investment in india overview

1. Investment in India Overview NITESH KUMAR PANDEY MBA Wine Business England

Amongst Fastest growing market Economies in the World, @ over 7% p.a. last 4 years

Liberal FDI Policy Framework FDI up to 100% allowed in most sectors

Rationalization of Tax Structure to promote Investment

High Foreign Exchange Reserves

Liberal outbound investment

Currency appreciation

Entry Routes for Investment in India

Approval

Automatic

Well diversified Industrial Base

A large & sophisticated financial Architecture

A healthy GDP composition

An acknowledged strength in knowledge driven Industry

India Ranked2 ndby AT Kearney's Foreign Direct Investment Confidence Index 2007

Has progressively moved ahead in the rankings; was ranked 15 thin 2003

Attractive location across all broad sectors especially Manufacturing and high value-added services industries like financial services and information technology.

One of the Largest Free Market Democracies in the world

Unparalleled resource of educated, hard-working, skilled and ambitious workforce

Youngest workforce in the world

Working age population estimated to rise 70% of the total population by 2030

70 million new entrants to its work force every 5 years

English the language of business in India

one of the largest Pools of English Speaking Manpower after the US

Manpower

Over 3 million scientific and technical manpower

Over 2.5 million graduates added to the workforce every years

3 rdlargest pool of educated personnel

A large and Growing Middle class with per capita income of more than 1000 US $ p.a.

Amongst the largest and ever growing domestic market

Abundant Resources

Sound economic Fundamentals; Stable Economic reform regime

Vibrant Financial Sector

Frenzied Activity in the field of M&A in recent years

In 2007 out of Total 348 Cross Border Deals:

Outbound: 240 ($32.37 billion)

Inbound: 108 ($15.61billion)

In First Quarter of 2007 while Inbound FDI flows were at an all time high they still exceeded by outbound investment

Tata Motors acquired Jaguar & Land Rover for 23 billion

Tata Steel acquired UK based Corus for $ 8 billion.

Suzlon Energy Ltd acquired German firm Repower Systems AG for $ 1.7 billion.

United Spirits bought Scotch whisky distiller Whyte & Mackay for US$ 1.11 billion

Hindalco acquired Novelis for $ 6 billion

Sistema, Russian Joint Stock Companys acquisition of 74% stake in Shyam Telelink Telecommunications

French banking major BNP Paribass acquisition of 45% stake in financial services firm Sundaram Home Finance for $45.81 million

Standard Chartered Bank bought 49% stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100% for $100 million

Fursa Mauritiuss acquisition of 42.63% equity in Gayatri Starchkem

UBS Global Managements Acquisition of Standard Chartered Asset Management Company for $ 117.78 Million

EMC Corporations Acquisition of Valyd Software Pvt. Ltd.

Orklas Acquisition of MTR foods for $ 100 Million

Favourable Policy framework

Overseas Investment Limit 400% of Net Worth for Companies Incorporated in India including Subsidiaries of Foreign Co.

Overseas portfolio investment - 50 per cent of Net Worth

RBI approval on case by case basis if in excess of the above specified limit

Permissible Funding:

Drawal of foreign exchange from an AD;

Capitalization of exports;

Swap of shares

Utilization of proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs);

in exchange of ADRs/GDRs

Balances held in EEFC account of the Indian party;

Utilization of proceeds of foreign currency funds raised through ADR / GDR issues.

Incorporation of a company (governed by companies Act)

As a Foreign Company through:

Liaison office/Representative office

Project Office

Branch Office foreign company

As an Indian company through:

a Joint Venture

Wholly Owned Subsidiary

JVS regulated by Policies and Laws governing FDI

Two Tier Approval Mechanism for JVS:

Automatic Approval Route

FIPB Approval Route

If the Foreign Partner has entered into JV in thesame fieldbefore then NOC of the previous JV partner and approval of the Government also required

Same Fieldmay be defined as the 4 digit National Industrial Classification (NIC) Code

Illustration:

If the foreign investor has collaboration for the manufacture of tarpaulin Code 268.3, he can invest in the manufacture of rubberized cloth Code 268.2 as there is no restriction to enter into JVs in allied fields. The restriction shall apply to any item whose code NIC code is 268.2.

A Conflict of Interest clause advisable in the JV/Collaboration agreement in case one of the Partners to the JV wants to set up another JV or wholly owned subsidiary in thesame field

The Following are exempted from the restriction of entering into JV in the same field:

Information Technology sector

Investments made by multinational financial institutions

mining sector for the same area/mineral

Prior government approval not required in certain cases:

Investment to be made by venture capital funds is registered with SEBI

Existing JV investment is less than 3%

Existing venture is defunct or sick

Determination of sale Price of Shares

Listed Company

Unlisted Company/Shares Thinly Traded on the Stock Exchange

Remittance of Sale Proceeds:

NOC from Income Tax Authority required

If the security has not been sold on a recognized stock exchange then prior approval of the RBI in form TS 1 has been obtained

Some applicable Indian Laws

Companies Act

Competition Act

SEZ Act

Income Tax Act

Indian Stamp Act

SEBI Takeover Code

FDI Policy

Salient Features:

Anti-competitive agreements;

Prohibition of abuse of dominant position

Regulation of Combinations including mergers

Unfair Trade Practices

Monopolies and Restrictive Trade Practices Act, 1969

Inadequate

Obsolete

Still Prevailing

Competition Act, 2002

Combination

The Indian law uses the word combinations to cover acquisition of control, shares, voting rights and assets, and mergers and amalgamations

Relevant Sections: 5-6 & 29-32

Applicable threshold Limits Based on:

Value of Assets

Turnover

Notice Requirement

Mandatory

Within 30 days of

Approval of proposal by BOD

Execution of agreement/ document

Mandatory waiting Period for Approval

210 Days

Extra Territorial Jurisdiction of CCI

CCI has power to inquire about combinations taking place outside India

Right to Intervene in case of perceived threat to National Security

Discretionary powers to prevent certain foreign companies from doing business in the country

United States- Foreign Investment & National Security Act, 2007 (Exon-Florio Provision)

China- Anti Monopoly Law

European Union- Members are free to regulate International Mergers (Articles 81-85 EC Treaty regulates Competition)

United Kingdom- Enterprises Act 2002

India- National Security Exception Bill yet to be passed by the Parliament

Atomic Energy

Lottery Business

Betting & Gambling

Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations)

FDI-100% permitted under automatic route

Regulated by the SEZ Act 2005

Objectives

Investment Promotion

Engine for economic growth

Development of infrastructure

Promotion of Export of Goods & Services

Generation of Employment oppurtunities

minimum possible regulations.

attractive fiscal package

both at the Centre and the State

Establishment

By Central/State or any other entity

Requirements

Minimum Area Requirements for different class of SEZs

SEZ divided into Processing area (for units) and Non Processing Area (for supporting infrastructure)

Single Window Clearance available

496 SEZs Approved after SEZ Act 2005

282 EH/IT/ITES SEZs

9 Multi Product SEZs

13 Pharmaceuticals and chemical SEZs

4 Bio Tech SEZs

8 Textile/Apparel/Wool SEZs

136 In principle approvals

207 SEZs have been notified

Customs/Excise exemptions

Income Tax exemption

On export Income for 10 years out of 15

Exemption from Dividend Distribution Tax

Exemption from Sales Tax/Service Tax

Duty free import/domestic procurement of goods

Income Tax exemption

Exemption from minimum alternate tax

External commercial borrowing by SEZ units up to US $ 500 million in a year without any maturity restriction through recognized banking channels.

Exemption from Central Sales Tax/VAT/State Acts & Service Tax

Single window clearance.

Overview

Amongst the largest employers only after agriculture

US $12 Billion Industry

30% growth rate

Housing Sector contributes 5% of GDP

Requirements of housing, commercial and industrial infrastructure bound to rise

367 Million Sq. Ft. of additional office space needed by 2012-13 ( Estimated by Ernst & young)

Indian Ministry of Tourism forecasted requirements of 2.9 and 6.6 Million hotel rooms to meet the tourism and business by 2010 and 2020.

Fast growing Medical tourism will become US$2 billion industry by 2012

Asian Development Bank estimates requirements of 10 million units by 2030 and will require huge investment in Health Services sector

FDI not permitted in Business of buying & selling property

FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) subject to:

Minimum Area requirements

Minimum Capitalization requirement

Divestment clause i.e. No repatriation before 3 years

Tax exemptions up to 100% on profits derived by an undertaking

Developing/operating/maintaining Industrial Parks

Developing & Building Housing Projects

Developing/operating/maintaining SEZs

Constructing Hotels & Hospitals in Tier 2 cities

Overview

Amongst the largest employers in the country at par with Real Estate

Amongst the highest outlet density in the world with around 12 mn Outlets

Largely unorganized; Large no. of local players;

Scope of Market consolidation

FDI not allowed in Multi-Brand Retail

100% permitted through the Automatic route in Wholesale Cash & Carry operations

51% in Single Brand Retailing

Requires FIPB Approval

Product to be single brand only

Should be sold under same Brand Internationally

Covers only Products Branded during Manufacturing

Transfer Pricing Issues

Method of escaping Tax Liability

Tax Avoidance hence Illegal

RBI approval required

Source of Funds

National Security issues

Robust, well-developed legal and administrative system

Derived from the Common Law System

Commercial Disputes:

Arbitration Preferred mode of settlement

International Commercial Arbitration Possible

Strong Intellectual Property laws

It is advisable to have a thorough Due Diligence done before investing

Non-Compete clause

It is advisable to have a clearly worded non-compete clause if entering into a JV

Dispute Resolution clause

Must be clearly worded in terms of Governing Law, Jurisdiction, Mode of Dispute Resolution

Intellectual Property Clause

- To protect IP rights from Infringement

investment in india overview

Economy & Finance

foreign investment

india approval automatic

advantage india

foreign partner

lintas india

destination india

subsidiaries of foreign

foreign currency funds