FDI Strategy Paper

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Investment Opportunities in India

• Department of Industrial Policy Promotion
• Ministry of Commerce Industry
• Government of India
• February 6, 2006
• New Delhi

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Indian Economy An Overview

• Sustained economic growth
• Average last 10 years 6.2
• 2004-05 7.5
• 2006-07 (Proj) 7.5-8
• Forecast till 2050 Goldman Sachs 5 p.a.
• Services share in GDP over 50 (52.4 share in
  GDP in 2004-05)
• Manufacturing sector grew at 9.2 in 2004-05
  (17.4 share in GDP in 2004-05)
• Foreign Trade
• Merchandise exports grew by 25 in 2004-05 to
  reach US80 billion
• Imports grew by 36 to reach US106 billion
• Investment
• Foreign Investment over US14 billion in
  2004-05 (FDI US5.5 billion, FII US8.9 billion)
• Mature Capital Markets
• NSE third largest, BSE fifth largest in terms of
  number of trades

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Economic Reforms- Fiscal

• Rationalization of tax structure both direct
  and indirect
• Peak Customs duty reduced to 15
• Customs duties to be aligned with ASEAN levels
• Corporate Tax reduced to 30
• National Treatment inTaxation
• Companies incorporated in India treated as Indian
  companies for taxation
• Convention on Avoidance of Double Taxation with
  65 countries
• Value Added Tax introduced from 1st April 2005-
• only 6 states left
• Fiscal Responsibility Budget Management Act,
  2003
• Revenue deficit to be brought to zero by 2008

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Economic Reforms Liberalisation of Investment
Trade Policies

• Industrial Licensing
• Progressive movement towards delicensing and
  deregulation
• Licensing limited to only 5 sectors (on
  security, public health safety considerations)
• Foreign Investment
• Progressive opening of economy to FDI
• Portfolio investment regime liberalised
• Liberal policy on technology collaboration
• Exchange Control
• All investments, profits and dividend are fully
  repatriable
• Foreign investor can acquire immovable property
  incidental to or required for their activity

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Manufacturing Competitiveness- Made in India

• 2nd most attractive destination for
  manufacturing
• AT Kearneys FDI Confidence Index, 2004
• Indian industry globally competitive in a wide
  range of skill-intensive product manufacturing
• Apparels, electrical and electronics components
  speciality chemicals pharmaceuticals etc.
• Automotive components Major MNCs their OEMs
  sourcing high-quality components from India
• Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever,
  Cliariant, Cummins, Delphi
• Indian companies now having manufacturing
  presence in many countries
• Over 55 of approved outward investment by India
  companies in manufacturing activities

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Rationalisation of FDI Policy
Procedural further simplified New sectors
opened Equity caps raised
More sectors opened Equity caps raised Procedures
simplified
Up to 100 Under Automatic Route in all
sectors except a small negative list
up to 74/51/50 in 112 sectors under Automatic
Route 100 in some sectors
Up to 51 under Automatic Route for 35
Priority Sectors
Allowed selectively up to 40
Pre 1991
1991
1997
2000
2000-05
2006
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Investing in India Entry Routes
Investing in India
Automatic Route
Prior Permission (FIPB)
General Rule No prior permission required Inform
Reserve Bank within 30 days of inflow/issue of
shares
By Exception Prior Government Approval
needed. Decision generally within 4-6 weeks
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Recent Initiatives

• FDI up to 51 allowed with prior Government
  approval in retail trade of Single Brand
  products
• FDI up to 100 allowed on the automatic route for
  
• development of green-field airports
• mining of diamonds and precious stones
• exploration and mining of coal and lignite for
  captive consumption for eligible activities
• power trading
• infrastructure related to marketing in Petroleum
  sector
• cash and carry wholesale trading and sourcing for
  exports
• Foreign investment in Telecom services increased
  to 74
• FDI up to 100 allowed under the automatic route
  in development of townships, housing, built up
  infrastructure and construction development
  projects
• A WTO (TRIPs) IPR regime compliant in position
  since 2005 Patents Act amended to provide for
  product patent in pharma and agro-chemicals also.

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Extant Policy on FDI

• FDI up to 100 allowed on the Automatic Route
  in all activities except for
• Manufacture of cigarettes and cigars
• FDI beyond 24 for manufacture of items reserved
  for small-scale sector
• Investor having existing venture in same field
• Sector specific equity/route limit prescribed
  under sectoral policy
• Investments made by foreign investors receives
  National Treatment.

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Main Sectors with FDI Equity/Route Limit

• FDI equity limit-Automatic route
• Insurance 26
• Domestic airlines 49
• Telecom services- Foreign equity 74
• Private sector banks- 74

• FDI equity limit - prior approval required
• FM Broadcasting - foreign equity 20
• Defence production 26
• News and current affairs- 26
• Broadcasting- cable, DTH, up-linking foreign
  equity 49
• Single Brand retailing 51
• Tea plantation 100
• Courier services- 100

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India FDI Outlook

• 2nd most attractive investment destination among
  the Transnational Corporations (TNCs)
• UNCTADs World Investment Report, 2005
• 2nd most attractive investment destination AT
  Kearney Business Confidence Index, 2005
• Up from 3rd place in 2004, 6th place in 2003 and
  15th place in 2002
• Among the top 3 investment hot spots for
  2004-07
• UNCTAD Corporate Location April 2004
• Most preferred destination for services - AT
  Kearneys 2005 Global Services Location Index
  (previously Offshore Location Attractiveness
  Index)

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India Japan Investment Relations

• Japan 3rd largest investor US 2.01 billion
• US 126 million in 2004-05 (April-March)
• US 98 million in 2005-06 (April-November)
• Top sectors
• Transportation (60.36), Electrical Equipment
  (7.23), Service Sectors (3.65), Ceramics (2.2)
  and Textiles (2.18).
• About 350 Japanese companies present in India.
• Japan Global Investments
• US36 billion in 2003 and
• US35 billion in 2004.
• Around US9 billion in East Asia
• Japanese FIIs net investment US1.7 billion
• Top FIIs country during April05 to 4th Jan06.
  
• Japan cell set up in to facilitate establishment
  and operation of Japanese investments.

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India Other Countries - Policy Framework
MLY-21
MLY-19
Top 1/3
THA-32
THA-14
IND-35
IND-34
IND-37
THA-39
CHN-38
IND-41
CHN-50
MLY-58
Mid 1/3
MLY-67
THA-75
CHN-72
Bot. 1/3
CHN-81
Restriction on Foreign ownership
Efficiency of Legal Framework
Govt. inter. In Corporate Invest.
Financial market Sophistication
Source Global Competitiveness Report 2003-04)
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Indias Competitive Strength - Human Capital

• Indias competitive edge - its highly-skilled
  manpower and entrepreneurial expertise
• Over 380 universities (11,200 colleges)
• 1500 research institutions
• Over 200,000 engineering graduates
• Over 300,000 post graduates from non-engineering
  colleges
• 2,100,000 other graduates
• Around 9,000 PhDs
• World class management and technical institutes
• Knowledge workers in software industry increased
  from 56,000 in 1990-91 to over 1 million by
  2004-05
• 54 of Indias population under 25 years of age
• India would continue to be surplus in working
  population for a long-time
• To contribute 23 of additional working
  population globally over the next 5 years.

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Global Business Leaders on India
India is a developed country as far as
intellectual capital is concerned
India can be the test bed for developing
solutions for the poorest nations.
JACK WELCH, GE
GERARD KLEISTERLEE , PHILIPS
India is handling the most sophisticated
projects in the world. I am impressed with the
quality of work
India has evolved into one of the worlds
leading technology centres.
CRAIG BARRET, INTEL
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ICT Advantages

• IT ITES Industry
• Exports US17.2 billion in 2004-05, growth of 34
  over previous year
• 2010 exports projection US60 billion, to be
  35 of Indias total exports
• High quality standards
• 76 SEI/CMM level 5 companies, two third of
  worlds total, are Indian
• 400 of Global Fortune 500 companies are clients
  of Indian firms
• RD base of over 100 FORTUNE 500 companies
• Investment Opportunities
• Collaborative ICT research
• Joint Software development in a variety of
  applications

Source NASSCOM
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Infrastructure Initiatives

• National Highway Development Programme to develop
  over 24,000 km of highways
• Golden Quadrilateral
• NSEW Corridor
• Links to ports and State capitals
• The Electricity Act, 2003 provides the framework
  for development of power sector
• Modernization of airports
• Award of modernization of Delhi and Mumbai
  airports concluded
• Development of ports with private sector
• 228 project in 10 years worth US14 billion
• Bharat Nirman Programme to develop rural
  infrastructure at an estimated cost of Rs.
  1,74,000 crore (US40 billion)
• Jawhar Lal Nehru Urban Renewal Mission Rs.
  100,000 crore (US22 billion)

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Telecommunications

• Among the fastest growing telecom market
• 600,000 km of optical fibre cable laid
• Over 5 million phones now being added every
  month
• Among the lowest mobile tariff in the world
• Share of private sector over 50
• Tele-density of 11.43 expected to be 20 in next
  three years
• Broad Band Policy
• 835,000 connections (December 2005)
• Internet subscribers 6.1 million (Sept. 05)
• Investment Opportunities
• Setting up manufacturing facilities
• Supply of hand sets and equipments
• Telecom Value added service.

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Industrial Clusters

• 4.5 million SSI units accounting for 40 of
  industrial value added 35 of exports
• Large number of industrial clusters
• 400 SMEs and 2000 artisan clusters
• Account for 60 of manufactured exports and
  substantial share of employment
• Gems and Jewellery Chemicals, Energy, Pharma,
  Metallurgy, Consumer Industry, Food Processing,
  Knitwear Leather and leather products Auto,
  Engg., Software, Mining, Machineries, etc.
• Government initiative to develop infrastructure
  in existing industrial clusters
• A new law for Small Medium Enterprises being
  enacted

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Special Economic Zones
New Law on SEZ enacted

• Policy
• Duty free zones, deemed foreign territories
• Units to be net foreign exchange earner within 5
  years. No export commitments
• No limits on DTA sales
• FDI up to 100 permitted in almost all
  manufacturing activities
• Transfer of goods from DTA to SEZ treated as
  exports,
• Can be set up in the public, private or joint
  sector
• Single Window Clearance

• Incentives
• For developer Income tax exemption for a block
  of 10 years in 15 years
• For units 100 Income Tax exemption for first 5
  years, 50 for next 5 years and 50 of the
  ploughed back export profits for next 5 years
• Exemption from indirect taxes excise, sales,
  services tax, etc.
• Freedom to raise ECB with out any maturity
  restrictions

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Special Economic Zones-contd.

• 15 Special Economic Zones are functional
• SEEPZ Mumbai, Kandla, Cochin, Chennai,
  Visakhapatnam, Falta, NOIDA, Surat, Salt Lake,
  Indore and Jaipur
• Over 927 functional units employing over 110,000
  persons
• Exports of US2.24 billion in 2005-06
  (April-September)
• 74 new Special Economic Zones have been approved
  and are under establishment
• Many have participation with State Governments
  and Private Sector
• Major Industries in Special Economic Zones
• Gems Jewellery, Electronics Hardware,
  Software, Textile Garment, Engineering Goods,
  Sports Goods, Leather Products, Chemicals
  Allied Products

www.sezindia.nic.in
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Governance - Initiatives

• Major e-governance initiatives undertaken at
  Central and State level
• National e-Governance Action Plan
• Projects being taken up in Mission mode at
  Central and State level.
• Integrated services projects for services across
  Departments.
• MCA-21 covering all aspects of establishing and
  functioning of the Companies under the Ministry
  of Company Affairs
• First office to be opened this month
• to cover all Registrar of Companies by April 2006
• e-Biz project being taken up by the Department of
  IPP
• To set up a web enabled portal to provide for
  services at Central, State and Local level during
  the entire life cycle of business
• To begin with a pilot project covering 25
  services in four states being taken up
• Right to Information Act enacted for transparency
  in public administration

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Investment Opportunities

• Manufacturing leverage on skilled manpower to
  relocate in India, use as a base for exports
• Setting up Special Economic Zones and units
  therein
• Food processing, including logistic and support
  services, development of cold chain
• Knowledge process outsourcing engineering
  process outsourcing
• RD leverage on abundant skilled manpower
• IT ITES, software as well as hardware
• Development and management of infrastructure

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India A Good Place to Put Your Money
Largest democracy political stability
consensus on reforms
Fourth largest Economy (PPP) - A safe place to
do business
Liberal transparent investment policies
Largest reservoir of skilled manpower
Long-term sustainable Competitive advantage -
High growth rate economy
Second Largest Emerging Market
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Thank You
Website www.dipp.gov.in
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Telecommunications- Growth Story
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Roads

• Policy
• FDI up to 100 is permitted for construction and
  maintenance of roads, highways, vehicular
  bridges, toll roads, vehicular tunnels
• Ten year tax holiday for road and highway
  projects
• Recent Initiatives
• Existing road network of 3.3 million kilometers
• 24,000 km of Highways being developed under
  National Highway Development Programme
• Golden Quadrilateral 5846 kms- 5154 kms
  completed
• NSEW Corridor 7300 kms 797 kms completed, 2488
  kms under implementation
• Investment US38 billion envisaged in next 7
  years in National Highways Development Programme.
• Investment Opportunities
• Projects for 12,000 km would be on offer
• Many more opportunities in the States

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Power

• Policy Incentive
• FDI up to 100 is permitted on the automatic
  route in all segments except atomic power
• Ten-year tax holiday for generation and
  distribution or transmission and distribution of
  power
• Institutional Reforms
• The Electricity Act 2003 allows trading in power
  and provides for further deregulation
• Independent Regulator in most states
• Investment Opportunities
• Additional capacity required 100,000 MW till 2012
• Investment US120 billion needed
• Financial closure of about 5775 MW capacity
  achieved in last one year

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Incentives for the Development of Industrially
Backward Areas

• A special package of incentives to promote
  industrilisation of industrially backward regions
• North Eastern states, Sikkim, Jammu Kashmir,
  Uttaranchal and Himachal Pradesh
• Incentives
• 100 Income Tax Exemptions for 10 years
• Excise Duty Exemptions for 10 years
• Transport Subsidy for transportation of raw
  material and finished products,
• Investment Subsidy (50-90)

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Governance and Regulatory System

• Central, State and Local levels of Government
  with their specified powers and responsibilities
  seen as complicated in regulatory administration
  by investors
• 11.9 of Senior Managements time spent in
  dealing with Government agencies
• (Source World Banks Report - India Investment
  Climate Assessment, 2004)
• World Banks Report Doing Business in 2006
• 71 days required to set up a Company and start
  business Incorporation of Company and PAN/TAN
  allotment taking most time
• Paying taxes 59 transactions taking 264 hours
  in a year
• Closing a business time taken 10 years

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Ports

• Policy Incentives
• FDI up to 100 permitted for construction and
  maintenance of ports and harbours.
• Ten year tax holiday
• Public-private partnership
• 12 major ports, 185 minor ports
• 14 private/ captive projects with investment of
  US 600 million completed
• 24 projects with investment of US1.6 billion
  under implementation/award
• National Maritime Development Programme
• Private Investment US 7.7 billion
• Budget grants US 0.8 billion
• Investments by Ports US 3 billion
• Investment requirement of US22 billion to
  develop maritime sector
• Ports Shipping
• Inland waterways

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Public Private Partnership

• Infrastructure projects might not be financially
  viable on their own
• Public Private Partnership to bring in private
  sector resources and techno-managerial
  capabilities
• Viability Gap Funding for
• Roads, railways, seaports, airports
• Power
• Water supply, sewerage, solid waste disposal in
  urban areas
• International convention centres.
• Funding in the form of capital grant, Operation
  Management support, interest subsidy, etc.
• Support linked with predefined milestones.

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Food Processing

• Third largest producer of food items
• Largest milk producer
• Largest livestock population
• 2nd largest in fruits vegetables
• Opportunities in food processing sector
• 50 of household income spent on food items
• With increasing income levels and urbanisation
  fast growth in demand of processed food expected
  over 300 million strong middle class
• Low levels of value addition in food sector only
  7
• New Integrated Food Law being enacted
• Investment of US 28 billion required to raise
  food processing from 2 to 8-10.
• Investment opportunities in
• Processing of fruit vegetable, meat, fish
  poultry, milk products, packaged food drinks.
• Establishing infrastructure, cold chain, etc.