Department of Industrial Policy

1
Investing in India

• Department of Industrial Policy Promotion
• Ministry of Commerce Industry
• Government of India
• Website www.dipp.gov.in

2
Indian Economy GDP Growth
2005-06 H1 8.1

• Services share in GDP over 50 (52.4 share in
  GDP in 2004-05)

3
Indian Economy External Trade

• Total External Trade (2005-06)US 241 billion-
  growing annually above 20 in real terms
• Exports crossed US100 billion mark in 2005-06

4
Indian Economy FDI Inflows

• FDI inflows grew by 72 in 2005-06
• 70 of FDI going into manufacturing industry

5
Economic Reforms

• FDI Policy
• Most sectors including manufacturing activities
  permitted 100 FDI under automatic route (No
  prior approval required)
• Industrial Licensing
• Licensing limited to only 5 sectors (security,
  public health safety considerations)
• Exchange Control
• All investments are on repatriation basis
• Original investment, profits and dividend can be
  freely repatriated
• Taxation
• Companies incorporated in India treated as Indian
  companies for taxation
• Convention on Avoidance of Double Taxation with
  71 countries including Korea

6
Foreign Direct Investment Routes
Investing in India
Automatic Route
Prior Permission (FIPB)
By Exception Prior Government Approval
needed. Decision generally within 4-6 weeks
General Rule No prior permission required Inform
Reserve Bank within 30 days of inflow/issue of
shares
7
Extant Policy on FDI

• SECTORS UNDER AUTOMATICROUTUPTO 100 FDI
• Most manufacturing activities
• Non-banking financial services
• Drugs and pharmaceuticals that do not attract
  compulsory licensing or involve use of
  recombinant DNA technology
• Food processing
• Electronic hardware
• Software development
• Film industry
• Advertising
• Hospitals
• Private oil refineries
• Pollution control and management
• Exploration and mining of minerals other than
  diamonds and precious stones
• Management consultancy
• Venture capital funds/companies
• Setting up/development of industrial park/model
  town/SEZ
• Petroleum Products Pipeline
• Wholesale Trading

• INFRASTRUCTURE SECTORS UNDER AUTOMATIC ROUTE UPTO
  100 FDI
• Electricity Generation (except Atomic energy)
• Electricity Transmission
• Electricity Distribution
• Mass Rapid Transport System
• Roads Highways
• Toll Roads
• Vehicular Bridges
• Ports Harbours
• Hotel Tourism
• Townships, Housing, Built-up Infrastructure and
  Construction Development Project
• Greenfield Airports

8
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
• Mining of diamonds and precious stones- 74
• Exploration and mining of coal and lignite for
  captive consumption- 74

• FDI requiring prior approval
• Defence production 26
• FM Broadcasting - foreign equity 20
• News and current affairs- 26
• Broadcasting- cable, DTH, up-linking foreign
  equity 49
• Trading- wholesale cash and carry, export
  trading, etc., 100
• Tea plantation 100
• Development of airports- 100

9
Foreign Technology Collaboration Policy

• Foreign technology agreements also allowed under
  Automatic route
• Lump-sum fees not exceeding US2 Million
• Royalty _at_ 5 on domestic sales and 8 on exports,
  net of taxes
• Royalty up to 2 on exports and 1 also permitted
  for use of Trade Marks and Brand name, without
  any technology transfer
• Payment of royalty without any restriction on the
  duration allowed.
• Wholly owned subsidiaries can also pay royalty
  to their parent company

10
India Investment Outlook

• 2nd most attractive investment destination among
  the Transnational Corporations UNCTADs World
  Investment Report, 2005
• 2nd most attractive investment destination AT
  Kearney Business Confidence Index, 2005
• Among the top 3 investment hot spots for
  2004-07UNCTAD Corporate Location April 2004
• Most preferred destination for services - AT
  Kearneys 2005 Global Services Location Index
• As per FICCI FDI Survey 2005 70 percent of the
  foreign companies, who participated in survey,
  are making profits in their Indian operations

11
Indias Competitive Strengths - Human Capital

• Indias competitive edge - its highly-skilled
  manpower and entrepreneurial expertise
• Ranks 3rd in availability of scientist and
  engineers
• Ranks 8th in quality of management schools
• Over 200,000 engineering graduates
• Over 300,000 post graduates from non-engineering
  colleges
• 2,100,000 other graduates
• Knowledge workers in software industry increased
  from 56,000 in 1990-91 to over 1 million by
  2004-05
• India would continue to be surplus in working
  population for a long-time
• Would contribute 25 to the additional working
  population globally over the next 5 years.
• 54 of Indias population under 25 years of age

12
ICT Advantages

• IT ITES Industry
• Exports US23 billion in 2005-06, Growth34
• 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
• Hardware manufacturing

Source NASSCOM
13
Investment Opportunities- Power

• Policy Incentives
• FDI up to 100 except in atomic power
• Ten-year tax holiday for generation and
  distribution or transmission and distribution of
  power
• Electricity Act 2003 de-controlled power sector
• Independent Regulators
• Investment Opportunities
• Additional capacity required 100,000 MW till 2012
• Investment US120 billion needed

14
Investment Opportunities- Roads Ports

• Policy
• FDI up to 100
• Model agreements on Public-private partnership
• Investment Opportunities
• US 35 billion to develop national highways alone
• Road Projects for 12,000 km on offer
• US22 billion to develop Ports, Shipping
  Inland waterways
• 24 projects with investment of US1.6 billion
  under implementation/award

15
Investment Opportunities-Telecommunications

• 5 million phones added every month
• Among the lowest mobile tariff in the world
• Share of private sector gt50
• Tele-density of 12.73 expected to be 20 in next
  three years
• Broad Band 1 million connections
• Internet subscribers 6.1 million
• Investment Opportunities
• Setting up manufacturing facilities
• Supply of hand sets and equipments
• Telecom Value added service.

16
Investment Opportunities- Automobile

• Existing makers- GM, Ford, Honda, Hyundai,
  Toyota, Fiat, Daimler Chrysler, Suzuki , Tata
• Auto Component Industry- US 8.7 billion industry
  in 2004-05
• Annual growth rate 30
• US17billion by 2012 (AT Kearney )
• Top global vehicle manufacturers/ tier 1
  suppliers sourcing components from India- General
  Motors, Daimler Chrysler, Volvo, Cummins, Ford,
  Fiat, Renault, Toyota Motors
• Auto Production 2005-06 gt 9 million
• Passenger Cars gt 1 million
• Two wheelers gt 7.6 million
• Opportunities to leverage on low cost,
  high-skilled manpower to reduce cost of
  production

17
Investment Opportunities- Food Processing

• Third largest producer of food items
• Vision 2015 US 22 billion for increase in
  processing
• Fruit vegetables from 1.4 to 15
• Dairy from 13 to 30
• Buffalo meat from 21 to 45
• Poultry from 6 to 25
• Marine products from 8 to 20
• Investment opportunities in
• Processing and support infrastructure like cold
  chain

18
Special Economic Zones

• Policy
• Duty free zones, deemed foreign territories
• FDI up to 100 permitted in almost all
  manufacturing activities
• Transfer of goods from DTA to SEZ treated as
  exports,
• Units to be net foreign exchange earner within 5
  years. No export commitments
• No limits on DTA sales
• 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

19
Advantage INDIA

• Abundant availability of Skilled Human Resources
  -Young Demographic Profile- 54 population below
  25 years -
• Adequate natural resources and raw materials-
  Iron ore, Coal, bauxite, Fruits and Vegetables.
• A middle class of 250 million persons growing by
  20 million annually - major consumer of
  consumption goods, white goods and other
  durables.
• Setting up manufacturing base- low wage costs,
  high skilled labour availability, and low capital
  cost
• Judicial System- Established rule of law and a
  vibrant three tiered democracy

20
Indo Korea Investment Scene

• Cumulative FDI inflows from Korea 0.76 billion
  (2.07)
• Korea ranks 9th
• Top sectors attracting FDI inflows (from January
  2000 to June 2006) from South Korea are
  Electrical Equipments (including computer
  software electronics) (41.49), Metallurgical
  Industries (26.13), Food Processing Industries
  (9.81), Transportation Industry (6.69)
  Industrial Machinery(1.69).
• Top companies include Tae Hyun Jeongl Posco,
  Samsung Electronics Co. Ltd., Lotte Confectionery
  Co. Ltd., LG Electronics Ltd., Ezentech Co. Ltd
• Koreas Investment abroad
• 2002 US 2.6 billion
• 2003 US 3.4 billion
• 2004 US 4.7 billion

21
Thank You