FDI Strategy Paper

1
Investment Opportunities in India
New Delhi Sept. 27, 2005
2
Indian Economy An Overview

• Economic Growth
• Sustained economic performance
• Average since 1991 6.2
• 2004-05 6.9
• Forecast till 2050 Goldman Sachs 5 p.a.
• Services account for over 50 of GDP
• Manufacturing sector grew at 9 in 2004-05
• Trade (2004-05)
• Exports growth 24 in 2004-05 reaching US80
  billion
• Imports growth 35 reaching US106 billion
• Investment
• Foreign Investment - US16 billion in 2003-04
• Mature Capital Markets
• NSE third largest, BSE fifth largest in terms of
  number of trades
• Well developed banking system

3
Fiscal Reforms

• Rationalisation of tax structure both direct
  and indirect
• Progressive reduction in peak rates of duties
• Direct and indirect taxes further reduced this
  year
• Peak Custom duty reduced to 15
• Corporate Tax reduced to 30
• Tariff to be aligned with ASEAN levels
• Value Added Tax introduced from 1st April 2005
• Rupee made fully convertible on trade account

India among the top reformers in 2003 World
Banks Doing Business in 2005
4
Made in India

• Third most attractive destination for
  manufacturing
• ATKearneys FDI Confidence Index 2004
• Indian industry equally competitive in a wide
  range of manufacturing skill-intensive products
• 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 multiple countries
• Over 55 of approved outward investment by India
  companies in manufacturing activities

5
Human Resources

• Indias competitive edge - its highly-skilled
  manpower
• Over 380 universities (11200 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
• Knowledge workers in software industry increased
  from 56,000 in 1990-91 to 650,000 in 2003
• to reach 2 million by 2008
• Due to its young demographic profile, India would
  continue to be surplus in working population for
  a long-time

6
Competitive Strengths

• Rank out of 102 countries
• Availability of scientist and engineers 3
• Quality of management schools 8
• State of cluster development 17
• Quality of scientific research institutions 20
• Government intervention in corporate investment
  34
• Quality of educational system 36
• Sophistication of financial markets 37
• Foreign ownership restrictions 41
• (Source World Economic Forums Global
  Competitiveness Report, 2003-04)

7
Investing in India Entry Routes
Investing in India
Automatic Route
Prior Permission (FIPB)
General rule No prior permission required Only
information to the Reserve Bank of India
within 30 days of inflow/ Issue of shares
By exception Prior Government Approval
needed Decision generally Within 4-6 weeks
8
Policy on FDI

• FDI up to 100 is allowed under the Automatic
  Route in all activities except
• Sectors attracting compulsory licensing
• Transfer of shares to non-residents under certain
  circumstances
• Investor having existing venture in same field
• Equity/route limit in few sectors under sectoral
  policies
• Investment made receive National Treatment
• Bilateral Investment Promotion and Protection
  Agreement with 57 countries
• National and Most Favored Nation Treatment to
  investment Investment protection features

9
100 FDI Under Automatic Route

• Infrastructure Sector
• Electricity generation (except atomic energy)
• Electricity transmission distribution
• Mass Rapid Transport System
• Roads and Highways
• Toll Roads Vehicular bridges
• Ports and Harbors
• Hotel and tourism
• Townships, housing, built up infrastructure and
  construction development

• Manufacturing Activities
• All manufacturing activities except defence
  items
• items reserved for small-scale sector

• Services Sector
• Health, education, Research Development
  services
• Tourism services
• Consultancy services
• Construction design services.

10
Recent Policy Initiatives

• FDI up to 100 allowed under the automatic route
  for development of townships, housing, built up
  infrastructure and construction development
  projects
• FDI in domestic airlines increased to 49 and
  allowed under automatic route
• Fresh guidelines for investment with previous
  joint ventures in same field issued
• Transfer of shares from residents shareholders
  put on automatic route

11
India FDI Outlook

• Third most attractive investment destination AT
  Kearneys FDI Confidence Index, 2004
• Second most attractive destination for
  manufacturing and telecommunication services
• Among the top 3 investment hot spots for the
  next 4 years
• UNCTAD Corporate Location April 2004
• Most Preferred Off shoring destination - AT
  Kearneys 2004 Offshore Location Attractiveness
  Index

12
Civil Aviation

• Investment Policy
• In the airports, FDI up to 100 permitted
• In domestic airlines, FDI up to 49 permitted
  subject to no direct or indirect equity
  participation by foreign airlines
• 100 investment by NRIs
• Investment Opportunities
• Modernisation of International airports at Delhi,
  Mumbai, Chennai and Kolkata
• Modernisation of non -metro airports
• Private sector participation is allowed in
  support services and aircraft manufacture

13
Civil Aviation

• Project on Offer
• Development of Metro and non Metro Air ports

1. Modernisation of Chennai Airport US 444 million
2. Modernisation of Kolkatta Airport US 177 million
3. Modernisation of Delhi Airport US 666 million
4. Modernisation of Mumbai Airport US 555 million
5. Development of 25 non Metro Airports US 888 million
6. Development of Greenfield Airport at Goa US 340million
7. Development of Greenfield Airport at Pune US 340 million
Contact person Ms. S. Narendra, Deputy
Secretary, Ministry of Civil Aviation, TeL
24610987
14
Contact person Ms. S. Narendra, Deputy
Secretary, Ministry of Civil Aviation, TeL
24610987
15
Contact person Ms. S. Narendra, Deputy
Secretary, Ministry of Civil Aviation, TeL
24610987
16
Civil Aviation
Airports Traffic Projections
Passenger By 2010 90-100 million (59 million
domestic passengers 35 million intl.
Passengers) Cargo By 2010 3360 thousand
tonnes Airports Traffic Projections
Contact person Ms. S. Narendra, Deputy
Secretary, Ministry of Civil Aviation, TeL
24610987
17
Special Economic Zones
New Law on SEZ

• 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 System

• 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

18
Thank You

• Visit at www.dipp.nic.in

19
Telecommunications

• Among the fastest growing telecom markets
• 550,000 km of optical fibre cable laid
• Cellular phones increasing by 2 million every
  month
• To reach 200 million in 3 years
• Lowest mobile tariff in the world
• Share of privet sector 46 expected to cross 50
  by year end
• Tele-density of 9, expected to be 20 in next
  three years
• New Broad Band Policy envisages
• 20 million broadband subscribers by 2010
• Investment Opportunities
• Setting up manufacturing facilities
• Supply of hand sets and equipments
• Telecom Value added service.

20
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
• Investment Opportunities
• India has a road network of 3.3 million
  kilometers
• 18,000 km of highways being developed under
  National Highway Development Programme
• Investment US20 billion envisaged
• Projects for 10,000 km would be on offer
• Major programmes being taken up
• Many more opportunities in the States

21
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
• 12 private/ captive projects with investment of
  US 600 million completed
• 24 projects with investment of US1.6 billion
  under implementation/award
• Investment requirement of US22 billion to
  develop maritime sector
• Ports Shipping
• Inland waterways

22
Tourism

• Investment Policy
• FDI up to 100 is allowed 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 etc.
• Projects on Offer
• International Trade cum Convention Centre ,
  Jaipur
• Offered to private sector for designing, finance,
  construct, operate and maintain the facility
• Estimated cost Us 22 million
• Time frame for implementation 18 months
• Development of Tijara Fort, Alwar
• Private sector would require to restore the Fort
  and develop interior surroundings of the fort,
  would be provided for long term lease
• Estimated cost Us 5.5 million
• Time frame for implementation 18 months
• Championship Golf Course, Udaipur, Jodhpur or
  Jaipur
• Land would be acquired and offered on long term
  lease
• Estimated cost Us 5.5 million excluding land
  cost
• Time frame for implementation 18 months
• International Convention Centre , Bangalore
• Karnataka Govt would acquire the land for
  investors
• Facilities to be provided in convention Centre
  Exhibition space of 50000 sq Mt, food court,
  Conference Hall suites, Convention Centre,
  shopping malls, health club, golf course, 7
  star hotels, handicraft village, multiplexes etc.
• Estimated cost Us 111 million

Contact person Mr. Amitabh Kant, Joint
Secretary, Ministry of Tourism, TeL [phone]
23
Urban Infrastructure

• FDI Policy
• FDI upto 100 is allowed in townships, housing,
  built-up infrastructure and construction
  development projects
• Opportunities
• Us 26 billion proposed to be invested in next 5
  years in urban infrastructure in 60 cities as a
  part of National Urban Renewal Mission
• The Mission covers physical infrastructure such
  as water, lighting, sanitation, energy housing.

? CII
24
Petroleum Refining

• Status
• Total 18 refineries with production of 116
  million tonnes (April- Feb. 2004-05) in terms of
  crude through put.
• by the year 2006-07 demand is expected to
  increase to 155 million tonnes per annum.
• FDI Policy
• FDI is permitted up to 100 under automatic route
  in private sector Indian companies
• Investment opportunities
• Additional refining capacity of about 110 million
  tonnes per annum excluding EOUs is planned for
  implementation by the end of tenth plan( 2002-07)
• Investment requirement of over US 22 billion.
• Opportunity for the transfer of technologies for
  upgrading the bottom of the barrel and to meet
  the predominant demand for middle distillates and
  also to improve the quality of petroleum products
  to make them environment-friendly and globally
  competitive.

25
Banking Sector

• Status
• No of Scheduled Banks 362( As on March 2003)
• Indian Private Sector Banks 30 (market share
  10)
• Foreign Banks 36 (market share 12)
• FDI Policy
• FDI up to 74 from all sources under automatic
  route is permitted in Private Sector Banks
  subject to conformity of guidelines issued by RBI
• Foreign Bank can also establish as branch or
  Wholly owned subsidiary

Source Indian bank Association
http//www.indianbanksassociation.org/home/
26
Textiles

• Indian textiles sector
• Turnover US37 billion
• Exports US13 billion
• Investments of US11 billion in the last five
  years
• India is 2nd largest producer of cloth and 3rd
  largest producer of cotton yarn
• Textiles sector has the potential to reach US85
  billion by 2010
• Exports can reach US50 billion
• Garments to account for 50 of exports
• Investment required US30 billion

27
Pharmaceuticals

• Indian Pharmaceutical A US 4 billion industry
  (retail sales)
• Exports US 3.18 billion (2003-2004)
• The country ranks 4th worldwide accounting for 8
  of worlds production by volume and 1.5 by
  value.
• Opportunities
• Due to rising costs of RD overseas, greater
  tendency towards outsourcing and networking.
• Increasing competence in molecular biology,
  immunology and biotechnology
• Potential for clinical research and initiating
  clinical trials
• An efficient and cost effective source for
  procuring generic drugs especially the drugs
  going off patent in the next few years.

28
Biotechnology

• Indias inherent strengths
• Rich Biodiversity
• Large reservoirs of valuable diagnostic and
  clinical data
• Vibrant and inventive pharmaceutical industry
• World class network of educational and research
  institutions
• Known strengths in mathematics, logic and
  computational skills
• Super Computing and Software strengths enable
  extensive use of bio-informatics in new drug
  discovery
• Opportunities
• Biotech based new drugs / pharmaceuticals
• Bio-technology parks get all facilities of 100
  EOU

29
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 250 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.

30
Power

• Projects on offer
• Bairabi dam Hydro Electric project (80mw)
  Mizoram
• Ministry of environment and forests has granted
  environment clearance to the project.
• CEA has issued techno economic clearance of the
  project
• Athirapilly Hydro Electric project (160 MW)
  Kerala
• Ministry of environment and forests has granted
  environment clearance to the project.
• Techno economic clearance of the project has been
  accorded
• Matnar Hydro Electric Project (60 MW)
  Chhattisgarh
• Environment and forest clearances are yet to be
  obtained.
• Techno economic clearance of the project has be
  accorded

Contact person Mr. Dev Dutt, Under Secretary,
Ministry of Power, TeL [phone]
31
Power

• Projects on offer
• Private Sector Hydro Electric Projects
• Dhamwari Sunda (70 MW) Himachal Pradesh by M/s
  Dhamwari Power Company Ltd economic clearance of
  the project has been accorded
• Alliain Duhangan (192 MW), Himachal Pradesh , by
  M/s A.D. Hydro Power Ltd
• Karcham Wangtoo (100 MW) Himachal Pradesh by
  Karcham Hydro Corporation Ltd.
• Srinagar (330 MW), Uttaranchal by M/s Alaknanda
  hydro Power Co. Ltd.

Contact person Mr. Dev Dutt, Under Secretary,
Ministry of Power, TeL [phone]