT PROMOTION BOARD <FIPB=: $he FI=+ is the competent body to consider and recommend Foreign Direct Investment proposals, which do not come into the country through the automatic route $he board has been transferred to Department of economic affairs in the (inistry of Finance from the (inistry of commerce and industries $he functions of the board areC• • •
• •
to ensure expeditious clearance of the proposals for foreign investment3 to review periodically the implementation of the proposals cleared by the +oard3 to review, on a continuous basis, the general and sectoral policy regimes relating to FDI and in consultation with the #dministrative (inistries and other concerned agencies, evolve a set of transparent guidelines for facilitating foreign investment in various sectors3 to undertake investment promotion activities including establishment of contact with and inviting selected international companies to invest in India in the appropriate pro"ects3 to interact with the Industry #ssociationQ+odies and other concerned government and
•
• •
non'government agencies on relevant issues in order to facilitate increased inflow of FDI3 to identify sectors into which investment may be sought keeping in view the national priorities and also the specific regions of the world from which investment may be invited through special efforts3 to interact with the Foreign Investment =romotion /ouncil (FI=/) being constituted separately in the (inistry of Industry3 and $o undertake all other activities for promoting and facilitating foreign direct investment, as considered necessary from time to time $he +oard will submit its recommendations to the <overnment for suitable action within six weeks
FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY <FIIA=: FII# was established in the Department of Industrial policy and =romotion, (inistry of commerce and Industry to facilitate %uick translation of Foreign Direct Investment approvals in implementation, provide a proactive one' stop after care service to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various government agencies to find solution to problems of the investors $he FII# may co' opt other secretaries to the <overnment of India, /hief /ommissioner (-OI), top functionaries of financial institutions and professional experts from industry and commerce, as and when necessary $he secretariat for Industrial #ssistance (4I#) functions as the secretariat of the FII# FOREIGN INVESTMENT PROMOTION COUNCIL <FIPC=: #part from making the policy framework investor friendly and $ransparent, promotional measures are also taken to attract Foreign Direct Investment into the country $he <overnment has constituted a Foreign Investment =romotion /ouncil (FI=/) in the Department of Industrial =olicy and =romotion, (inistry of /ommerce and Industry $his comprises of professionals from industry and trade It has been set up to have a more target oriented approach toward Foreign Direct Investment promotion $he basic functions of the /ouncil are to identify the sectorsQpro"ects within the country re%uiring Foreign Direct Investment and target specific regionsQ countries of the world from where FDI can be brought in through special efforts
INVESTMENT PROMOTION B INFRASTRUCTURE DEVELOPMENT CELL <IPBIDC=: /onse%uent upon the Department of Industrial =olicy and =romotion having assumed a promotional role as against the regulatory one prior to the process of liberalization initiated in the year ,55,, an Investment =romotion and Infrastructure Development /ell was created in ,558 to give further impetus to facilitation and monitoring of investment as well as for better coordination of infrastructural re%uirements of industry $he activities
handled by the /ell relates to organization of JDestination IndiaK events in foreign countries in collaboration with FI//I, dissemination of information on investment climate in India through publications, promotional films and /D'O9(4 Investment facilitation and coordination of progress made in infrastructure pro"ects, promotion of private investment including foreign investment, compilation of sectoral policy, strategies and guidelines in the infrastructure sector are also the responsibilities assigned to this /ell =rocessing and approval of proposals pertaining to setting up of Industrial =arks and Industrial (odel $owns is also undertaken by this /ell ENTREPRENEURIAL ASSISTANCE UNIT <EAU=: $he :ntrepreneurial #ssistance 0nit functioning under the 4ecretariat for Industrial #ssistance, Department of Industrial =olicy and =romotion provides assistance to entrepreneurs on various sub"ects concerning investment decisions $he unit receives all papersQapplications related to industrial approvals and immediately issues a computerised acknowledgement, which also has an identityQreference number #ll correspondence with the 4I# should %uote this number In case of papers filed by post, the acknowledgement will be sent by post $he 0nit extends this facility to all papersQapplications relating to I
s, Industrial @icenses, Foreign Investment, Foreign $echnology #greements, ,11 per cent :90s, :F$=, 4$= 4chemes, etc $he 0nit also attends to en%uiries from entrepreneurs relating to a wide range of sub"ects concerning investment decisions It furnishes clarifications and arranges meetings with nodal officers in concerned (inistriesQ9rganizations $he 0nit also provides information regarding the current status of applications filled for various industrial approvals. INVESTOR EDUCATION AND PROTECTION FUND: INVESTMENT COMMISSION: $he Investment commission was set up in ;116 with a view to make the environment in India attractive for investors $he commission has the broad authority of the government to engage, discuss with and invest in India $he recommendations of the commission are to be processed in the (inistry of finance and will be put up to the competent authority for approval #ll policy decisions emerging from the recommendations of the /ommission would be put up to /abinet /ommittee 9n :conomic #ffairs for approval $he commission studied ;7 key sectors spanning Infrastructure, (anufacturing, 4ervices, -atural Oesources and the Lnowledge :conomy $hese sectors are significant and would re%uire an aggregate investment of 04 N 771 billion over the next five years $he commission has recommended a need to identify a few -ational $hrust #reas where all impediments for growth are removed, and where appropriate incentives are provided, to encourage investment $he $hrust #reas could includeC , , $ourism =ower, ,
$extiles #gro'processing
NRI UNIT: (a"or functions of the -OI 0nit which is a part of the Investment Division are as underC (a) (a) (a) (a) :uro'e%uityQforeign currency convertible bonds policy Foreign Institutional Investors =ortfolio Investment =olicy Investment policy for -on'Oesident Indian =olicy governing opening up of branchQliaisonQpro"ect office by the foreign companies and coordination in respect of individual proposals referred to <overnment by O+I (atters related to Indian Investment /entre, an autonomous body under the (inistry of Finance FOREIGN DIRECT INVESTMENT POLICY: $he government of India has recently undertaken a comprehensive review of the FDI policy and associated procedures #s a result, a number of rationalization measures like dispensing with the need of multiple approvals from <overnment andQor regulatory agencies that exist in certain sectors, extending the automatic route to more sectors, and allowing FDI in new sectors #s per the extant policy, FDI up to ,112 is allowed, under the automatic route in most sectorsQ activities FDI under the automatic route does not re%uires prior approval either by the government or the reserve bank of India Investors are only re%uired to notify the concerned Oegional office of O+I within E1 days of issue of shares to foreign investors 0nder the <overnment approval route, applications for FDI proposals, other than by -on' Oesident Indians, and proposals for FDI in J4ingle +randK product retailing, are received in the Department of :conomic #ffairs, (inistry of Finance =roposals for FDI in J4ingle +randK product retailing and the -OI&4 are received in the Department of Industrial policy and =romotion, (inistry of /ommerce and Industry Foreign investments in e%uity capital of an Indian company under the =ortfolio Investment 4cheme are not within the ambit of FDI policy and are government by separate regulations of O+IQ 4ecurities and :xchange +oard of India (4:+I) #t present FDI is prohibited in the following sectorsC ,' ;' E' 6' Oetail trading (except single brand product retailing) #tomic energy @ottery business <ambling and betting
#ll activitiesQ sectors would re%uire period government approval in the following
circumstancesC , where provisions of press note (;117 series) are attracted , !here more than ;6 percent foreign e%uity is proposed to be inducted for manufacture of items reserved for the small scale sector FDI is permitted up to ,11 percent in the automatic route in most sectors sub"ect to sectoral rulesQ regulations applicable SECTOR SPECIFIC GUIDELINES FOR FDI IN INDIA: , FDI up to ,112 is allowed under the automatic route in all activitiesQsectors except the following which will re%uire approval of the followingC , #ctivities or items that re%uire an industrial license3 , =roposals in which the foreign collaborator has a previousQ existing ventureQ tie up in India or allied field , #ll proposals relating to ac%uisitions of shares in an existing Indian company by a foreignQ -OI investor , #ll proposals falling outside notified sectoral policyQ caps or under sectors in which FDI is not permitted
AUTOMATIC ROUTE: #ll activities which are not covered under the automatic route according to para ; ,, prior approval of the <overnment for FDI shall be compulsory #reasQ 4ectorsQ #ctivities hitherto not open to FDI investment shall continue to be so unless otherwise decided and notified by <overnment #n investor can make an application for prior government approval even when the proposed activity is under the automatic route PROCEDURE TO GET GOVERNMENT APPROVAL: $he Foreign Investment =romotion +oard (FI=+) considers approving all proposals for foreign investment, which re%uires <overnment approval $he FI=+ also grants composite approvals involving foreign investment, foreign technical collaboration For seeking the approval for FDI other than -OI Investments and ,112 :90, applications in form F/'I@ should be submitted to the department of :conomic #ffairs (D:#), (inistry of Finance #pplication for proposals re%uiring prior government approval should be submitted to FI=+ in F/'I@ from, plain paper applications carrying all relevant particulars are also accepted, no fee is charged $he following information should form part of the proposals submitted to FI=+C , , , !hether the applicant has had or has any previousQ existing financialQ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought3 and If so, details thereof and the "ustification for proposing the new ventureQ technical collaboration (including trademarks) #pplications can also be submitted with Indian missions abroad who will forward them
,
to the department of :conomic affairs for further processing Foreign investment proposals received in the D:# are placed before the Foreign Investment =romotion +oard (FI=+) within ,7 days of receipt
$he decision of the government in all the cases is usually conveyed by the D:# within E1 days R)#)*2) B4+; O- I+&,4C# 0)+)*4. 5)*3,##,"+ %+&)* FEMA> RBI looks after granting of general permission under the Foreign :xchange (anagement #ct in respect of proposals approved by the government, Indian companies getting foreign investment approval through FI=+ route do not re%uire any further clearance from O+I for the purpose of receiving inward remittances and issue of shares to the foreign investors $he companies are, however re%uired to notify the Oegional office concerned of the O+I of receipt of inward remittances within E1 days of such receipt and to file the re%uired documents with the concerned Oegional offices of the O+I within E1 days after issue to the foreign investors or -OIs +esides new companies, automatic route for FDIQ-OI investment if also available to the existing companies proposing to induct foreign e%uity For existing companies with an expansion programme, the additional re%uirements are as underC , , , $he increase in e%uity level resulting from the expansion of the e%uity base of the existing company without the ac%uisition of existing shares by -OIQforign investors $he money to be remitted should be in foreign currency and =roposed expansion programme should be in the sectors under the automatic route 9therwise, the proposal would need <overnment approval through the FI=+ For this a board Oesolution of the existing Indian company must suppost the proposal
For companies already existing without an expansion programme, the additional re%uirements for eligibility for automatic approval areC $hat they are engaged in the industries under automatic route $he increase in e%uity level must be from expansion of the e%uity base and the foreign e%uity must be in foreign currency $he earlier 4:+I regulation that was applicable to public limited companies, that shares allotted on preferential basis shall not be transferable in any manner for a period of 7 years from the date of their allotment has now been modified to the extent that not more than ;1 percent of the entire contribution brought in by the promoter cumulatively in public or preferential issues shall be locked in e%uity participation by international financial institutions such as #D+, IF/, /D/, D:< etc in the domestic companies is permitted through automatic route sub"ect to 4:+IQO+I regulations and sector specific cap on FDI AMERICAN DEPOSITORY RECEIPTS OR GLOBAL DEPOSITORY RECEIPTS <ADRDGDR=:
#n Indian corporate can raise foreign currency resources abroad through the issue of #merican Depository Oeceipts (#DOs) or <lobal Depository Oeceipts (<DOs) by issuing its Oupee denominated shares to a person resident outside India being a depository for the purpose of issuing <lobal Depository Oeceipts (<DOs) andQ or #merican Depository Oeceipts (#DOs), sub"ect to the conditions thatC #) $he #DOsQ<DOs are issued in accordance with the 4cheme for issue of Foreign /urrency /onvertible +onds and 9rdinary 4hares ($hrough Depository Oeceipt (echanism) 4cheme, ,55E and guidelines issued by the /entral <overnment there under from time to time +) $he Indian company issuing such shares has an approval from the (inistry of Finance, <overnment of India to issue such #DOs andQor <DOs or is eligible to issue #DOsQ <DOs in terms of the relevant scheme in force or notification issued by the (inistry of Finance, and /) Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Oegulations $here is no limit up to which an Indian company can raise #DOsQ<DOs Fowever, the Indian company has to be otherwise eligible to raise foreign e%uity under the extant FDI policy $here are no end'use restrictions on <DOQ#DO issue proceeds, except for an express ban on investment in real estate and stock markets $he F//+ issue proceeds need to conform to external commercial borrowing end use re%uirements In addition, ;7 per cent of the F//+ proceeds can be used for general corporate restructuring Oegulation 6 of 4chedule'I of F
# -otification -o ;1 deal with the issue of #DOQ<DO by an Indian company , ,B # company engaged in the manufacture of items covered under #utomatic route, whose direct foreign investment after a proposed <DOsQ#DOsQF//+s issue is likely to exceed the e%uity limits under the automatic route, or which is implementing a pro"ect falling under <overnment approval route, would need to obtain prior <overnment clearance through FI=+ before seeking final approval from the (inistry of Finance FOREIGN CURRENCY CONVERTIBLE BONDS: F//+s are issued in accordance with the T4cheme for issue of Foreign /urrency /onvertible +onds and 9rdinary 4hares ($hrough Depository Oeceipt (echanism) 4cheme, ,55E, and subscribed by a non'resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any e%uity related warrants attached to debt instruments3 $he eligibility for issue of /onvertible +onds or 9rdinary 4hares of Issuing /ompany is as underC#) #n issuing company desirous of raising foreign funds by issuing Foreign /urrency /onvertible +onds or ordinary shares for e%uity issues through <lobal Depositary Oeceipt i /an issue F//+s up to 04N71 (illion under the #utomatic route, ii From 04N71 I,11 (illion, the companies have to take O+I approval, iii From 04N,11 (illion and above, prior permission of the Department of :conomic #ffairs is re%uired PREFERENCE SHARES: Foreign investment through preference shares isC V treated as Foreign Direct e%uity for the purposes of sectoral caps on foreign e%uity, where such caps are prescribed, provided they carry a conversion option =reference shares structured without such conversion option fall outside the foreign direct e%uity cap V considered as part of the share capital and fall outside the :xternal /ommercial +orrowing
/+) guidelinesQcap $he route, whether #utomatic or <overnment approval depends upon the activity Q sector of the company $he Duration of conversion shall be as per the maximum limit prescribed under the /ompanies #ct or what has been agreed to in the shareholders agreement, whichever is less $he dividend rate would not exceed the limit prescribed by the (inistry of Finance Issue of preference shares should conform to the guidelines prescribed by the 4:+I and and other statutory re%uirements INDUSTRIAL LICENSING: I+&%#$*,4. .,1)+#,+0 5".,1': Industrial @icenses are regulated under the Industries (Development P Oegulation) #ct, ,57, !ith progressive liberalization and deregulation of the economy the re%uirement of industrial licensing have been substantially reduced #t present industrial license for manufacturing is re%uired only for the followingC i Industries retained under compulsory licensing, ii (anufacture of items reserved for small scale sector by non'44I units3 and iii !hen the proposed location attracts locational restriction O+II+&%#$*,)# R)8%,*,+0 C"35%.#"*' L,1)+#,+0: $he following industries re%uire compulsory industrial license under I (DPO) #ct Q appropriate authorityC i Distillation and brewing of alcoholic drinks ii /igars and cigarettes of tobacco and manufactured tobacco substitutes3 iii :lectronic #erospace and defence e%uipmentC all types3 iv Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches3 v Fazardous chemicals3 a Fydrocyanic acid and its derivatives b =hosgene and its derivatives c Isocyanates and di'isocyanates of hydrocarbon, not elsewhere specified (exampleC (ethyl Isocyanate) S34..7S14.) S)1$"*: #n industrial undertaking is defined as a small'scale unit if the capital investment in plant and machinery does not exceed Os ,1 million 4mall'scale units can get registered with the Directorate of IndustriesQDistrict Industries /entre of the 4tate <overnment 4uch units can manufacture any item, and are also free from locational restrictions $he <overnment has reserved certain items for exclusive manufacture in the small'scale sector (@ist available at www dipp gov in) M4+%-41$%*) "- ,$)3# *)#)*2)& -"* #34..7#14.) #)1$"*: -on 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 re%uired to undertake an obligation to export 71 per cent of the production of 44I reserved items L"14$,"+4. R)#$*,1$,"+#: Industrial undertakings are free to select the location of their pro"ects Industrial @icense is re%uired if the proposed location is within ;7 L( of the 4tandard 0rban #rea limits of ;E cities having population of , million as per ,55, census $hese cities are 0rban area limits of <reater (umbai, Lolkata, Delhi, /hennai, Fyderabad, +angalore, #hmedabad, =une, Lanpur, -agpur, @ucknow, 4urat, Gaipur, Lochi, /oimbatore, )adodara, Indore, =atna, (adurai, +hopal, )isakhapatnam, )aranasi and (unicipal /orporation limits of @udhiana
. T() L"14$,"+4. *)#$*,1$,"+ &")# +"$ 455.'C i) If the unit were to be located in an area designated as an R&industrial area&& before the ;7th Guly, ,55, ii) In the case of :lectronics, /omputer software and =rinting and any other industry, this may be notified in future as Jnon polluting industryK $he location of industrial units is sub"ect to applicable local zoning and land use regulations and environmental regulations Procedure for o>taining Industrial 1icense/ Industrial @icense is granted by the 4ecretariat for Industrial #ssistance (4I#) on the recommendation of the @icensing /ommittee #pplication in the prescribed form (Form F/'I@) accompanied with a crossed demand draft of Os ;711Q' may be submitted to the =OP/ section in 4I# Decisions are usually taken within 6'8 weeks of filing the application P".,1' -"* I+&%#$*,)# )E)35$ -*"3 .,1)+#,+0 7 IEM Industrial undertakings exempt from industrial license are only re%uired to file an Industrial :ntrepreneur (emoranda (I
) in =art R#&, in the prescribed format (Form I) P*"1)&%*) -"* IEM: $he #pplication in the prescribed form (Form I) can be filed with the =OP/ section in 4I# either in person or by post $he I should be submitted along with a crossed demand draft of Os ,111Q' for up to ,1 items proposed to be manufactured For more than ,1 items, an additional fee of Os ;71 for up to ,1 additional items needs to be paid 9n filing the I, an acknowledgement containing the 4I# Oegistration -umber, for future reference, is issued In case I is sent by post, the acknowledgement is sent by post P no further approval is re%uired #n I would stand cancelled if the proposal re%uires compulsory license 0pon commencement of commercial production, Industrial undertakings need to file information in =art R+& of the I to =OP/ 4ection in 4I# -o fee is to be paid for filing =art + #ll industrial undertakings whether or not exempt from compulsory industrial licensing, are statutorily re%uired to submit monthly production return in the prescribed proforma every month $his should reach the Industrial 4tatistics 0nit (I40) of the Department positively by the ,1th of the following month -oteC F/'I@ and I forms are available in the =ublic Oelation and /omplaint 4ection (=OP/) of the 4I#, all outlets dealing in <overnment =ublications, Indian :mbassies, and can bedownloaded from the web site httpCQQwww dipp gov in C4**' "+ B%#,+)## <COB= L,1)+#): 4mall' scale units by virtue of their natural growth may exceed the investment limit prescribed for small'scale units In such cases these units need to obtain a /arry'on'+usiness (/9+) @icense based on the best production in the preceding three years -o export obligation is fixed on the capacity for which the /9+ license is granted $he application for /9+ licence should be submitted in revised form J::K, which can be downloaded from the web site httpCQQwww dipp gov in along with a crossed demand draft of Os ;711Q' Fowever, on further expansion of its capacity beyond the capacity included in /9+ license, the unit would need to obtain an industrial license
P4'3)+$ "- 5*)#1*,9)& -)): $he fee prescribed for various applications, licenses are to be paid through crossed demand draft drawn in favor of the =ay P #ccounts 9fficer, Department of Industrial =olicy P =romotion, (inistry of /ommerce P Industry, payable at -ew Delhi E+2,*"+3)+$4. C.)4*4+1)#: :ntrepreneurs are re%uired to obtain 4tatutory clearances relating to =ollution /ontrol and :nvironment as may be necessary, for setting up an industrial pro"ect for E, categories of industries in terms of -otification 4 9 81
) dated ;B , 56 as amended from time to time, issued by the (inistry of :nvironment P Forests under $he :nvironment (=rotection) #ct, ,5D8 $his list includes petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper, etc Fowever, if investment in the pro"ect is less than Os , billion, such :nvironmental clearance is not necessary, except in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining pro"ects, tourism pro"ects of certain parameters, tarred roads in Fimalayan areas, distilleries, dyes, foundries and electroplating industries 4etting up industries in certain locations considered ecologically fragile (e g #ravalli Oange, coastal areas, Doon valley, Dahanu, etc ) are guided by separate guidelines issued by the (inistry of :nvironment and Forests Details can be obtained at the website of (inistry of :nvironment and Forests (httpCQQenvfor nic in ) FOREIGN TECHNOLOGY AGREEMENTS G)+)*4. P".,1':For promoting technological capability and competitiveness of the Indian industry, ac%uisition of foreign technology is encouraged through foreign technology collaboration agreements Induction of know'how through such collaborations is permitted either through automatic route or with prior <overnment approval
S1"5) "- T)1(+"."0' C"..49"*4$,"+: $he terms of payment under foreign technology collaboration, which are eligible for approval through the automatic route and by the <overnment approval route, includes technical know how fees, payment for design and drawing, payment for engineering service and royalty =ayments for hiring of foreign technicians, deputation of Indian technicians abroad, and testing of indigenous raw material, products, and indigenously developed technology in foreign countries are governed by separate O+I procedures and rules pertaining to current account transactions and are not covered by the foreign technology collaboration approval For details please refer to the website of the O+I A%$"34$,1 R"%$): =ayments for foreign technology collaboration by Indian companies are allowed under the automatic route sub"ect to the following limitsC (i) $he lump sum payments not exceeding 04N; million3 (ii) Ooyalty payable being limited to 7 per cent for domestic sales and D per cent for exports, without any restriction on the duration of the royalty payments $he royalty limits are net of taxes and are calculated according to standard conditions T=ress -ote -o ,5 (,55D series) and =ress -ote -o ; (;11E series)U $he royalty will be calculated on the basis of the net ex'factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought'out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc
U#) "- T*4&)34*;# 4+& B*4+& +43): =ayment of royalty up to ;2 for exports and ,2 for domestic sales is allowed under automatic route for use of trademarks and brand name of the foreign collaborator without technology transfer Ooyalty on brand nameQtrade mark shall be paid as a percentage of net sales, viz , gross
sales less agents&Qdealers& commission, transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts and components imported from the foreign licensor or its subsidiaryQaffiliated company(=ress -ote -o , of ;11
In case of technology transfer, payment of royalty includes the payment of royalty for use of trade mark and brand name of the foreign collaborator P*"1)&%*) -"* A%$"34$,1 R"%$): #uthorized Dealers (#Ds) appointed by the O+I allow remittances for royalty, payment of lump' sum fee and remittance for use of $rade mark QFranchise in India within the limits prescribed under the automatic route O+I&s prior approval is re%uired for remittance towards purchase of trade markQfranchise G"2)*+3)+$ A55*"24. @ P*"F)1$ A55*"24. B"4*& <PAB=: Ooyalty payment in the following cases re%uires prior <ovt approval (through =#+ when only technical collaboration is proposed and FI=+ where both financial P technical collaboration are proposed)C 4ectorsQactivities which are not on the automatic route for FDI P*"1)&%*) -"* G"2)*+3)+$ A55*"24.: =roposals for foreign technology collaboration not covered under the automatic route are considered by the =ro"ect #pproval +oard (=#+) in the Department of Industrial =olicy and =romotion #pplication in such cases should be submitted in Form F/'I@ to the 4ecretariat for Industrial #ssistance =roposals where both financial P technical collaboration are proposed, application is to be submitted to FI=+ -o fee is payable ENTRY OPTIONS FOR FOREIGN INVESTOR E+$*' O5$,"+#: # foreign company planning to set up business operations in India has the following optionsC #s an Incorporated :ntity i) +y incorporating a company under the /ompanies #ct,,578 through i Goint )entures3 or ii !holly 9wned 4ubsidiariesForeign e%uity in such Indian companies can be up to ,112 depending on the re%uirements of the investor, sub"ect to any e%uity caps prescribed in respect of the area of activities under the Foreign Direct Investment (FDI) policy #s an 0nincorporated :ntity ii) #s a foreign /ompany through i @iaison 9fficeQOepresentative 9ffice ii =ro"ect 9ffice iii +ranch 9ffice 4uch offices can undertake activities permitted under the Foreign :xchange (anagement
stablishment in India of +ranch 9ffice of other place of business) Oegulations, ;111 I+1"*5"*4$,"+ "- C"354+': For registration and incorporation, an application has to be filed with Oegistrar of /ompanies (O9/) 9nce a company has been duly registered and incorporatedas an Indian company, it is sub"ect to Indian laws and regulations as applicable toother domestic Indian companies For details please visit the website of (inistry of /ompany #ffairs athttpCQQdca nic in L,4,#"+ O--,1)DR)5*)#)+$4$,2) O--,1): $he role of liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers It can promote exportQimport fromQto India and also facilitate technicalQfinancial collaboration between parent company andcompanies in India @iaison office can not undertake any commercial activitydirectly or indirectly and can not, therefore, earn any income in India #ll expenses of @iasion offices have to be met by inward remittances #pproval for establishing a liaison office in India is granted by Oeserve +ank of India (O+I) P*"F)1$ O--,1): Foreign /ompanies planning to execute specific pro"ects in India can set up temporary pro"ectQsite offices in India O+I has now granted general permission to foreign entities to establish =ro"ect 9ffices sub"ect to specified conditions 4uch offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the pro"ect =ro"ect 9ffices may remit outside India the surplus of the pro"ect, after meeting the tax liabilities, on its completion B*4+1( O--,1):Foreign companies engaged in manufacturing and trading activitiesabroad are allowed to set up +ranch 9ffices in India for t he following purposesC a :xportQImport of goods b Oendering professional or consultancy services c /arrying out research work, in which the parent company is engaged d =romoting technical or financial collaborations between Indian companies and parent or overseas group company e Oepresenting the parent company in India and acting as buyingQselling agents in India f Oendering services in Information $echnology and development ofsoftware in India g Oendering technical support to the products supplied by the parentQ groupcompanies h Foreign airlineQshipping company +ranch 9ffices established with the approval of O+I may remit outside India profit of the branch, net of applicable Indian taxes and sub"ect to O+I guidelines =ermission for setting up branch offices is granted by the Oeserve +ank of India (O+I) B*4+1( O--,1) "+ GS$4+& A."+) B4#,#H ,+ SEI: 4uch +ranch 9ffices would be isolated and restricted to 4pecial :conomic Wone (4:W) alone and no business activityQtransaction will be allowed outside the 4:Ws in India, which include branchesQsubsidiaries of its parent office in India -o approval shall be necessary from O+I for a company to establish a branchQunitin 4:Ws to undertake manufacturing and service activities sub"ect to the following conditionsC a 4uch units are functioning in those sectors where ,112 FDI is permitted, b 4uch units comply with part *I of the /ompany&s #ct (4ection 75; to 81
, c 4uch units function on a stand'alone basis, d In the event of winding up of business and for remittance of winding'up proceeds, the branch shall approach an authorized dealer in foreign exchange with the documents re%uired as per F# #pplication for setting up @iaison 9fficeQ =ro"ect 9fficeQ +ranch 9ffice may besubmitted to /hief <eneral (anager, :xchange /ontrol Department(ForeignInvestment Division), O+I/entral 9ffice, (umbai'61111,, in form F-/ , (available at O+I website at www rbi org in )
E?CHANGE CONTROL F"*),0+ EE1(4+0) M4+40)3)+$ A1$: $he Oeserve +ank of India&s :xchange /ontrol Department, administers Foreign :xchange (anagement #ct, ,555, (F
#) R)54$*,4$,"+ "- I+2)#$3)+$ C45,$4. 4+& P*"-,$# E4*+)& ,+ I+&,4: (i) #ll foreign investments are freely repatriable, sub"ect to sectoral policies and except for cases where -OIs choose to invest specifically under non'repatriable schemes Dividends declared on foreign investments can be remitted freely through an #uthorized Dealer(ii) -on'residents can sell shares on stock exchange without prior approval of O+I and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary -9/Qtax clearance certificate issued by Income $ax authorities (iii) For sale of shares through private arrangements, Oegional offices of O+I grant permission for recognized units of foreign e%uity in Indian company in terms of guidelines indicated in Oegulation ,1 + of -otification -o F
# ;1Q;111 O+ dated (ay R;111 $he sale price of shares on recognized units is to be determined in accordance with the guidelines prescribed under Oegulation ,1+ ( of the above -otification (iv) =rofits, dividends, etc ,(which are remittances classified as current account transactions) can be freely repatriated C%**)+$ A11"%+$ T*4+#41$,"+# /urrent account transactions are regulated under the Foreign :xchange (anagement (/urrent #ccount $ransactions) Oules ;111 X -o < 4 O ED,),dated E 7 ;111U =rior approval of the O+I is re%uired for ac%uiring foreign currency above specified limits for the following purposesC a Foliday travel over 04N,1,111 p a b <ift Q donation over 04N7,111 Q 04N,1,111 per beneficiary p a c +usiness travel over 04N;7,111 per person d Foreign studies as per estimate of institution or 04N,11,111 per academic year e #rchitectural Q consultancy services procured from abroad over 04N,,111,111 per pro"ect f Oemittance for purchase of $rade (ark Q Franchise g Oeimbursement of pre incorporation expenses over 04N,11,111 h Oemittances exceeding 04N;7,111 p a (over and above ceilings prescribed for other remittances mentioned above) by a resident individual for any current account or capital account transaction $he above figures are for the purpose of general guidance of the investors It is suggested that investors must reconfirm, the permissible limits before undertaking transactions A18%,#,$,"+ "- I33"249.) P*"5)*$' B' N"+7R)#,&)+$C # person resident outside India, who has been permitted by Oeserve +ank of India to establish a branch, or office, or place of business in India (excluding a @iaison 9ffice), has general permission of Oeserve +ank of India to ac%uire immovable property in India, which is necessary for, or incidental to, the activity Fowever, in such cases a declaration, in prescribed form (I=I),is re%uired to be filed with the Oeserve +ank, within 51 days of the ac%uisition of immovable property Foreign nationals of non'Indian origin who have ac%uired immovable property in India with the specific approval of the Oeserve +ank of India can not transfer such property without prior permission from the Oeserve +ank of India =lease refer to the Foreign :xchange (anagement (#c%uisition and transfer of Immovable =roperty in India) Oegulations& ;111 T-otification -o F
# ;,Q;111'O+ dated (ay E, ;111U #c%uisition of Immovable =roperty +y -OI #n Indian citizen resident outside India (-OI) can ac%uire by way of purchase any immovable property in India other than agriculturalQ plantation Qfarm house Fe may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a =erson of Indian 9rigin resident outside India or a person resident in IndiaPORTFOLIO INVESTMENT P"*$-".," I+2)#$3)+$ S1()3)<PIS=: Foreign Institutional Investors (FIIs) registered with 4:+I and -on'Oesident Indians are eligible to purchase shares and convertible debentures under the =ortfolio Investment scheme $he FII should apply to the designated #D for opening a foreign currency account andQor a -on Oesident Oupee #ccount Investment by FIIs is regulated under 4:+I (FII) Oegulations, ,557 and Oegulation 7(
of F# -otification -o ;1 dated (ay E, ;111 4:+I acts as the nodal point in the entire process of FII registration FIIs are re%uired to apply to 4:+I in a common application form in duplicate O+I approval is also re%uired under F# to enable an FII to buyQsell securities on 4tock :xchanges and open foreign currency and Indian Oupee accounts with a designated bank branch F"*),0+ I+#$,$%$,"+4. I+2)#$"*# <FII=:FIIs include #sset (anagement /ompanies, =ension Funds, (utual Funds, Investment $rusts as -ominee /ompanies, IncorporatedQInstitutional =ortfolio (anagers or their =ower of #ttorney holders, 0niversity Funds, :ndowment Foundations, /haritable $rusts and /haritable 4ocieties P".,1' O+ FII I+2)#$3)+$# (ain features of the policy on investment by FII areC a FIIs are re%uired to allocate their investment between e%uity and debt instruments in the ratio of B1CE1 Fowever, it is also possible for an FII to declare itself a ,112 debt FII in which case it can make its entire investment in debt instruments b FIIs can buyQsell securities on 4tock :xchanges $hey can also invest in listed and unlisted securities outside 4tock :xchanges where the price has been approved by O+I c -o individual FIIQsub'account can ac%uire more than ,12 of the paid up capital of an Indian company d #ll FIIs and their sub'accounts taken together cannot ac%uire more than ;62 of the paid up capital of an Indian /ompany e Indian /ompanies can raise the above mentioned ;62 ceiling to the 4ectoral /ap Q 4tatutory /eiling as applicable by passing a resolution by its +oard of Directors followed by passing a 4pecial Oesolution to that effect by its <eneral +ody in terms of =ress Oelease dated 4ept ;1, ;11, and F
# -otification -o 67 dated 4ept ;1, ;11, -o permission from O+I is needed so long as the FIIs purchase and sell on recognized stock exchange #ll non'stock exchange salesQpurchases re%uire O+I permission P"*$-".," I+2)#$3)+$# 9' NRI# -OIsQ=I9s are permitted to purchaseQsell sharesQconvertible debentures of Indian companies on 4tock :xchanges under =ortfolio Investment 4cheme For this purpose, the -OIQ=I9 has to apply to a designated branch of a +ank which deals in =ortfolio Investment #ll the saleQpurchase transaction is routed through the designated branch #n -OI can purchase shares up to 72 of the paid up capital of an Indian company #ll -OIs taken together cannot purchase more than ,12 of the paid up value of the company $his limit can be increased by the Indian company to ;62 by passing a <eneral +ody resolution Investment can be made both on repatriation basis or non'repatriation basis the sale of shares will be sub"ect to payment of applicable taxes Details regarding portfolio investment scheme available at the websites of O+I (www rbi org in) and 4:+I (www sebi gov in)INCORPORATION OF COMPANY C"354+'C# A1$ 1A56: Incorporation of a company in India is governed by the /ompanies #ct, ,578 =art II of the #ct deal with the incorporation of a company and matters related to P*,24$) C"354+': =rivate company means a company which has a minimum paid'up capital of Os,,,11,111Q' or such higher paid'up capital as may be prescribed, and by its articles, (a) restricts the rights to transfer its shares, if any3 (b) @imits the number of its members to fifty, not including i) =ersons who are in the employment of the company3 and 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 ceased3 and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company3 (d) =rohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives P%9.,1 C"354+': # public company is a company which is not a private company and has a minimum paid'up capital of Os,7,11,111Q'or such higher paid'up capital, as may be prescribed F"*34$,"+ "- 4 P*,24$) L,3,$)& C"354+':
# private /ompany can be formed either by i incorporation of a new company for doing a new business , or ii /onversion of existing business of a sole proprietary concern or partnership firm into a company N43) "- C"354+': $he name of a corporation is the symbol of its personal existence #ny suitable name may be selected for registration sub"ect to the following guidelinesC a $he promoters should select three to four alternative names, %uite distinct from each other b $he names should include, as far as possible, activity as per the main ob"ects of the proposed company c $he names should not too closely resemble with the name of any other registered company d $he official guidelines issued by the /entral <overnment should be followed while selecting the names +esides, the names so selected should not violate the provisions of the :mblems and -ames (=revention of Improper 0se) #ct, ,571 e #pply in form ,'# to the Oegistrar of /ompanies having "urisdiction along with a filing fee of Os 711 M)3"*4+&%3 "- A##"1,4$,"+: #n important step in the formation of a company is to prepare a document called (emorandum of #ssociation It is the charter of the company and it contains the basic conditions on which the company is incorporated $he (emorandum contains the name, the 4tate in which the registered office is to be situated, main ob"ects of the company to be pursued by the company on its incorporation and ob"ects incidental or ancillary to the attainment of the main ob"ects, liability of the members and the authorized capital of the company $he main purpose of the memorandum is to state the scope of activities and powers of the company A*$,1.)# "- A##"1,4$,"+: #rticles of #ssociation of the company contain rules, regulation and bye'laws for the general management of the company It is compulsory to get the #rticles of #ssociations registered along with the (emorandum of #ssociation in case of a private company $he #rticles are subordinate to the (emorandum of #ssociation $herefore, the #rticles should not contain any regulation, which is contrary to provisions of the (emorandum or the /ompanies #ct $he #rticles are binding on the members in relation to the company as well as on the company in its relation to members R)0,#$*4$,"+ "- C"354+' 4+& I##%) "- C45,$4.: #fter completion of the preliminaries, as enumerated above, the application with necessary documents are re%uired to be filed with the Oegistrar of /ompanies of the 4tate in which the company is proposed to be incorporated $hese includeC a (emorandum of #ssociation (duly stamped) and a duplicate thereof b #rticles of #ssociation (duly stamped) and a duplicate thereof
c $he 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 # copy of the letter of the Oegistrar of /ompanies 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 Oegistered 9ffice in Form E; and Form ,D respectively and declaration of compliance with re%uirements of the /ompanies #ct in Form -o , and Form ;5 for giving consent to act as a Director in case of public company are also given $he amount of registration fee payable is regulated with reference to the amount of authorized capital of the proposed company /ertificate of Incorporation 0pon compliance with all re%uirements, the Oegistrar will register the company and issue a /ertificate of Incorporation of company It brings the company into existence as a legal entity I##%) "- S(4*) C45,$4.: #fter obtaining registration, the company proceeds with its business for which it re%uires funds In case of a private company, the capital is to be raised by way of private arrangements whereas a =ublic @td company can raise funds from the public First of all, the company will issue shares to the subscribers to its memorandum and other members of the company $he issued capital must not exceed the authorized capital of the company It is necessary for a public limited company to obtain the /ertificate of /ommencement of +usiness before commencing the business SPECIAL ECONOMIC IONES <SEI#= AND E?PORT ORIENTED UNITS <EOU#= P".,1' -"* S)$$,+0 %5 S5)1,4. E1"+"3,1 I"+) <SEI=: 4:W is a specifically delineated duty free enclave and is deemed to be foreign territory for the purposes to trade operations and duties and tariffs <oods and services going into the 4:W area form D$# are treated as exports and goods coming from the 4:W area into D$# are to be treated as if these are being imported # 4:W may be set up in the =ublic, =rivate or Goint 4ector or by 4tate government(s) =roposals as per criteria under appendix ,6 II 9 available at D<F$ website (httpCQQdgft delhi nic in) is considered by +oard of #pprovals and Department of /ommerce issues the letter of permission P*"1)&%*): $he applicant should follow the following procedureC a 4ubmission of ,1 copies of application along with pro"ect report to /hief 4ecretary of the concerned 4tate b Forwarding of application along with comments by the 4tate government to +oard of #pprovals in the Department of /ommerce c Issue of letter of permission by Department of /ommerce
P".,1' -"* FDIDNRI I+2)#$3)+$ -"* #)$$,+0 %5 SEIDFTWI: ,112 FDI is permitted under automatic route for setting up 4pecial :conomic Wones and Free $rade !arehousing Wones sub"ect to 4pecial :conomic Wones #ct, ;117 and the Foreign $rade =olicy FDI in setting up of 4:Ws P units in 4:W are exempt from =ress -ote -o ; (;117), governing FDI in /onstruction Development pro"ects P".,1' -"* #)$$,+0 %5 EOU#DU+,$# ,+ SEI %+&)* A%$"34$,1 R"%$): Development /ommissioners (D/s) of 4pecial :conomic Wones (4:Ws) accord automatic approval to pro"ects where (a) #ctivity proposed does not attract compulsory licensing or falls in the services sector except OPD3 4oftware P I$ enabled services3 (b) @ocation is in conformity with the prescribed parameters3 (c) 0nits undertake to achieve positive net foreign exchange earning3 #n :90 unit may be shifted to 4:W with the approval of D/s provided the :90 unit has achieved pro'rata obligation under the :90 scheme If the 0nit is amenable to bonding by customs authorities3 conversion of existing Domestic $ariff #rea (D$#) units into :90 is also permitted under automatic route, if the D$# unit satisfies the parameters in =ara D , In case there is an outstanding export commitment under the :=/< scheme, it will be subsumed in the export performance of the unit If the unit is having outstanding export commitment under the #dvance @icensing 4cheme, it will apply to #@/ for reducing its export commitment in proportion of the %uantum of duty free material actually utilized for production and permitted to carry forward the unutilized material imported against the #dvance @icense P".,1' -"* S)$$,+0 %5 EOU#D U+,$# ,+ SEI %+&)* G"2)*+3)+$ R"%$): =roposals not covered by the automatic route are forwarded by the Development /ommissioner to the +oard of #pproval (+o#), Department of /ommerce for consideration 9n consideration of the proposal by the +oard, the decision would normally be conveyed within 67 days P*"1)&%*) -"* A55*"24.: #pplications in the prescribed form for :90s and units in 4:W should be submitted to the concerned D/s of the 4:Ws $he application should be submitted along with a crossed demand draft of Os 7111Q' drawn in favour of the Jthe =ay P #ccounts 9fficer, Department of /ommerce, (inistry of /ommerce and IndustryK, payable at -ew Delhi #pplication form and detailed procedure may be obtained from the website of Department of commerce at httpCQQcommerce nic in $he form is also available at all outlets dealing in <overnment publications P".,1' -"* FDID NRI I+2)#$3)+$ -"* EOU#D U+,$# ,+ SEI: Details about the type of activities permitted are given in the Foreign $rade =olicy issued by Department of /ommerce (web site ' httpCQQcommerce nic in) =roposals not covered under the automatic route are considered by the FI=+
SETTING UP OF INDUSTRIAL PARKS> INDUSTRIAL MODEL TOWNS AND GROWTH CENTRES P".,1' %+&)* A%$"34$,1 R"%$): $he <overnment notified Industrial =ark scheme on , 6 ;11; (available at www dipp gov in) for setting up Industrial =arksQ Industrial (odel $owns 4I# in DI== accord approval to set up the Industrial =arksQ Industrial (odel $owns, which meet the criteria laid down for approval under the automatic route within fifteen days
A55*"24. 9' E35"/)*)& C"33,$$)): =roposals not meeting any or all of the parameters for automatic route re%uire approval of :mpowered /ommittee set up in the DI==, (inistry of /ommerce P Industry $he decision of the /ommittee is usually conveyed within six weeks P*"1)&%*) -"* A55*"24. 4+& 424,.,+0 166J T4E EE)35$,"+: #pplication in the Form'I=4',, available on this Department&s web site (httpCQQdipp gov in), for obtaining approval for setting up an Industrial =ark and for availing ,112 tax exemption available under section D1 I# of the Income $ax #ct, should be made to the =OP/ 4ection of the DI== #pplication for automatic route has to be submitted in duplicate and for non' automatic approval, in six sets $he application must be accompanied by a fee of Oupees 8,111Q' by a demand draft drawn in favor of the =ay and #ccounts 9fficer, DI== payable at -ew Delhi P".,1' -"* FDIDNRI I+2)#$3)+$: ,112 FDI is permitted under automatic route for setting up of Industrial =arksQ Industrial (odel $owns $he procedure mentioned in para , 7 will be applicable for seeking re%uisite approval E.)1$*"+,1 H4*&/4*) T)1(+"."0' P4*; <EHTP= 4+& S"-$/4*) T)1(+"."0' P4*; <STP= S1()3)#: In order to provide impetus to the electronics industry, to enhance its export potential and to develop an efficient electronic component industry, :F$= and 4$= schemes offer a package of incentives and facilities like duty free imports on the lines of the :90 4cheme, deemed exports benefits and tax holidays A%$"34$,1 R"%$): $he Directors of 4$=s in respect of 4$= proposals3 and the Designated 9fficers in respect of :F$= proposals accord automatic approval within ; weeks ifC (a) Items do not attract compulsory licensing3 (b) @ocation is in conformity with the prescribed parameters3 (c) 0nits undertake to achieve positive net foreign exchange earning3 G"2)*+3)+$ A55*"24.: #ll proposals for setting up of these pro"ects, which do not meet any or all of the parameters for automatic approval, need to be considered and approved by the (inistry of Information
$echnology through the Inter'(inisterial 4tanding /ommittee $he decision of the /ommittee is usually conveyed within six weeks =rocedureC #pplication, in the prescribed form, should be submitted to the concerned Directors of 4$=s or the Designated 9fficers of :F$=s and to the (inistry of Information $echnology for <overnment approval $he application should be submitted along with a crossed demand draft for Os 7111Q' drawn in favor of the Jthe =ay P #ccounts 9ffer, Department of /ommerce, (inistry of /ommerce P IndustryK, payable at -ew Delhi $he form is available in any outlet dealing with <overnment =ublications P*"1)&%*) -"* FDIDNRI I+2)#$3)+$: #ll proposals for FDIQ-OI investment in :F$=Q4$= 0nits are eligible for approval under automatic route sub"ect to parameters listed in =ara , E For proposals not covered under automatic route, the applicant should seek separate approval of the FI=+, as per the procedure outlined in =ara , 8
TA?ATION IN INDIA T4E4$,"+ S'#$)3 ,+ I+&,4: India has a well developed tax structure Income $ax (except tax on agricultural income, which the 4tate <overnments can levy), /ustoms duties, /entral :xcise and 4ales $ax and 4ervice $ax are the main taxes levied by the /entral <overnment )alue #dded $ax, (4ales $ax where )#$ is yet not in force), 4tamp Duty, 4tate :xcise, @and Oevenue, and $ax on =rofessions are the principal taxes levied by the 4tate <overnments @ocal +odies are empowered to levy tax on properties, 9ctroi and for utilities like water supply, drainage, etc P)*#"+4. I+1"3) T4E:
The rates of personal income ta& are+ Income range 2Cupee5 1 -,, 11,111 ,, 11,111 -,, 71,111 ,, 71,111 - 0, 71,111 0, 71,111 and abo e
Ta& rate2/5 $IL ,1 01 .1
) surcharge of ,1/ is le ied on income e&ceeding Cs.,1, 11,111. Senior citizens with income up to Cs.,, >7,111 are e&empt from Income Ta&. Rates of Withholding ,a@/ Current rates for ?ithholding ta@ for payment to non$residents are/ (i) Interest (ii)Dividends (iii)Ooyalties (iv) $echnical 4ervices (v) #ny 9ther 4ervices ;12 Dividends paid by domestic companiesC -il ;12 ,12
IndividualsC E12 of the income /ompaniesC 612 of the net income $he above rates are general and in respect of countries with which India does not have a Double $axation #voidance #greement (D$##) C"*5"*4$) T4E: C%**)+$ *4$)# "- 1"*5"*4$) $4E 4*): V E1 2 in the case of domestic companies and surcharge Y ,12 of the tax /ompanies incorporated in India under the applicable law are treated as domestic company for the purpose of taxation V 612 in the case of foreign companies and surcharge Y ; 72 of the tax V :ducation cess is levied Y ;2 on the amount of tax and surcharge in all cases 4pecial :conomic Wones (4:Ws) TA? CONCESSIONS:
India offers attractive tax incentives to encourage investments in 4pecial :conomic Wones, priority industries and to promote industrialization of industrially dis'advantageous areas S5)1,4. E1"+"3,1 I"+)# <SEI#=: R$F: 4=:/I#@ :/9-9(I/ W9-:4 #/$, ;117&, notified by the <overnment of India in Gune ;117, provides following concessions for the establishment, development and management of the 4pecial :conomic Wones for the promotion of exports $he tax concessions available to developers of 4pecial :conomic Wones and units located in such zones are as followsC 0nits which begin to manufacture or produce articles or things or provide any services, on or after 1,'16';117 are eligible for ,7 year tax benefit in relation to export profits, in the following manner C' (i) ,11 2 deduction for 7 years, 71 2 deduction for next 7 years, 71 2 deduction of the profits ploughed back into business for the next 7 years (ii) ,11 2 deduction of profits derived by an undertaking Q enterprise from the business of developing an 4:W, notified on or after ,st #pril, ;117 $he deduction is available for ,1 out of ,7 years beginning from the year in which 4:W has been notified (iii) :xemption of capital gains arising on transfer of capital assets in case of shifting of industrial undertaking from urban area to any 4pecial :conomic Wone (iv) (inimum #lternate $ax (chargeable Y B 7 2 of the book profit) is not applicable to the income arising on or after ,st #pril, ;117 to 4:W units or developers of 4:Ws (v) :xemption of developers of 4:W from dividend distribution tax on dividends to be distributed by them on or after ,st #pril, ;117 (vi) :xemption of interest income received by a non'resident or not ordinarily resident on deposits made on or after 1,'16';117 with 9ffshore +anking 0nits (vii) -o tax to be deducted by 9ffshore +anking 0nits from the interest paid on deposit made by, or borrowing from, a non'resident or a person not ordinarily resident in India, on or after 1,'16' ;117 C45,$4. G4,+# O+ I+-*4#$*%1$%*) F%+&#: Income by way of dividend, interest, or long'term capital gain of an infrastructure capital company or an infrastructure capital fund is ,112 tax'exempt Fowever infrastructure capital companies are liable to pay minimum alternative tax Income of )enture /apital /ompany or venture capital fund set up to raise funds for investment in a venture capital undertaking is also tax'exempt T4E EE)35$,"+#:
Following tax exemptions are available for priority sectors and incentives to industries located in special areaQregionsC Deduction of ,112 of the profit from business of a Development or operation and maintenance of ports, airports , roads, highways, bridges, rail systems, inland waterways, inland ports, water supply pro"ects, water treatment systems, irrigation pro"ects, sanitation and sewage pro"ects, solid waste management systems b <eneration, distribution and transmission of power c Development, operation and maintenance of an Industrial =ark or 4:W d +y undertakings set up in certain notified areas or in certain thrust sector industries in the -orth'eastern states and 4ikkim e +y undertakings set up in certain notified areas or in certain thrust sector industries in 0ttaranchal P Fimachal =radesh f +y undertakings set up in Gammu P Lashmir g Derived from export of articles or software by undertakings in F$W Q :F$= Q 4$= h Derived from export of articles or software by undertakings in 4:W i Derived from export of articles or software by ,112 :90 " #n offshore banking unit situated in a 4:W from business activities with units located in the 4:W k Derived by undertakings engaged in the business of developing and building housing pro"ects l +y undertakings from the business of operating and maintaining Fospital m Derived by an undertaking engaged in the integrated business of handling, storage and transportation of food grains n Derived by an undertaking engaged in the commercial production or refining of mineral oil o Derived by an undertaking from export of woodbased handicraft D"%9.) T4E4$,"+ R).,)-: India has entered into D$## with 85 countries including countries like 0 4 # , 0 L , Gapan, France, <ermany, etc In case of countries with which India has double taxation avoidance
agreements $he /omprehensive D$##&s, country wise, may please be seen thru website of Income $ax India at httpCQQincometaxindia gov in AUTHORITY FOR ADVANCE RULING: !ith a view to avoid a dispute in respect of assessment of income'tax liability in the case of a non'resident ( and also specified categories of residents), a 4cheme of #dvance Ouling was incorporated in the Income $ax #ct $he #uthority for #dvance ruling (##O) pronounces rulings on the applications of the non'residentQresidents submitted and such rulings are binding both on the applicant and the Income'$ax Department $hus, the applicant can avoid expensive and time consuming litigation which would have arisen from normal income tax assessment proceedings $he application in such cases should be addressed toC $he /ommissioner of Income'$ax #uthority of #dvance Oulings, 7th Floor, - D ( / +uilding, ?ashwant =lace, 4atya (arg, /hankyapuri, -ew Delhi ',,11;,
INVESTMENT GUIDANCE AND FACILITATION: INVESTMENT GUIDANCEC S)1*)$4*,4$ -"* I+&%#$*,4. A##,#$4+1) <SIA= 4ecretariat for Industrial #ssistance (4I#) has been set up in the Department of Industrial =olicy P =romotion (DI==) in the (inistry of /ommerce and Industry to provide a single window for entrepreneurial assistance, investor facilitation, conveying <overnment decisions on applications filed, assisting entrepreneurs and investors in setting up pro"ects, (including liaison with other organisations and 4tate <overnments) and in monitoring implementation of pro"ects It also notifies all <overnment policy relating to investment and technology A##,#$4+1) $" E+$*)5*)+)%*# =OP/ 4ection of the 4I# provides assistance to entrepreneurs on various sub"ects concerning investment decisions It receives all papersQ applications related to industrial approvals i e I
s, Industrial @icenses, Foreign Investment, Foreign $echnology #greements, :F$=, 4$= 4chemes, etc and immediately issues a computerized acknowledgement, which also has an identityQreference number #ll correspondence with the 4I# should %uote this number It also provides information regarding the current status of applications filed for various industrial approvalsW)9 S,$) <($$5
D&,55.0"2.,+= DI==&s website www dipp gov in ensures easy availability of information to the investors about investment policies and procedures, investment climate, state industrial policies, publications, notifications and press notesQreleases $he web site contains the followingC S (anual on Foreign Direct Investment in India ' =olicy and =rocedures (also available in :nglishQFrenchQ<ermanQ4panishQLoreanQGapaneseQ/hinese and Italian language) S 4I# -ewsletter'monthly issues S 4I# 4tatistics' monthly issues S FDI 4tatistics S =ress -otes, -otifications and =ress Oeleases S @ist of 44I reserved items P -I/ /odes S Industrial =olicy 4tatements S @atest #nnual Oeport S Information about Intellectual =roperty Oights S 4tatus of 4I# applications S Important @egislations S Information about #ttached and 4ubordinate 9ffices S =rofile of selected industrial sectors S @ink to websites of other (inistriesQDepartments S @ink to websites of all 4tatesQ0nion $erritories S #ll relevant application forms N4$,"+4. I+&%#$*,4. C.4##,-,14$,"+ <NIC= C"&): In all the forms re%uired for various approvals including FDI, description of activities are re%uired to be given as per the -ational Industrial /lassification of #ll :conomic #ctivities (-I/), ,5DB,O+.,+) C(4$ A+& B%..)$,+ B"4*& S)*2,1)#: DI== website provides a link this list for the benefit of the users $he web site has the facility of on line chat between ,,#( to ,; -oon P 6 11 to 7 11 = ( (Indian 4tandard $ime, <($Z7 [) on all working days where investors can seek clarification on any issue relating to FDI =olicies and related issues $he web site also has provision of bulletin board service If the investor cannot avail the on line chat facility, heQshe can post the %uestion on bulletin board at any time #ll efforts are made to send a reply within ;6 hours I+-"*34$,"+ 49"%$ V4*,"%# O$()* C.)4*4+1)# 4+& A55*"24.#: In addition to the approval for bringing FDI in India, other clearances and approvals, such as registration of company, environment and forest clearance, land ac%uisition, power and water connection, etc , may be re%uired for starting a business in India Details of concerned DepartmentsQ#gencies along with their web site addresses are given in #nnex'I) P%9.,14$,"+#: Following publications are brought out by DI== and updated regularly for the guidance of investorsC a Foreign Direct Investment in India I =olicy P =rocedure b Investing in India IFlyer c :ntry 4trategies for foreign Investors IFlyer d $axation in India IFlyer e Investment 9pportunities in infrastructure sectors 4ingle !indow 4ystem in 4tates P 0nion $erritories g /ompendium of =ress notes on FDI policy $hese publications are available through the =OP/ of the 4I# or Investment =romotion /ell, DI==3 as also from Indian (issions abroad $hese can also be down loaded from the web site www dipp gov in SIA N)/# L)$$)*: $his is a monthly publication on Foreign Direct Investment Q -OI Investment Q sectoral breaks' ups Q country'wise break'ups, all actual FDI inflows and policy notifications issued during the
month $he monthly publication is uploaded on Department&s website at www dipp gov in #nnual issues of 4I# -ewsletter are also published and available on payment from /ontroller of =ublications, ,, /ivil @ines, Delhi ' ,,1 176 or from any outlet dealing in <overnment publications SIA S$4$,#$,1#: $his is also a monthly publication on data relating to Industrial @icences, Foreign $echnical /ollaboration, etc , monthly data on industrial production of ;15 select industry groups, as well as policy announcements by <overnment during the month #nnual issues of 4I# 4tatistics are available on payment from /ontroller of =ublications, , /ivil lines, Delhi ' ,,1 176 or from any outlet dealing in <overnment publications
INVESTMENT FACILITATION: F"*),0+ I+2)#$3)+$ I35.)3)+$4$,"+ A%$("*,$' <FIIA= FII# has been established to facilitate %uick implementation of FDI approvals and assist foreign investors in getting necessary approvals Fast $rack /ommittees have been set up in E1 (inistriesQDepartments for regular review of FDI mega pro"ects (with proposed investment of Os , billion and above), and resolution of any difficulties Details of the fast track committees set up in various ministries is available at httpCQQdipp gov in Investors can approach FII# through website httpCQQdipp gov in Foreign Investment =romotion +oard (FI=+) $he <overnment has set up the FI=+ to consider FDI proposals re%uiring prior <overnment approval $he reconstituted FI=+ comprises ofC (i) 4ecretary, Department of :conomic #ffairs ' /hairman (ii) 4ecretary, Department of Industrial =olicy P =romotion ' (ember (iii) 4ecretary, Department of /ommerce ' (ember (iv) 4ecretary
conomic Oelations), (inistry of :xternal #ffairs ' (ember (v) 4ecretary, (inistry of 9verseas Indian #ffairs, ' (emberB%#,+)## O39%)*#"+: $o facilitate expeditious redressal of grievances and attend to complaints relating to delays in grant and implementation of industrial approvals and facilitate their disposal, the <overnment has appointed a +04I-:44 9(+0D4=:O49- in the (inistry of /ommerce P Industry #dditional 4ecretary P Financial #dviser, (inistry of /ommerce and Industry, 0dyog +havan, -ew Delhi',,11,, has been nominated to act as +usiness 9mbudsperson(e mailC ncYub nic in) G*,)24+1)# O--,1)*7C%37!",+$ S)1*)$4*': <rievances and complaints are also received by the <rievances 9fficer'cum'Goint 4ecretary, DI==, (inistry of /ommerce and Industry, 0dyog +havan, -ew Delhi',,11,,, either through post or through the mail box in the =OP/ of the 4I#, or at Oeception of the (inistry of /ommerce and Industry at <ate -o ,;, 0dyog +havan, -ew Delhi',,11,, 4uch communications are handled expeditiously and steps are taken to redress the grievance S)1$"* S5)1,-,1 G%,&).,+)# F"* F"*),0+ D,*)1$ I+2)#$3)+$:
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Air ,ransport -ervices
5!C$ 3+ID ##C$ for NRI investment
Sub(ect to sectoral regulations notified by 6inistry of 4i il ) iation www.ci ila iation.nic. in Sub(ect to sectoral regulations notified by 6inistry of 4i il ) iation www.ci ila iation.nic. in Sub(ect to no direct or indirect participation by foreign airlines. Eo ernment of India Eazette $otification dated 0.,,.0114 issued by 6inistry of 4i il ) iation www.ci ila iation.nic. in by
..
Alcohol $+istillation Bre?ing
##C =
)utomatic Sub(ect to license appropriate authority
P$ 4 I 011?
4.
Asset Reconstruction Companies
5!C Eonly 3+IF
8IP'
!here any indi idu al in estm ent e&ceed s ,1/ of the e9uity,
7 Ban;ing $ 95C . Private E3+IG3IIF sector
)utomatic
Sub(ect to P$ 0 I 0114 guidelines for setting up branchesI subsidiaries of foreign ban"s issued by C'I. www.rbi.org.in
? Broadcasting . a 86 Cadio 83I N8II 8IP' . in estment up to 0#C
b.
4able networ"
5!C 283IN8IIF
Sub(ect Euidelines notified 6inistry Information 'roadcasting www.mib.nic.in 8IP'
to P$ ? I 0117 by of B Sub(ect to 4able Tele ision $etwor" Cules 2,--45 $otified by 6inistry of Information B 'roadcasting www.mib.nic.in Sub(ect to guidelines issued by 6inistry of Information B 'roadcasting www.mib.nic.in
c.
3irect-To-Home
5!C 8IP' 283IN8IIF% !ithin this limit, 83I component not to e&ceed 01/
d Setting up 5!C . hardware 283IN8IIF facilities such as up-lin"ing, H*', etc
Sub(ect to *p- P$ , I 011? lin"ing Policy notified by 6inistry of Information B 'roadcasting www.mib.nic.in e *p-lin"ing 07C 8IP' Sub(ect to P$ ,I 011? . a $ews B 3+IG3II guidelines issued 4urrent by 6inistry of )ffairs T# Information B 4hannel 'roadcasting www.mib.nic.in f *p-lin"ing ##C 8IP' Sub(ect to P$ , I 011? . a $onguidelines issued by news B 4urrent )ffairs T# 4hannel 6inistry of Information B 'roadcasting www.mib.nic.in G cigars Bcigarettes ## 8IP' Sub(ect to industrial P$ 4 I 011? manufacture. C license under the Industries 23e elopment B Cegulation5 )ct, ,-7, Coal = 1ignite ## )utomatic Sub(ect to pro isions P$ 4 I 011? mining for capti e C of 4oal 6ines consumption by 2$ationalization5 )ct, power pro(ects, and ,-G. iron B steel, cement www.coal.nic.in production and other eligible acti ities permitted under the 4oal 6ines 2$ationalisation5 )ct, ,-G.. Coffee = processing ?arehousing Ru>>er = ##C )utomatic P$ 4 I 011?
8IP'
Construction ## +evelopment projects< C including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional le el infrastructure, townships.
)utomatic Sub(ect to conditions notified ide Press $ote 0 20117 Series5 including+ , ). minimum capitalization of *S< ,1 million for wholly owned subsidiaries and *S< 7 million for (oint enture. The funds would ha e to be brought within si& months of commencement of business of the 4ompany. 0 b. 6inimum area to be de eloped under each pro(ect- in ,1 hectares in case of de elopment of ser iced housing plots and built up area of 71,111 s9 mts. in case of construction de elopment pro(ect and any of the abo e in case of a combination pro(ect.
P$ 0 I 0117 B P$ 0 I 011?
> .
Courier services for ## carrying pac"ages, parcels C and other items which do not come within the ambit of the Indian Post :ffice )ct, ,>->.
8IP'
.
+efence production
07C 8IP'
, 1 .
3loriculture< *orticulture, ## +evelopment of -eeds< C Animal *us>andry, Pisciculture< aBua$ culture< cultivation of vegeta>les<< mushrooms< under controlled conditions under services related to agro and allied sectors%
)utoma tic
Sub(ect to e&isting laws and e&clusion of acti ity relating to distribution of letters, which is e&clusi ely reser ed for the State. www.indiapost.g o .in Sub(ect to licensing under Industries 23e elopment B Cegulation5 )ct, ,-7, and guidelines on 83I in production of arms B ammunition. P$ 4 I 011?
P$ 4 I 011,
P$ 4 I 011, B P$ 0 I 0110
, ,.
*aHardous ## chemicals< iz., C hydrocyanic acid and its deri ati es= phosgene and its deri ati es= and isocyanates and di-isocyantes of hydrocarbon.
)utomatic Sub(ect to industrial P$ 4 I license under the 011? Industries 23e elopment B Cegulation5 )ct, ,-7, and other sectoral regulations.
, 0.
Industrial e@plosives6anufacture
## C
)utomatic Sub(ect to industrial P$ 4 I license under Industries 011? 23e elopment B Cegulation5 )ct, ,-7, and regulations under %&plosi es )ct, ,>-> )utomatic Sub(ect to licensing by P$ the Insurance Cegulatory ,1 I B 3e elopment )uthority 0111 www.irda.nic.in. 8IP' 8oreign in estment in an in esting company will not be counted towards sectoral cap in infrastructure Iser ices sector pro ided the in estment is up to 4-/ and the management of the company is in Indian hands. P$ 0 I 0111 B P$ 7 I 0117
, ..
Insurance
07C
, 4.
Investing 5!C companies in infrastructure A services sector Ee@cept telecom sectorF
, 7.
Mining co ering ## e&ploration and C mining of diamonds B precious stones= gold, sil er and minerals.
)utomatic Sub(ect to 6ines B 6inerals 23e elopment B Cegulation5 )ct, ,-7G www.mines.nic.in Press $ote ,> 2,-->5 and Press $ote , 201175 are not applicable for setting up ,11/ owned subsidiaries in so far as the mining sector is concerned sub(ect to a declaration from the applicant that he has no e&isting (oint enture for the same area andI or the particular mineral.
P$ 0 I 0111, P$ . I 0117,B P$ 4 I 011?
, ?.
Petroleum = Natural .as sector
a.
b.
:ther than ##C Cefining and including mar"et study and formulation= in estmentI financing= setting up infrastructure for mar"eting in Petroleum B $atural Eas sector. Cefining 07C in case of P-(s ##C in case of Private companies
)utomatic
Sub(ect to sectoral regulations issued by 6inistry of Petroleum B $atural Eas= and in the case of actual trading and mar"eting of petroleum products, di estment of 0?/ e9uity in fa our of Indian partnerIpublic within 7 years. www.petroleum.nic.in
P$ , I 0114 B P$ 4 I 011?
8IP' Sub(ect to Sectoral P$ 0 2in case of policy I PS*s5 www.petroleum.nic.in 0111 )utomatic 2in case of pri ate companies.
, G a.
Print Media$ Publishing of 07C ne?spaper and periodicals dealing with news and current affairs 8IP'
b.
Pu>lishing of scientific magaHinesA specialty journalsA periodicals Po?er including generation 2e&cept )tomic energy5= transmission, distribution and Power Trading.
##C
8IP'
, >
##C
Sub(ect to guidelines issued by 6inistry of Information B 'roadcasting. www.mib.nic.in )utomatic Sub(ect pro isions of the %lectricity )ct, 011. www.powermin.nic.in
P$ , I 0114
, -.
,ea including plantation
-ector, tea
##C
8IP'
P$ 0 I ,-->, P$ I G 0111, B P$ 4 I 011? Sub(ect to P$ di estment of 0?/ ? I e9uity in fa our of 0110 Indian partnerIIndian public within 7 years and prior appro al of State Eo ernment for change in land use.
0 1. a.
,elecommunication 'asic and cellular, *nified )ccess Ser ices, $ationalIInternational Long 3istance, #Sat, Public 6obile Cadio Trun"ed Ser ices 2P6CTS5, Elobal 6obile Personal 4ommunications Ser ices 2E6P4S5 and other alue added telecom ser ices 95C 2Including 83I, 8II, $CI, 844's, )3Cs, E3Cs, con ertible preference shares, and proportionate foreign e9uity in Indian promotersI in esting company5 )utomatic up to 4-/. 8IP' beyond 4-/ Sub(ect to P$ guidelines notified 7 I in the P$ 7 I 0117 0117 Series
FDI P)*3,$$)& ,+ V4*,"%# S)1$"*#D A1$,2,$,)# E ; I. FDI 5*"(,9,$)&' i Oetail trading()E1)5$ S,+0.) B*4+& P*"&%1$ *)$4,.,+0) ii #tomic energy iii @ottery business iv <ambling and betting sector 6 II. FDI %5 $" 26 J 4.."/)&7 i B*"4&14#$,+0 (a) F( Oadio I FDI Z FII investment up to ;12 with prior <overnment approval sub"ect to guidelines by (inistry of Information P +roadcasting (b) 0plinking news and current affairs $) /hannel I up to ;82 (FDI Z FII) with prior FI=+ approval ,. P*,+$ 3)&,4: =ublishing newspaper and periodicals dealing with news and current affairs ' FDI up to ;82 with prior <overnment approval ,,,. D)-)+1) ,+&%#$*,)# ' FDI up to ;82 with prior <overnment approval ,2. I+#%*4+1) ' Foreign e%uity (FDIZFII) up to ;82 under the automatic route 2. P)$*".)%3 4+& N4$%*4. G4# S)1$"* I Oefining in case of =40sC up to ;82 with prior FI=+ approval III. FDI %5 $" 4A J 4.."/)&7 ,. B*"4&14#$,+07 a 4etting up hardware facilities such as up'linking, F0+, etc ' FDIZFII e%uity up to 652 with prior <overnment approval sub"ect to up'linking =olicy notified by (inistry of Information P +roadcasting b /able network' Foreign e%uity (FDIZFII) up to 652 with prior <overnment approval sub"ect to /able $elevision -etwork Oules (,556) notified by (inistry of Information P +roadcasting
7 8 B
c D$F ' Foreign e%uity (FDIZFII) up to 652 with prior <overnment approval FDI can not exceed ;12 sub"ect to guidelines by (inistry of Information P +roadcasting ,,. D"3)#$,1 4,*.,+)# 4+& A,* T*4+#5"*$ S)*2,1)# ' FDI up to 652 under the automatic route with no direct or indirect participation of foreign airlines ,,,. T).)1"33%+,14$,"+ #)*2,1)#: 94#,1 4+& 1)..%.4* - FDI up to 652 is under automatic route +eyond 652 and upto B62 re%uires FI=+ approval Foreign e%uity includes FDI, FII, -OI, F//+s, #DOs, <DOs, convertible preference shares, and proportionate foreign e%uity in Indian promotersQ Investing /ompanyF ,2. I+2)#$,+0 1"354+,)# ,+ ,+-*4#$*%1$%*)D#)*2,1) #)1$"* <)E1)5$ T).)1"3 S)1$"*= I FDI up to 652 with prior <overnment approval 2. A##)$ *)1"+#$*%1$,"+ 1"354+,)# I up to 652 (only FDI) with prior FI=+ approval I) FDI up to B62 allowed' ,. D)2)."53)+$ "- )E,#$,+0 A,*5"*$#7 %5 $" 4J %+&)* $() 4%$"34$,1 *"%$)K 5*,"* G"2)*+3)+$ 455*"24. 9)'"+& 4J #%9F)1$ $" #)1$"*4. *)0%.4$,"+# +"$,-,)& 9' M,+,#$*' "C,2,. A2,4$,"+. ,,. ISP /,$( 04$)/4'#> *4&,"7540,+0> )+&7$"7)+& 94+&/,&$( I FDI up to B62 with FDI beyond 652 re%uiring prior <overnment approval ,,,. E#$49.,#(3)+$ 4+& "5)*4$,"+ "- #4$)..,$)# ' FDI up to B62 with prior <overnment approval ,2. A$"3,1 3,+)*4.# ' FDI up to B62 with prior <overnment approval 2. P*,24$) #)1$"* 94+;# ' Foreign e%uity (FDI Z FII) up to B62 under the automatic route 2,. S,+0.) 9*4+& *)$4,.,+0 I up to 7,2 with prior <overnment approval V. FDI %5 $" 166 J 4.."/)& #%9F)1$ $" 1"+&,$,"+#7 ,. D)2)."53)+$ "- G*))+-,).& A,*5"*$# 7 FDI %+&)* 4%$"34$,1 *"%$) #%9F)1$ $" #)1$"*4. *)0%.4$,"+# +"$,-,)& 9' M,+,#$*' "- C,2,. A2,4$,"+ ,,. EE5."*4$,"+ 4+& 3,+,+0 "- 1"4. 4+& .,0+,$) -"* 145$,2) 1"+#%35$,"+ @ FDI %5 $" 166J %+&)* 4%$"34$,1 *"%$) S%9F)1$ $" 5*"2,#,"+# "- C"4. M,+)# <N4$,"+4.,:4$,"+= A1$> 1A 3 iii =etroleum sectorC market study and formulation, investment Qfinancing (inimum ;82 Indian e%uity within 7 years for actual trading and marketing ,2. T*4&,+0: /(".)#4.) 14#( 4+& 14**'K 4+& $*4&,+0 -"* )E5"*$# %+&)* $() 4%$"34$,1 *"%$) #%9F)1$ $" 0%,&).,+)# ,##%)& 9' DIPP.
v $radingC $rading of items sourced from small scale sector under <ovt approval route 2,. $radingC $est marketing of such items for which a company has approval for manufacture under <ovt approval route 2,,. C"%*,)* #)*2,1)# -"* 14**',+0 541;40)#> 54*1).# 4+& "$()* ,$)3# /(,1( &" +"$ 1"3) /,$(,+ $() 439,$ "- $() I+&,4+ P"#$ O--,1) A1$> 1LAL.7 5*,"* G"2)*+3)+$ 455*"24. S%9F)1$ $" )E,#$,+0 .4/# 4+& #%9F)1$ $" )E,#$,+0 .4/# 4+& )E1.%#,"+ "- 41$,2,$' *).4$,+0 $" &,#$*,9%$,"+ "- .)$$)*#> /(,1( ,# )E1.%#,2).' *)#)*2)& -"* $() S$4$). 2,,,. T)4 S)1$"*> ,+1.%&,+0 $)4 5.4+$4$,"+ I prior <overnment approval sub"ect to divestment of ;82 e%uity within five years ,E. N"+ B4+;,+0 F,+4+1) C"354+,)# I FDI up to ,112 under the automatic route sub"ect to minimum capitalization norms E. ISP /,$("%$ 04$)/4'> ,+-*4#$*%1$%*) 5*"2,&)* 5*"2,&,+0 &4*; -,9*)> ).)1$*"+,1 34,. 4+& 2",1) 34,. I FDI up to 652 under automatic route +eyond 652 and up to ,112 sub"ect to FI=+ approval sub"ect to divestment of ;82 e%uity in 7 years if the investing companies are listed in other parts of the world E,. D"3)#$,1 4,*.,+)#DA,* $*4+#5"*$ #)*2,1)# I -OI investment up to ,112 permitted under the automatic route with no direct or indirect participation of foreign airlines E,,. P"/)* $*4&,+0 Iupto ,112 sub"ect to compliance with Oegulations under the :lectricity #ct, ;11E3 E,,,. C,04*# B C,04*)$$)# I up to ,112 with prior FI=+ approval and 4ub"ect to industrial license under the Industries (Development P Oegulation) #ct, ,57, E,2. A.1"(". &,#$,..4$,"+ 4+& 9*)/,+0 ' ,112 FDI under automatic route sub"ect to licence by appropriate authority
FACT SHEET ON FOREIGN DIRECT INVESTMENT <FDI= F*"3 AUGUST 1AA1 $" S)5$)39)* 266
I. FDI EMUITY INFLOWS/ A. CUMULATIVE FDI EMUITY INFLOWS (equity capital components only):
, Cumulative amount of 3+I inflo?s . (fro" &#g#st 1991 to 'arch ())7) 0 Amount of 3+I inflo?s during 0##7$ . 0##9 (d#ring &pril-*epte"!er ())7) . Cumulative amount of 3+I inflo?s . (#pdated #p to *epte"!er ())7)
Cs. 0,.0,14, crore Cs. 0-,G.G crore Cs. 0,?,,GG> crore
(-I 65%70" million (-I 9<06# million (-I 7 <"9" million
Note / %DI inflows incl#de a"o#nt recei+ed on acco#nt of ad+ances pending for iss#e of shares for the $ears 1999 to ()),. B. FDI EMUITY INFLOWS <WITH COMPANY7WISE= AVAILABLE 26667266 : , Cumulative amount of 3+I inflo?s . (fro" &pril ())) to *epte"!er ())7) Cs. 0,1,,,G. crore (-I 56< 9! million
C. FDI EMUITY INFLOWS DURING FINANCIAL YEAR 266 7266L: Amount of FDI inflows (In Rs. crore) 7<!0" >,?40 7,14> 0,>4.,.-4 0,>G? 0!<949 (In US$ mn) <754 0< 0# <04" 9#6 "4 9 4 9<06#
,. 0. .. 4. 7. ?.
)pril 011G 6ay 011G Aune 011G Auly 011G )ugust 011G September 011G
0##9$0##" Eup to -ept% 0##9F
011?-011G 2up to Sept. 011?5 Cage gro?th over last year
01,,77 EGF 5" C
4,.>0 EGF 76 C
D. FDI EMUITY INFLOWS DURING CALENDAR YEAR 266 : Amount of FDI inflows (In Rs. Crore) (In US$ mn) ,. Aanuary 011G >,7,7 <!0 0. 8ebruary 011G .,1>, 7!" .. 6arch 011G O ,?,>-? 4<"4" 4. )pril 011G ?,-0> <754 7. 6ay 011G >,?40 0< 0# ?. Aune 011G 7,14> <04" G. Auly 011G 0,>49#6 >. )ugust 011G .,.-4 "4 -. September 011G 0,>G? 9 4 &ear 0##9 Eupto -ept% 0##9F 6"<00! 4<9#9 Fear 011? 2upto Sept. 011?5 0>,.G4 ?,0.0 Cage gro?th over last year EGF 0" C EGF " C E. SHARE OF TOP INVESTING COUNTRIES FDI EMUITY INFLOWS (Financial yearwise): Amount Rupees in crore (US$ in Ran s million) Countr! "##$#% (April&arc' ) "##%#( (April&arc') "##(#) (April&arc') "##)#* (AprilSept. "##)) Cumulati+ e Inflows (from April. "### to ,a-e wit' total Inflows (in terms
Sept. "##))
of rupees )
0>,G7- ,.,710 G-,.-0 55%"0 E 9<"5#F E7<474F E4<4# F 0. (%-%A% .,>?, ,,?-7 ,G,0G? !%96 E4<"67F E"67F E5 0F .. (%2% >,.>G,, ,7,1>7 "%60 E4<47 F E <"9"F E 96F 4. Netherlands 0,-17 ?>-,>., 6%66 E755F E 79F E0< 99F 7. 8apan .>0 0,1G1 >,1?5%66 E"6F E5!7F E <"#9F ?. -ingapore 0,??0 0,17G,>?7 5%55 E69"F E6#7F E <9!#F G. .ermany 741 ,,1>> 7,G70 4%06 E 0#F E077F E <0!7F >. 3rance 70> ,>, 0,>0 %7" E 9F E55F E77#F -. -?itHerland 07G >,7 0,G4? %66 E67F E !!F E700F ,1. Cyprus 0?? ,,7?, 0,04. %09 E6"F E495F E606F ,',A1 3+I 9#<74# 0!<947 0# < 94 IN31'W- J E 6<907 E9<06#F E56< 9!F F N"$). (i) *Includes inflows under NRI Schemes of RBI stock swa!!ed and ad"ances !endin# for issue of shares$ (ii) %umulati"e country-wise FDI inflows (from pril !""" to September !""#) & 'nne(-)'*. F. SECTORS ATTRACTING HIGHEST FDI EMUITY INFLOWS: Ran ks Sector +,,-,. ('!ril/arch ) +,,.,0 ('!ril/arch ) +,,0,1 ('!ril/arch ) +,,1,2 ('!rilSe!t$ +,,1) %umulati" e Inflows ( pril !""" to Sept$ !""#) 3 a#e with total Inflows (In terms of ru!ees)
,.
Mauritius
7,,4, ,,,44, E < 0!F E0<69#F .,177 0,0,1 E77!F E6#0F 47> ,,,?4 E # F E077F ,,0,G .41 E079F E97F 7G7 -07 E 07F E0#"F >00 ,,0,> E "5F E096F ??. ,,.47 E 56F E4#4F 7.G >0 E 9F E "F .7. 40? E99F E!7F ,0 .,1 E4F E9#F 9< 4" 05<7 4 E4<965F E6<657F
,
; E
S)*2,1)# S)1$"* (financial P non' financial) C"35%$)* S"-$/4*) B H4*&/4*) T).)1"33%+,14$,"+# (radio paging, cellular mobile, basic telephone services) C"+#$*%1$,"+ 41$,2,$,)# (including roads P highways) A%$"3"9,.) I+&%#$*' P"/)*
;,,18 <46A= ;,66, <53A= 7DD <12A=
;,787 <5L1=
;,,6E6 <4> 4A=
D,,B7 <1>AA6= ,,771 <3 L= E,78B <L 5=
EB,;D; <L>432= ;D,156 <6>246= ,7,;,; <3>455=
21.65
8,,B; ,,,BD8 <1>3 5= <2>614= E,1;E ;,E76 <6L6= <521=
15.L6 L.5A
6
858 <152=
88B <151=
6,6;6 <AL5=
;,BD1 <6L2=
5,,B8 <2>162=
5.1L
7 8 B D 5 ,1
C()3,14.# (other than fertilizers) H"%#,+0 N R)4. E#$4$) D*%0# B P(4*341)%$,14.# E.)1$*,14. E8%,53)+$#
775 <122= ;6, <53= 515 <1AL= 1 <6= ,,E6E <2A2= 665 <AL=
8E1 <143= ED8 <L = ,,5B5 <44 = ,B, <3L= B81 <1 2= ,78 <35=
,,;76 <2 6= B,E <15 = 5E1 <266= ;,,;, <46 = 5B1 <215= E7E < =
818 <14L= ,5B <4L= 665 <123= ;,5,7 < 16= ,5, <4 = ;,,BB <526=
B,B87 <1> 16= 7,565 <1>2L5= 7,B;; <1>2 A= 7,E;B <1>242= 6,6B; <ALA= 6,;D8 <ALA=
4.3L 3.36 3.23 3.61 2.52 2.42
Amount Rupees in crore (US$ in million) N"$): (i) %umulati"e Sector- wise FDI inflows (from 'nne(-)B*$ pril !""" to September !""#) -
STATEMENT ON RBICS REGION7WISE <WITH STATE COVERED= FDI EMUITY INFLOWS1 (from pril !""" to September !""#)% 'mount of FDI Inflows 3a#e with FDI inflow s (in rupee terms)
,
(0(+#I
; E 6 7 8 B
-:! D
FI +#-<#@9O: /F:--#I F?D:O#+#D #FD#+#D /F#-DI<#OF\D
L9@L#$#
5 ,1 ,, ,; ,E ,6 ,7
=#-#GI +F9=#@ L9/FI +F0+#-:4F!#O G#I=0O L#-=0O <0!#F#$I
MAHARASHTRA > DADRA B NAGAR HAVELI> DAMAN B DIU DELHI> PART OF UP AND HARYANA KARNATAKA TAMIL NADU> PONDICHERRY ANDHRA PRADESH GU!ARAT CHANDIGARH> PUN!AB> HARYANA> HIMACHAL PRADESH WEST BENGAL> SIKKIM> ANDAMAN B NICOBAR ISLANDS GOA MADHYA PRADESH> CHATTISGARH KERALA> LAKSHADWEEP ORISSA RA!ASTHAN UTTAR PRADESH> UTTRANCHAL ASSAM> ARUNACHAL PRADESH> MANIPUR> MEGHALAYA> MIIORAM> NAGALAND> TRIPURA
Ru!ees in 4S5 in crore million 6E,BDE 5B A>L 6.33 ;6 B;
61,5BD ;, ,;,D,1 75 ,;,887 6 8,BD5 E 7,,E6 8B ,,B76 B
A>236.5A 2>A66. 5 2>L34.A2 1>523.LA 1>13L. 5 3L4.22
;E ,E B ;E B ,7 E DE ; 51 1 55
,,8EE ,;
361.46
1 5;
D;8 E6 66; D8 6;6 7E E57 7; ;5E 85 7B B 7; E6
1 A.2A 161.6 A6.4A LL.6L 65.11 12.L3 11.6L
1 6B 1 ;7 1 ;E 1 ;; 1 ,B 1 1E 1 1E
,8 ,B
=#$-# -9$ I-DI/#$
EBIHAR> !HARKHAND
, B5 65,,1B E1
6.3A
1 11 ;B B6 166.66 '
SUB TOTAL ,D ,5 4tock 4wapped #dvance of Inflows (from ;111 to ;116)
16>AA3.2 L 1 >152.2 3A> AL.6 4 L 14>525.44 3>2A5.L L>A62.22 1>A62.L 533.66 261>1 2.A 6 121.3 45>1 L.5 L
;1 O+I&s'-OI 4chemes GRAND TOTAL (&rom pril !""" to September !""#) III. FOREIGN TECHNOLOGY TRANSFER: (From 'u#ust 6776 to Se!tem8er +,,1) A. NUMBER OF CUMULATIVE FTC APPROVALS: N". O- C%3%.4$,2) FTC A55*"24.# <from august ,55, to 4eptember ;11B= N". O- FTC A55*"24.# D%*,+0 266676 <from #pril ;118 to march ;11B) N". O- FTC A55*"24.# D%*,+0 266 76L <from #pril ;11B to 4eptember ;11B=
' 7
9<""7 " 5#
B. COUNTRY7WISE TECHNOLOGY TRANSFER APPROVALS: R4+;# 1 2 3 4 5 6 C"%+$*' U. S. A G)*34+' !454+ U. K I$4.' O$()* C"%+$*,)# TOTAL OF ALL COUNTRIES N". "- $)1(+,14. 1"..49"*4$,"+# 455*"2)& 1> 56 1>163 L61 L56 4L4 2>L32 >LL6 J /,$( T"$4. T)1(. A55*"24.#. 22.1A 13.AA 16.A2 16.L5 6.14 35.A1 166.66
C. SECTORS7WISE TECHNOLOGY TRANSFER APPROVALS: R4+ ;# S)1$"* N". "- T)1(+,14. C"..49"*4$,"+# A55*"2)& J W,$( T"$4. T)1( A55*"24.#
1
2 3 4 5 6
E.)1$*,14. E8%,53)+$#<,+1.%&,+ 0 #"-$/4*) B ).)1$*"+,1#= C()3,14.# "$()* $(4+ -)*$,.,
*. I+&%#$*,4. M41(,+)*' T*4+#5"*$4$,"+ I+&%#$*' M,#1. 3)1( )+0,+))*,+0 ,+&%#$*' O$()* S)1$"*# T"$4. O- A.. S)1$"*#1>253 LL3 LLA 36 441 3> 16 >LL6
15.LA 11.26 11.62 A.26 5.5A 4 .64 166.66
D. STATE7WISE TECHNOLOGY TRANSFER APPROVALS: R4+;# 1 2 3 4 5 6 S$4$) M4(4*4#$*4 T43,.+4&% G%F4*4$ H4*'4+4 D).(, O$()* S$4$)#. T"$4. O- A.. S$4$)# N" O- T)1(+,14. C"..49"*4$,"+# A55*"2)& 1>364 656 662 354 313 4>663 >LL6 J W,$( T"$4. T)1( A55*"24.# 1 .36 L.24 .64 4.4A 3.A6 5L.3 166.66
STATEMENT ON COUNTRY7WISE FOR FDI INFLOWS FROM APRIL 2666 TO SEPTEMBER 266 4 -9 , ; E 6 7 8 B D 5 ,1 ,, ,; ,E /ountry (auritius 04# 0L -etherlands Gapan 4ingapore <ermany France 4witzerland /yprus 0#: +ermuda 4weden #mount 9f FDI Inflows In Oupees B5E,5;,,7B B;,B78 B1 ,71,D65 8, 5D,E1B 7B D1,85; 71 BD,87; BD 7B,7,8 ;D ;5,D;, ;, ;B,67D EE ;;,6E, 1, ;;,E7, DB ;1,67B E8 ,D,615 D7 In 04N ,B,DE5,B7 ED78 ,7 E,E8, E7 ;,,BB ;8 , D18 7, ,,BD5 B, ,,;57 5D 875 85 8;, D5 7;6 5D 71; B; 677 87 6,8 6E 2age with total inflows 66 D; 5 B7 D 7; 7 77 6 77 6 66 E ;7 , 8D , 77 , ;B , ;8 , ,7 , 16
,6 ,7 ,8 ,B ,D ,5 ;1 ;, ;; ;E ;6 ;7 ;8 ;B ;D ;5 E1
Lorea(south) Italy +ritish )irginia /ayman Islands +elgium #ustralia Fong Long 4pain Denmark (alaysia /anada 4outh #frica @uxembourg Oussia Finland !est Indies $hailand
,E,B,B ;E 5,5E8 8; 5,DD1 ,8 B,857 16 B,87; D1 B,777 1B B,7EE 51 8,,1, ,5 6,86B EE 6,8E1 6, 6,7B7 88 E,1D5 7B ;,565 66 ;,8B1 58 ;,157 B, ,,BDD 8; ,,B8; EB
E18 86 ;;, B5 ;;B 18 ,B1 16
1 BB 1 78 1 6E 1 6E 1 6E 1 6E 1 E6 1 ;8 1 ,B 1 ,B 1 ,7 1 ,; 1 ,1 1 ,1 1 1D 1 1B 1 1B
INTERPRETATIONS $he FDI scenario in India has changed drastically in the last decade For the first time in ,7 years, the government has simplified and rationalized FDI procedures while liberalizing the existing sectors such as retail, television, diamond and coal mining, airports, wholesale and export trading, and opening new ones such as power trading, processing and warehousing of coffee and rubber to foreign investment #ggregate FDI inflows into India were somewhat lower during ;11E'16 as compared to that during ;11;'1E, FDI inflows into India, improved from 04N ;8E6 million to 04N EB77 million from the year ;11E'16 to ;116'17 -otwithstanding the upturn, India&s capital account in recent years has gained far more strength from short'term portfolio flows that from long' term FDI flows $his probably necessitates revisiting the FDI policy and identifying constraints impeding higher FDI inflows =rocedural simplifications are likely to encourage much greater FDI flows Foreign direct investments (FDI) inflows into India during the fiscal year ;117'18 were Os ;68,E crore, this was higher by 6E2 to its corresponding previous year -et FDI into India picked up on the back of sustained growth in economic activity and positive investment climate, with inflows going into the manufacturing as well as services sectors FDI inflows into India during December ;118 registered an unprecedented increase of 6D12 over the inflows in December of the previous year ;117, the month of December ;118 received e%uity inflow of Os 5,1D /rores in December ;118 compared to Os ,7DB crore in December
;117 $his is the highest inflow ever into the country in a single month !ith this, the total inflows from #pril ;118 to December ;118 are now about Os 6;,ED crores, as compared to Os ,8E56 crores received during this period last year $he inflows in the year ;117'18 were Os ;68,E crores $he sectors attracting highest FDI were :%uipments (including computer software P electronics), services sector (financial and non' financial) and $elecommunications (radio paging, cellular mobile, basic telephone services) !hile (auritius is the top most investing country followed by 04#, 0L, -etherlands, Gapan, 4ingapore, and <ermany In case of no of technological transfers 04# is at first position with share of ;, 5D2 followed by <ermany, Gapan, and 0L S%334*' 4+& C"+1.%#,"+ $he most important determinants for attracting FDI are the /ost Factors, (arket 4ize, Oeal :xchange Oates, (acro :conomic 4tability, Oate of Inflation, 9verall :conomic 4tability, -ational FDI =olicy, Investment Incentive, and Oemoval of Oestrictions like #ccess to few industries, foreign ownership restrictions, ease of entry performance re%uirements $he policy on Foreign Direct Investment has been reviewed on a continuing basis and several measures announced from time to time for rationalizationQ liberalization of the policy and simplification of procedures #s a result, a number if rationalization measures have been undertaken which, inter alia include, dispensing with the need to multiple approvals from <overnment andQor regulatory agencies that exist in certain sectors, extending the automatic route to more sectors and allowing FDI in new sectors $he <overnment should take a series of steps to further liberalize and streamline the procedures and mechanism for approval of both domestic and foreign direct investment In fulfillment of its commitment to provide greater transparency in decision making It announces a set of guidelines for the consideration of foreign direct investment proposals by the Foreign Investment =romotion +oard I+ 4 9,& $" #$,3%.4$) $() #)1$"* -%*$()*> $() 0"2)*+3)+$ ,# /"*;,+0 "+ 4 #)*,)# "- 439,$,"%# )1"+"3,1 *)-"*3#. , , , $he centre has divested some of tis own powers of approving foreign investments that it exercised through the Foreign Investment =romotion +oard and has handed them over to the general permission route under the O+I $he FDI cap for telecommunications has been increased to B62, up from prevailing ceiling of 65 percent It has set up an Investment /ommission that will garner investments in the infrastructure sectors among other sectors, and plans to increase the limit for investment in the
, , ,
, , ,
infrastructure sector $he <overnment approved sweeping reforms in FDI with a first step towards partially opening retail markets to foreign investors It will now allow 7,2 FDI in single brand products in the retail sector +esides retail, other sectors are being opened ,112 is allowed in new sectors such as power trading, processing and warehousing of coffee and rubber FDI limit raised to ,112 under automatic route in mining of diamonds and precious stones, development of new airports, cash and carry wholesale trading and export trading, laying of natural gas pipelines, petroleum infrastructure, captive mining of coal and lignite 4ub"ect to other regulations, ,11 percent FDI is allowed in distillation and brewing of potable alcohol, industrial explosives and hazardous chemicals Indian investor is allowed to transfer shares in an existing company to foreign investors $he <overnment is looking at reviewing regulation involving foreign investments into the country #imed at simplifying the investment from foreign institutional investors (FII) and FDI in the same light
BIBLIOGRAPHY: PRASSANA CHANDRA: FINANCIAL MANAGEMENT THEORY AND PRACTICE> TATA MC GRAW HILL 1AA !OHN ! HAMPTON: FINANCIAL DECISION MAKING PRENTICE HALL INDIA> 1AA2 INDIA YEAR BOOK7PUBLICATIONS DIVISION> GOVERNMENT OF INDIA 266 PRATIYOGITA DARPAN ECONOMY EDITION WEBSITES: ///.&,55.+,1.,+ ///.1"33)*1).+,1.,+
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