india - updated inter-link

8/4/2019 India - Updated Inter-Link

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India, and Investment Potential

in India

for

The Center For American and InternationalLaw

By:Gautam Mahajan

President - Inter-Link Services Pvt. Ltd.

June 13, 2006

Inter-Link Services Pvt. Ltd. Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: [email protected] /

[email protected] Website: www.interlinkindia.net
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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1. General Business Tips

2. India, and Investment Potential inIndia

3. Foreign Lawyers and Legal Servicesin India: Frequently Asked Questions

DISCUSSION POINTS


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1. General Business Tips General Business Tips

American Companies in India

Legal Opportunities

2. India, and Investment Potential in

India

3. Foreign Lawyers and Legal Services inIndia: Frequently Asked Questions

DISCUSSION POINTS


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General Business Tips

From the American Business Experiencein India:Lessons from successfulAmerican companies:

Know the rules and the law and follow them Conduct rigid due diligence

Do not get guided by quick methods orshort-cuts

Avoid un-ethical practices

Hire a good knowledgeable consultant onIndia


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American Companies in India

Top 5 American employers in India 2 years ago:

General Electric: : 17,800 employeesHewlett-Packard : 11,000 employeesIBM : 6,000 employeesAmerican Express : 4,000 employeesDell : 3,800 employees (today 10,000, growing to 20,000)

General Electric (GE) with $80 Million invested in India employs 16,000 staff,1,600 R&D staff who are qualified with PhDs and Masters degrees.

The number of patents filed in USA by the Indian entities of some of the MNCs(upto September, 2002) are as follows: Texas Instruments - 225, Intel - 125,Cisco Systems - 120, IBM - 120, Phillips - 102, GE - 95.

Staff at the offices of Intel (India) has gone up from 10 to 1,000 in 4 years,

and will reach 2000 staff by 2006.

GE's R&D centre in Bangalore is the company's largest research outfit outsidethe United States. The centre also devotes 20% of its resources on 5 to 10 yearfundamental research in areas such as nanotechnology, hydrogen energy,photonics, and advanced propulsion.

It is estimated that there are 150,000 IT professionals in Bangalore as against120,000 in Silicon Valley.


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Legal Opportunities

Help Indian companies wishing to enterUSA, China etc.

Help Indian companies and lawyers incollaborative projects with American

companies outside India

Buy legal and paralegal services fromIndia at low rates.. Example is GE

Send lawyers to India acceptable to theIndian bar rules or willing to pass theIndian bar exam


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"There are lots of opportunities to use [foreign]lawyers in place of outside counsel or other

lawyers at a lower cost structure," saysSuzanne Hawkins, senior counsel at GeneralElectric Co. For two GE businesses -- GEPlastics and GE Consumer Finance -- savings

from those lower rates are adding up. GEbegan adding lawyers and paralegals to itsoffice in Gurgaon, India, in late 2001. It nowhas eight lawyers and nine paralegals thereand has saved more than $2 million in legalfees that would otherwise have been spent onoutside counsel, according to Hawkins.

Jennifer Fried

The RecorderAugust 25, 2004


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India

Foreign Direct Investment in India

An overview of Indian Economy

Investing in India Entry Routes

Foreign Direct Investment: Policy

Indias Competitive Advantage

Investment Opportunities

3. Foreign Lawyers and Legal Services

in India: Frequently Asked Questions

DISCUSSION POINTS


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Foreign Direct Investment in India

Largest democracy

political stability

& consensus on

reforms

Liberal &

transparent

investment

policiesLargest

reservoir of

skilled

manpower

Long-term

sustainable

Competitive

advantage

- High growth rate

economy

Fourth largest

Economy (PPP) - A

safe place

to do business


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Economic Performance

Foreign Trade

Investment

Mature Capital Markets

A well developed banking system


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Economic Performance

o Sustained economic growtho Average last 10 years 6.5%

o 2004-05 6.9%o Forecast up to 2006-07 >7.0%

o Forecast till 2050 Goldman Sachs 5 % p.a.

o Services share in GDP over 50% (52.4% share in

GDP in 2004-05)

o Manufacturing sector grew at 8.8% in 2004-05 (17.4%share in GDP in 2004-05)


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Foreign Tradeo Merchandise exports grew by 25% in 2004-05, now

US$80 billion

o Imports grew by 36%, now US$106 billion

Investmento Foreign Investment over US$14 billion in 2004-05

(FDI US$5.5 billion, FII US$8.9 billion)

Mature Capital Marketso NSE third largest, BSE fifth largest in terms of number

of trades


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Goldman Sachs Report of 1 October,2003"Dreaming with BRICs: The path to 2050"

India's GDP will reach $ 1 trillion by 2011,$ 2 trillion by 2020,$ 3 trillion by 2025,

$ 6 trillion by 2032,$ 10 trillion by 2038, and$ 27 trillion by 2050,becoming the 3rd largest economy after USA

and China.

In terms of GDP, India will overtake Italy by theyear 2016, France by 2019, UK by 2022,Germany by 2023, and Japan by 2032.


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Economic Reforms - Liberalisation ofInvestment & Trade Policies

Industrial Licensingo Progressive movement towards delicensing and deregulation

Licensing limited to only 5 sectors (security, public health & safetyconsiderations)

Foreign Investmento Progressive opening of economy to FDIo Portfolio investment regime liberalisedo Liberal policy on technology collaboration

Trade Policyo Most items on Open General License, Quantitative Restrictions

lifted

Foreign Trade Policy seeks to double Indiasshare in global merchandise trade in 5 years


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Economic Reforms - ExchangeControl & Taxation

Exchange Control

All investments are on repatriation basis

Original investment, profits and dividend can be freely

repatriated Foreign investor can acquire immovable property

incidental to or required for their activity

Rupee made fully convertible on current account

Taxation Companies incorporated in India treated as Indian

companies for taxation

Convention on Avoidance of Double Taxation with 65

countries


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Manufacturing CompetitivenessMade in India

Second most attractive destination for manufacturingo AT Kearneys FDI Confidence Index 2004

Indian industry globally competitive in a wide range ofmanufacturing skill-intensive products:

o Apparels, electrical and electronics components; specialitychemicals; pharmaceuticals; etc.

Automotive components: Major MNCs & their OEMssourcing high-quality components from India

o Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever, Cliariant,Cummins, Delphi

Indian companies now having manufacturing presence inmany countries

o Over 55% of approved outward investment by India companies

in manufacturing activities


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Evolution of FDI Policy

FDI Policy Liberalization

Pre 1991

1991

1997

2000

2000-05

Allowed selectively up to40%

Up to 74/51/50% in 112 sectors under theAutomatic Route 100% in some sectors

Up to 100% under Automatic Route in all sectors except asmall negative list

More sectors opened ; Equity caps raised in many other sectorsProcedures simplified

FDI up to 51% allowed under theAutomatic route in 35 Priority sectors


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Investing in India Entry Routes

Automatic RoutePrior Permission

(FIPB)

Investing in India

General RuleNo prior permission

requiredInform Reserve Bankwithin 30 days ofinflow/issue of shares

By ExceptionPrior Government

Approval needed.Decision generallywithin 4-6 weeks


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FDI Policy Initiatives : 2000-2004

New sectors opened to FDIo to 26% divestment in 5 years Defence production, Insurance,

print media - up to 26%o Development of integrated townships up to 100%o e-commerce, ISP with out gateway, voice mail, electronic mail,

tea plantation -100% subject

FDI equity limits raisedo Private sector banks raised from 49% to 74%o Drugs and pharmaceuticals from 74% to 100%o Advertising from 74% to 100%o Private sector refineries, Petroleum product marketing,

exploration , petroleum product pipelines 74% to 100%

Procedural simplificationo Issue of shares against royalty payable allowed


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Recent Initiatives : June 2004 onward

FDI in domestic airlines increased from 40% to 49%.Automatic route allowed

FDI up to 100% allowed under the automatic route indevelopment of townships, housing, built upinfrastructure and construction development projects

Foreign investment limit in Telecom services increased

to 74% FDI and portfolio investment up to 20% allowed in FM

Broadcasting. Hitherto only Portfolio investment wasallowed.

Transfer of shares allowed on automatic route in most

cases Fresh guidelines for investment with previous joint

ventures

A WTO (TRIPs) IPR regime compliant in position since

2005 Patents Act amended to provide for productpatent in pharma and agro-chemicals also.


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Policy on FDI

FDI up to 100% allowed under the AutomaticRoute in all activities except for

o Sectors attracting compulsory licensing

o Transfer of shares to non-residents (foreign investors)

o In Financial Services, oro Where the SEBI Takeovers Regulation is attracted

o Investor having existing venture in same field

o Sector specific equity/route limit prescribed under

sectoral policy Investments made by foreign investors are given

treatment similar to domestic investors


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Main Sectors withFDI Equity/Route Limit

FDI equity limit-

Automatic route

Insurance 26%

Domestic airlines 49%

Telecom services- Foreignequity 74%

Private sector banks- 74%

Mining of diamonds andprecious stones- 74%

Exploration and mining of coaland lignite for captiveconsumption- 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 andcarry, export trading, etc.,100%

Tea plantation 100%

Development of airports- 100%

Courier services- 100%

Corrected as of December 05

F i T h l


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Foreign TechnologyCollaboration Policy

Foreign technology agreements also allowedunder Automatic route:o Lump-sum fees not exceeding US$2 Milliono Royalty @ 5% on domestic sales and 8% on exports,

net of taxeso Royalty up to 2% on exports and 1% also permitted

for use of Trade Marks and Brand name, without anytechnology transfer

Wholly owned subsidiaries can also pay royaltyto their parent company

Payment of royalty without any restriction on theduration allowed.

I di FDI O l k


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India: FDI Outlook

2nd most attractive investment destination among

the Transnational Corporations (TNCs) -UNCTADs World Investment Report, 2005

3rd most attractive investment destination ATKearney Business Confidence Index, 2004

o Up from 6th most attractive destination in 2003 and 15th in 2002

o 2nd Most attractive destination for manufacturing

Among the top 3 investment hot spots for the

next 4 yearso UNCTAD & Corporate Location April 2004 Most preferred destination for services - AT

Kearneys 2005 Global Services Location Index

(previously Offshore Location Attractiveness Index)

I di C titi Ad t


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Indias Competitive AdvantageHuman Capital

Indias competitive edge - its highly-skilled manpower

and entrepreneurial expertiseo Over 380 universities (11,200 colleges)

o 1500 research institutions

o Over 200,000 engineering graduates

o Over 300,000 post graduates from non-engineering colleges

o 2,100,000 other graduates

o Around 9,000 PhDs

Knowledge workers in software industry increased from56,000 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 populationfor a long-time

o Would contribute 25% to the additional working population globally over

the next 5 years.

I di C titi St th


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Indias Competitive StrengthsHRD Contd.

Rank out of 102 countries

Availability of scientist and engineers 3

Quality of management schools 8

Quality of scientific research institutions 20

Quality of educational system 36


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IT Advantages

ITITES Industryo Exports US$17.2 billion in 2004-

05, growth of 34% over previousyear

o 2008 exports target : US$60billion, to be 35% of Indias totalexports

High quality standardso 76 SEI/CMM level 5 companies,

two third of worlds total, areIndian

o Over 250 of the Fortune 500companies are clients of Indianfirms

o R&D base of over 100 FORTUNE

500 companies

Investment Opportunitieso Collaborative ICT researcho Joint Software development in a

variety of applications

IT- ITES Exports

In US $ Billion

6.2

10

12.8

17.2

8

0

2

4

6

8

10

12

14

16

18

20

2000-01 2001-02 2002-03 2003-04 2004-05


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Recent Infrastructure Initiatives

National Highway Development Programme to developover 24,000 km of highways

o Golden Quadrilateralo NSEW Corridoro Links to ports and State capitals

Modernisation of airportso Metro and other airports

Development of ports with private sector The Electricity Act, 2003 provides the framework for

development of power sector Bharat Nirman Programme to develop rural

infrastructure at an estimated cost of Rs. 1,74,000 crore(~US$40 billion)

Jawhar Lal Nehru Urban Renewal MissionRs. 100,000crore (US$22 billion)

Country wide rural connectivity programme to link allunconnected village having population of 500 with fairweather road undertaken


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Telecommunications

Among the fastest growing telecom

marketso 550,000 km of optical fibre cable

laid

2 million Cellular phones added everymonth

o Among the lowest mobile tariff inthe world

Share of private sector 50%

Tele-density of 10.66, expected to be20 in next three years

New Broad Band Policy announced:o 690,000 connections since April

2005o Internet subscribers 6 million

(March 05)

Investment Opportunitieso Setting up manufacturing facilities;o Supply of hand sets and

equipmentso Telecom & Value added service.

5.53.11.6

10.5

28.2

48.717.7

52.41.5

19.5

19.25

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005

(up to

Oct.)

No.

inmillio

R d


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Roads

Policyo

FDI up to 100% is permitted for construction andmaintenance of roads, highways, vehicular bridges,toll roads, vehicular tunnels

o Ten year tax holiday for road and highway projects

Recent Initiatives

o Existing road network of 3.3 million kilometerso 24,000 km of Highways being developed under

National Highway Development Programmeo billion envisaged Golden Quadrilateral : 5846 kms- 5000 kms

completedo NSEW Corridor: 7300 kms 784 kms completed, 3691 kms

under implementationo Investment US$20 billion

Investment Opportunitieso Projects for 12,000 km would be on offero Many more opportunities in the States

P


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Power Policy & Incentive

o FDI up to 100% is permitted onthe automatic route in all

segments except atomic powero Ten-year tax holiday for

generation and distribution ortransmission and distribution ofpower

Institutional Reformso The Electricity Act 2003 allows

trading in power and provides forfurther deregulation;

o Independent Regulator in moststates

Investment Opportunitieso Additional capacity required

100,000 MW till 2012

o Investment US$120 billion needed

o Financial closure of over 6000MW capacity achieved in last oneyear

Share of Installed Capacity

Hydro+Wind

22%

Thermal

76%

Nuclear

2%


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Ports

Policy & Incentiveso FDI up to 100% permitted for construction and

maintenance of ports and harbors.o Ten year tax holiday

Public-private partnershipo 12 major ports, 185 minor portso 14 private/ captive projects with investment of US$

600 million completedo 24 projects with investment of US$1.6 billion under

implementation/award

Investment requirement of US$22 billion todevelop maritime sector

o Ports & Shipping

o Inland waterways


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Special Economic Zones

Policyo Duty free zones, deemed foreignterritories

o FDI up to 100% permitted inalmost all manufacturing activities

o Transfer of goods from DTA toSEZ treated as exports,

o Units to be net foreign exchangeearner within 5 years. No exportcommitments

o No limits on DTA sales

o Can be set up in the public,private or joint sector

o Single Window Clearance

Incentives

o For developer: Income tax exemptionfor a block of 10 years in 15 years

o For units: 100% Income Taxexemption for first 5 years, 50% fornext 5 years and 50% of the ploughedback export profits for next 5 years

o Exemption from indirect taxes; excise,sales, services tax, etc.

o Freedom to raise ECB with out anymaturity restrictions

New Law onSEZ enacted

Cont

S i l E i Z


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Special Economic Zones

11 Special Economic Zones are functionalo SEEPZ Mumbai, Kandla, Cochin, Chennai,

Visakhapatnam, Falta, NOIDA, Surat, Salt Lake,Indore and Jaipur

o Over 800 functional units employing over 100,000persons

o Exports of US$4 billion in 2004-05

42 new Special Economic Zones have beenapproved and are under establishment

o Many have participation with State Governments andPrivate Sector

Major Industries in Special Economic Zoneso Gems & Jewellery, Electronics & Hardware, Software,

Textile & Garment, Engineering Goods, SportsGoods, Leather Products, Chemicals & AlliedProducts

P blic Pri ate Partnership


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Public Private Partnership

Infrastructure projects might not be financially viable on

their own;

Public Private Partnership to bring in private sectorresources and techno-managerial capabilities;

Viability Gap Funding foro Roads, railways, seaports, airports;o Powero Water supply, sewerage, solid waste disposal in urban areas;o 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

o Largest milk producer

o Largest livestock population;o 2nd largest in fruits & vegetables

Opportunities in food processing sectoro 50% of household income spent on food itemso With increasing income levels and urbanisation fast growth in demand

of processed food expected; over 250 million strong middle classo Low levels of value addition in food sector: only 7%

New Integrated Food Law being enacted

Investment of US$ 28 billion required to raise foodprocessing from 2% to 8-10%.

Investment opportunities ino Processing of fruit & vegetable, meat, fish & poultry, milk products,

packaged food & drinks.o Establishing infrastructure, cold chain, etc.

Incentives for the Development of


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Incentives for the Development ofIndustrially Backward Areas

A special package of incentives to promoteindustrialization of industrially backward regionso North Eastern states, Skim, Jammu & Kashmir,

Uttaranchal and Himachal Pradesh

Incentiveso 100% Income Tax Exemptions for 10 years

o Excise Duty Exemptions for 10 years

o Transport Subsidy for transportation of raw materialand finished products,

o 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 ascomplicated in regulatory administration by investors

11.9% of Senior Managements time spent in dealingwith Government agencies(Source: World Banks Report - India Investment ClimateAssessment, 2004)

World Banks Report Doing Business in 2006o 71 days required to set up a Company and start business

Incorporation of Company and PAN/TAN allotment taking mosttimeo Paying taxes: 59 transactions taking 264 hours in a yearo Closing a business: time taken 10 years

Governance Initiatives


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Governance - Initiatives

Major e-governance initiatives undertaken at Central andState level

National e-Governance Action Plano Projects being taken up in Mission mode at Central and State

level.o Integrated services projects for services across Departments.o MCA-21 - Ministry of Company Affairs, to cover all Registrar of

Companies by June 2006

e-Biz project being taken up by the Department of IPPo To set up a web enabled portal to provide for the services at the

Central, State and Local level during the entire life cycle ofbusiness

o To begin with a pilot project covering 25 services in four states

o Project capable of rapid upscaling to cover other services andextend to other areas

Right to Information Act for greater transparency inpublic administration



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Development and management of infrastructure

Food processing, including logistic and supportservices, development of cold chain

Manufacturing relocation into India

R&D leveraging on abundant skilledmanpower

IT & ITES, Software as well as hardware


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India

3. Foreign Lawyers and Legal Services inIndia:

o Frequently Asked Questions

o Judgment of Bombay High Court

DISCUSSION POINTS

Foreign Lawyers and Legal Services in


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Foreign Lawyers and Legal Services inIndia: Frequently Asked Questions

1.Can I give advice on USA legal issues to Indiancompanies?No. (see below)

2.Can I give advice to Indian companies in India on

Indian issues?No. Please refer to the attached extract of a Bombay High CourtJudgment attached

3.If I have an associate law firm in India, what can

my partners do or not do when they come toIndia?

They can only provide inputs to the Indian firm. They can beemployed by an Indian firm. They can (if qualified) enroll but thatis a difficult process requiring eligibility, qualifications andreciprocity. Cont


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4. Can I set up a rep. office in India? If yes, Whatam I allowed to do and not do?Yes, but not much at all. Liaison and no commercialbusiness (same judgment).

5. Is my legal degree recognised in India?No. In most cases of US degrees. Some may berecognised (like Oxford degree) but youll need to checkwith the Bar Council of Delhi which ones are covered (ifany) from the U.S.

6. What do I have to do be a solicitor in India?This is a complex question. Probably not allowed.

Cont


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7. What do I have to do if I wish to appear inan Indian court?

Enroll as an advocate.

8. How is the law on the above likely tochange and when?

Some change and a minor easing is likely in this year or

over the next years but it is likely to be cosmetic.


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Extract of a Bombay High CourtJudgment

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORIGINAL SIDE

WRIT PETITION NO. 1526 OF 1995

Lawyers Collective Petitioner

Versus

Bar Council of India & Ors.

OCTOBER 4 & 9, 1995

"In our view, considering the aforesaid quotations from the New York Judiciary

Law and Halsburys Laws of England, it is apparent that the phrase topracticethe profession of law would be wide enough which would includenot only appearance before the Court but also to carry on such activitieswhich are specifically provided in the aforesaid paragraphs which providefor restrictions on unqualified persons against drawing or preparing anyinstrument, agreement, power of attorney or such other things. If that wasnot so, there was no necessity of restricting it by specific regulations."

Cont


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The Court quoted with approval:

"As there is no direct decision on the question involved, the learned Counselappearing for the Petitioner has brought to our notice a decision rendered by theCourt of Appeals of New York. In the Matter of New York County LawyersAssociation v. Lorenzo J. Roel, (165 N. Y. S. 2d 31, page 14,) wherein the Courthas interpreted Section 270 of the Penal Law which, inter alia, provides as

under:-

It shall be unlawful for any natural person to practice as an attorney-at-law orto hold himself out to the public as being entitled to practice law as aforesaid, orin any other manner, or advertise the title of lawyer in such manner oradvertise the title of lawyer in such manner as to convey the impression thathe conducts or maintains a law office without having first been duly and

regularly licensed and admitted to practice law in the courts of record of thisstate, and without having taken the constitutional oath.

Cont


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In that case it was contended by the appellant that his practice is restricted toMexican law and he does not practice law in New York since he onlygives advice and prepares instruments based on Mexican law andMexican law is not law in New York. Therefore he is not covered bySection 270 of the Penal Law. The Court negatived the said contentionby holding that whether a person gives advice as to New York law.Federal law, the law of a sister State, or the law of a foreign country, he is

giving legal advice. It was further held that when legal documents areprepared for a layman by a person in the business of preparing suchdocuments, that person is practicing law whether the documents beprepared in conformity with the law of New York or any other law. TheCourt further observed that to hold otherwise would be to state that amember of the New York Bar only practices law when he deals with locallaw. It was further observed: A foreign lawyer who is familiar with the law

of the country in which he is a lawyer is in a similar position. He is aspecialist in a particular field of the law, but is nevertheless a layman inthis state when he is not a member of the Bar here. The Court held thatprotection of the members of the lay public of State, when they seek legaladvice and that was what defendant purported to furnish was thebasis of the requirements of licensing of attorneys by the State.

Cont


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From the aforesaid discussion, the submissions made before this Court andthe affidavit in reply filed on behalf of Respondent Nos. 12, 13 and 14, primafacie, it appears that the activities mentioned above carried on byRespondent Nos. 12 to 14 would amount to practising the profession of law.As stated above, Respondent Nos. 12 to 14 have established liaison officesin this country; they are carrying on work of drafting documents, reviewingand providing comments on documents, conducting negotiations and

advising clients on international standards and customary practice relatingto clients transactions; gathering information from prospective clients inIndia and conducting market research to assess the feasibility of providinglegal services in India.If, therefore, the said activities are held to be not covered by the phrase topractice the profession of law, then the whole objects of the Advocates Actwould be frustrated, in the sense that there would not be any disciplinary

control nor these activities can be controlled by any method.

" [End of quote]


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We gratefully acknowledge the help given by the

Department of Industrial Policy and Promotion - Ministry ofCommerce, Government of India, New Delhi


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THANK YOU

For further Information, Contact:Gautam MahajanPresident - Inter-Link Services Pvt. Ltd.K-185 Sarai JullenaNew Delhi, India 110025

Tel: +91-11-26922006, 26831226; Fax: +91-11-26929055;E-mail: [email protected] /[email protected]: www.interlinkindia.net
mailto:[email protected]:[email protected]:[email protected]:[email protected]

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