1

Dr. R. N. Pandey

DirectorDepartment of Industrial Policy

and Promotion Ministry of Commerce and

Industry

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INDIAN Reforms-The Philosophy

Plug into theGlobal Economy

Large scale economic reforms

FDI recognised as a Growth Driver

3

FDI

Attracting long-term foreign capital to

supplement domestic investment efforts,

particularly in infrastructure and export competitive sectors

Developing attractive Configurations of

locational advantages at global level

Promoting technology and other linkages to

enhance domestic industry competitiveness

Creating skilled employment Opportunities and Import of world Class managerial

practices

4

Global FDI trends 2000

Record FDI flows of US$ 1.3 trillion in 2000 Developed world still favourite (over 75% of global

share; mainly cross-border M&A) US$ 240 billion to developing countries Developing Asia gets US$ 143 billion, of which

China and Hong Kong-China alone account for US$ 105 billion

Latin America gets US$ 86 billion WHAT WE ARE REALLY LOOKING AT IS A

SIGNIFICANT SHARE OF WHAT COMES TO ASIA

Source: UNCTAD WIR01

5

% Share of Selected Countries in Total FDI Inflow in Developing Countries

1995 1998 1999 2000

Brazil 4.9 15.1 14.1 13.9

China 31.6 23.2 18.2 17.0

India 1.0 1.4 1.0 1.0

Malaysia 5.1 1.4 1.6 2.3

South Korea 1.6 2.9 4.8 4.2

Singapore 7.8 3.3 3.2 2.7

Thailand 1.8 2.7 1.6 1.0

Total Dev. Countries(US$ Bn)

113.3 188.4 222.0 240.2

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1995 1998 1999 2000

Brazil 0.8 3.6 5.9 5.7

China 5.1 4.6 4.1 3.8

India 0.6 0.6 0.5 0.5

Malaysia 6.8 3.8 4.4 3.9

South Korea 0.4 1.7 2.6 2.2

Singapore 10.5 7.6 8.6 7.0

Thailand 1.2 4.6 3.0 2.0

Ratio of FDI Inflow (%) to Gross Domestic Product

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Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)Sector FDI Target (US$ Bn)

Telecom 2.5

Power 1.2

Financial Services 0.8

LNG & Oil Exploration 1.0

Food & beverage 0.4

Transportation 0.4

Textiles 0.3

Ports 0.3

Chemicals & Petrochemicals 0.2

Hotels & Tourism 0.2

Real Estate 0.2

Roads 0.2

Civil Aviation 0.2

Dis-investment 0.5

Total 8.9

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AN IDEAL INVESTMENT DESTINATIONAN IDEAL INVESTMENT DESTINATION World’s largest democracyWorld’s largest democracy

Second largest emerging market (US$ 2.4 trillion)Second largest emerging market (US$ 2.4 trillion)

Liberal Foreign Investment RegimeLiberal Foreign Investment Regime

Skilled and competitive labour forceSkilled and competitive labour force

Amongst the highest rates of return on investmentAmongst the highest rates of return on investment

Large domestic marketLarge domestic market

Independent judiciaryIndependent judiciary

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Key Economic Indicators: GDP Growth Rate (1993-94 as base

year)

5.40%

7.6% 7.8%

5.1%6.8% 6.40%

4.0%

0%1%2%3%4%5%6%7%8%9%

Gro

wth

Rat

e (%

)

10

Key Economic Indicators: External sector

2226

30

63.93

17

42.2638

54.15

48.846.64

43.642.537.2

35.533.5

48.33

0

10

20

30

40

50

60

70

80

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03(ason 11-10-02)

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$

billion

) Exc

han

ge R

ate

(Rs/

US$

)

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INDIA: TRACING FIRST GENERATION REFORMS• Industrial delicensingIndustrial delicensing

• Liberal FDI regimeLiberal FDI regime

• Freedom to invest & expandFreedom to invest & expand

• Simplification of investment proceduresSimplification of investment procedures

• Tax Tax rationalisationrationalisation

• Current ACurrent Accountccount convertibility convertibility

• Public sector divestmentPublic sector divestment

• WTO compatibility – Patents, etc.WTO compatibility – Patents, etc.

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The Reforms Process Ahead

Public sector divestment Public sector divestment

Cutting fiscal deficitCutting fiscal deficit

Amendments to crucial economic legislationsAmendments to crucial economic legislations

Financial sector reformsFinancial sector reforms

Labour reformsLabour reforms

Corporate governanceCorporate governance

Meeting all multilateral commitments in terms of GATT, Meeting all multilateral commitments in terms of GATT, GATS, TRIPS, etc. GATS, TRIPS, etc.

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Some Independent Studies

• JBIC Survey 2002 ranks India as the 5th most promising investment destination

•EIU’s ‘World Investment Prospects 2002’ projects steep growth in FDI inflows to India

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10 year tax holiday for developers of SEZs/ Industrial Parks 100% tax Exemption for 5 Years and 50% thereafter for two years for SEZ Units 100% Tax holiday for 10 years for

infrastructure undertakings 100% tax deduction for 10 consecutive

assessment years to undertakings providing Telecom services

INFRASTRUCTURE

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

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Sector Present Capacity

Capacity Addition By 2006

Investment By 2006 (US $ Bn)

Power 1.1 7Lakh MW 1,11,500 MW 178

Telecom 37 M Lines 52 M Lines 55

Ports 344 MT 350 MT 7

Roads a. National Highways b. State Highways c. Super N. H.

58, 112 Kms

1,37,119 Kms

23,000 Kms

60,000 Kms 4,000 Kms

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Urban Infrastructure Service

80

INVESTMENT REQUIREMENT: US $ 347 Bn

INFRASTRUCTURE

Source: Rakesh Mohan Committee Report (1996-2006)

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

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Integrated Townships• FDI policy

100% FDI for development of integrated townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials

• Incentives Ten years tax holiday to undertaking developing or

operating and maintaining or developing, operating and maintaining infrastructure facilities such as; water supply project, water treatment system, sanitation and sewerage system or solid waste management system

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Industrial Parks• Concept

Industrial Parks - Self contained island with developed plots/pre-built factories, power, telecom, water and other high-quality infrastructural facilities for industrial, residential, and commercial areas

• Incentives 100% tax exemption under section 80IA subsection 4(iii) of the IT

Act, available to any undertaking engaged in developing, developing and operating or operating and maintaining an Industrial Park for ten consecutive years out of the fifteen years for the Industrial Park developed between 1.4.97 and 31.03.2006 and approved by Department of Industrial Policy and Promotion under the Industrial Park Scheme, 2002 notified vide S.O. No. 354(E) dated 01.04.2002

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Approval and Investment in Industrial Parks under Industrial Park Scheme, 2002 (Till 18.10.2002)

State No. of Industrial Parks

State No. of Industrial Parks

UP 5 Punjab 1

Gujarat 4 Tamil Nadu 2

West Bengal 3 Maharashtra 4

J&K 1 Andhra Pradesh

2

Pondicherry 3 Karnataka 11

Kerala 2

Total No. of Industrial Parks Approved – 38

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Recent Initiatives on FDI FDI up to 100% allowed in Tea sector, including tea

plantations with prior Government approval

100% FDI permitted on automatic route in Advertising & Films

Royalty on brand name/trademark payable as percentage of net sales

Guidelines for licensing production of Arms & Ammunition notified

26% FDI permitted

3 year lock-in period for transfer of equity from one investor to another

Import of equipment/prototype allowed

Guidelines for development of integrated Townships including housing & building material notified

100% FDI permitted

minimum capitalisation norm - US$10 million for WoS & US$ 5 million for JVs

3 year lock-in period

20Branch Office

Joint Venture

Modes of Establishing Operations in IndiaProject Office

WoS

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FDI Approval Procedure

Government Route for few sectors

Automatic Route in most Sector

RBI FIPB

No permission required, only to notify RBI within 30 days of issue of shares to foreign investors

Approval is granted generally in 30 days

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Automatic route available in all sectors except

Licensable items Multiple ventures of an investor in

same/allied category Acquisition of existing shares Beyond notified policy

Foreign Investment Policy

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NO CAP ON FOREIGN EQUITY except for the following sectors: atomic minerals, banking, broadcasting, coal & lignite, telecom services (basic, cellular, GMPCS and certain value added), passenger airlines, defence industry, insurance, petroleum other than private refineries, and mining of diamonds and precious stones.

Foreign Investment Policy (contd.)

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NBFC’s

Banking

Foreign Investment Policy (contd.)

Insurance

Broadcasting

MRTS

FDI up to 100 % permitted on automatic route

FDI up to 49 % permitted

FDI up to 26% permitted on the automatic route subject to licensing

FDI up to 49% permitted in uplinking hub and up to 20% in DTH

FDI up to 100% permitted, including associated real estate development

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Drugs & Pharma

Hotels & Tourism

Foreign Investment Policy (contd.)

DefenceIndustry

TelecomServices

Townships

FDI up to 100 % permitted on automatic route for non-licensable and non-recombinant DNA technology category

FDI up to 100% permitted on automatic route

FDI up to 26% permitted subject to licensing

FDI up to 74% in ISPs with gateways and limit raised from 49% to 74% in radio paging and end-to-end bandwidthFDI up to 100% permitted in integrated townships and settlements

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Foreign Investment Implementation Authority (FIIA)

Provides pro-active one-stop after care service to foreign investors

Facilitates quick translation of FDI approvals into implementation

Sorts out operational problems and finds solution

Supporting mechanism

Fast Track Committees

review individual projects

review and suggest deletion of redundant procedures

simplify existing procedures

Nodal Officers for follow up of FDI cases in states

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Important Features of Department’s Web Site

Web Site: www.indmin.nic.in

All the publications and forms for seeking License, FIPB approval, etc. available in

downloadable format

Present Status of Application Submitted for FIPB and PAB Approvals are posted on the web site

Chat Facility during 1600 to 1700 Hrs on Every Working Day

Bulletin Board facility for Seeking Clarifications on Complicated Matters ( Replies sent just after one day)

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4.84.74.0

3.4

4.6

3.0

2.2

1.0

0.60.30.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-01 2001-02

Cumulative FDI Approval 1991-2002(August): US$ 76.15 billion Cumulative FDI Inflow 1991-2002 (August): US$ 30.98 billion

US

$

billion

Foreign Direct Investment Annual Inflow

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Others37%

Japan5%

Korea (South)4%U.K.

10%Germany4%

Mauritius15%

USA25%

Countrywise FDI approvals (1991- August 2002)

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Others44%

Japan5%

UK4%

Germany4%

Netherlands3%

Mauritius28%

USA12%

Countrywise FDI inflows (1991- August 2002)

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Sectoral Distribution of FDI Inflows (1991-August 2002)

Others34%

Fuels10%

Telecom13%

Food Processing Industries

4%

Electrical Equipment

13%

Chemicals (Other than Fert.)

7%Services Sector

8%

Transportation Industry

11%

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Sectoral Distribution of Technology Transfer (1991- August 2002)

Electrical Equipment

16%

Transportation Industry

8%

Chemicals (Other than

fertilizer)11%

Industrial Machinery

12%

Metallurgical Industry

5%

Others48%

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Major MNCs in INDIAMajor MNCs in INDIATelecomAT&TSwiss TelecomDeutsche Telekom AG Motorola STET InternationalTelesystem InternationalTelstra CorpSIET InternationalConsumer GoodsFostersAB ElectroluxKelloggNestle SAPerfettiCoca ColaPepsi

AutomobileFiat AutoDaewooDaimler Benz FordGeneral MotorsHondaHyundai SuzukiToyotaVolvoTradingMetro Cash & Carry GMBHFIDIAMitsubishiSHV Macro

Auto ComponentsDenso CorporationGraziano Robert BoschCarraroSIAP S.P.A Toyota PowerPower Gen SiemensST Power SystemMiscellaneousAsea Brown BoveriBuhler*SchindlerItalcementiCerestar Holding

Chemicals & PharmaAKZO NOBEL CIBA IndiaSinco Engg.Bayer EMS Inventa AGMiningAshton American ExplorationRio TintoOil & GasHardy Oil & Gas International PetroleumSHV EnergyUnocalVan Ommeren

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