Foreign%20Direct%20Investment%20in%20India-%20Regulatory%20Environment%20and%20Experiences%20of%20Foreign%20Investors

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Foreign Direct Investment in India- Regulatory
Environment and Experiences of Foreign Investors

• Presented by
• Dr. Raj Agrawal

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Contents of Presentation

1. General Policies for FDI
2. FDI Routes and Procedures
3. Fiscal Incentives for FDI
4. Trends of Foreign Investment
5. Experiences of Foreign Investors
6. Concluding Observations

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1.1 General Policies on FDI

• Since 1991 India adopted an open door policy and
  welcomed FDI in most areas.
• Objectives Global integration, industrial
  diversification, infrastructure development,
  privatisation, and technology upgradation.
• FDI acts an engine of growth and trade, and
  embodies a package of capital, technology, and
  managerial, marketing and technical skills.
• Presence of Multinationals promotes greater
  efficiency dynamism in the domestic sector.
• Training gained by workers and local managers and
  their exposure to modern organisational system
  are valuable assets.

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1.2 Liberal FDI Regime in India

• National Treatment
• MFN Treatment
• No expropriation
• Free expatriation
• Rupee is fully convertible on current account.
• FERA is replaced FEMA.
• FERA companies now operate like any other Indian
  Company.
• Foreign companies can own real estate, use their
  trade marks and brand names for domestic sales.

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2.1 FDI Approval Procedures

• 1. FDI upto 100 of equity is allowed under the
  automatic route (without any prior approval) in
  almost all sectors except the following
• Activities that require industrial licensing.
• Companies where foreign collaborator has already
  a tie-up.
• Acquisition of shares in Indian companies.
• Proposals falling outside the notified sectoral
  caps and policies.
• 2. All other cases need approval by the Foreign
  Investment Promotion Board (FIPB) in the Ministry
  of Finance.
• 3. A Foreign Investment Implementation Authority
  (FIIA) has been set up.

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2.2 Foreign investment in India is not allowed
in the following

• Chit fund
• Nidhi company
• Agriculture and plantation
• Real estate (except for development of townships)
  or construction of farm houses
• Trading in Transferable Development Rights

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2.3 FDI is not permissible in the following
activities

• Retail trading (except for single brand)
• Atomic energy
• Lottery business/ Chit Fund
• Gambling and betting
• Housing and real estate business
• Agriculture (except floriculture, develop-ment of
  seeds, animal husbandry, pisiculture and
  cultivation of vegetables)
• Plantations (except tea plantations).

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3.1 Incentives for Investment

• Various incentives by Centre and States. These
  are equally applicable to both domestic and
  foreign companies.
• Tax holidays up to 15 years for backward regions
  and infrastructure.
• Incentives for exporters, RD, SEZs, EPZs,
  Science and Technology Parks.
• States provide capital subsidy, tax breaks or
  deferment, concessional land, power and utility
  tariffs.

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3.2 Incentives for Foreign Investment

• Indian firms are allowed to raise funds abroad
  through Global Depository Receipts (GDRs),
  Foreign Currency Convertible Bonds and offshore
  fund.
• FIIs and NRIs allowed to operate in Indias
  capital markets subject to an individual holding
  of 10 and collective holding up to 40 of total
  paid up capital of a company.
• Foreign investors are also permitted to pick up
  disinvested shares of public enterprises.

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3.3 Fiscal Incentives for Foreign Investment

• Personal income tax reduced to 10 30.
• Corporate tax reduced to 35 for domestic
  companies and 40 for foreign companies.
• The long term Capital gains tax on foreign
  companies lowered to 20 compared to 30 on
  domestic companies.
• India is a member of the Multilateral Investment
  Guarantee Agency (MIGA) and signed comprehensive
  treaties for avoidance of double taxation with 66
  countries, and FTA with many countries.

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4.1 Substantial increase in Foreign Investment
Inflows (US billion)

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4.2 Inflows of Foreign Investment to India in
1993-2003 (US million
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4.3 Sectoral Distribution of FDI ()
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4.4 Share of Home Countries in FDI inflows to
India ()

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4.5 Share of Indian States in FDI in 1991-2003

• States Percentage share
• Maharashtra 17.3
• Delhi 12.0
• Tamil Nadu 8.6
• Karnataka 8.3
• Gujarat 6.5
• Andhra Pradesh 4.6
• Madhya Pradesh 3.2
• West Bengal 3.2
• Orissa 2.9
• Uttar Pradesh 1.7
• Rajasthan 1.0

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4.6 FDI Inflows as of World FDI

• Country 1990 1995 2000
• India 0.1 0.7 0.2
• China 1.7 10.9 3.2
• Hong Kong 0.9 2.7 5.1
• Korea, Rep. 0.4 0.5 0.8
• Malaysia 1.1 1.3 0.4
• Philippines 0.3 0.4 0.1
• Singapore 2.7 2.2 0.4
• Thailand 1.2 0.6 0.4

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4.7 FDI Inflows as of GDI

• Country 1984-1989 1990 2000
• India 0.1 0.1 2.0
• China 1.8 2.6 11.3
• Hong Kong 12.2 8.5 60.2
• Korea, Rep. 1.4 0.8 9.3
• Malaysia 8.8 23.8 20.1
• Philippines 5.1 5.2 5.1
• Singapore 28.3 47.1 26.1
• Taiwan 3.3 3.8 4.4
• Thailand 4.4 7.1 13.7

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4.8 FDI Stock as of GDP

• Country 1980 1990 2000
• India 0.7 0.6 4
• China 3 7 31
• Hong Kong 487 218 256
• Indonesia 14 34 46
• Korea, Rep. 2 2 8
• Malaysia 21 24 65
• Philippines 4 7 15
• Singapore 53 77 98
• Taiwan 6 6 8
• Thailand 3 10 18

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5.1 Factors attracting FDI Inflows

• Fourth largest economy in terms of PPP adjusted
  GDP after USA, Japan and China
• One of ten fastest economies of the world
• Largest pool of technical manpower
• Rich in mineral and natural resources
• Major country in agricultural and industrial
  products
• Fiscal incentives and investment environment
• Low wage rates and low production costs
• Higher Return and Huge domestic market
• Well developed banking and capital markets
• Dynamic private sector

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5.2 Experiences of Foreign Investors

• Foreign investors look beyond the array of fiscal
  incentives offered by the host country.
• Foreign investors like the sound macro-economic
  policies, and stable economic and democratic
  systems in India, sustained high growth,
  continual liberalisation of trade and investment,
  particularly liberal FDI regimes.
• They also like currency convertibility, free
  repatriation, no expropriation of capital, less
  performance criteria, tax holidays and other
  incentives, abolition of screening requirements,
  relaxation of sectoral limits on foreign equity.

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5.3 Foreign Investors would like to have

• Labour mobility
• Simplification of land laws
• Unbundling of risks in infrastructure
• Rationalisation of user charges
• Developing bond markets
• Strengthening Regulatory, legal and institutional
  set up and model BOT legislation
• Separation of policy makers, regulators and
  operators
• Public-private partnership

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5.4 Ranking of India

• 1.AT KEARNEY Business Confidence Index
• Sixth most attractive investment destination,
• Third most attractive destination for American
  and British investors.
• The Best Business Process Outsourcing destination
• 2.United Nations Conference on Trade and
  Development (UNCTAD)
• Second hottest investment destination during the
  next four years

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6. Concluding Remarks

• As the first generation reforms take root and
  second generation reforms unfold, India is
  emerging as a favourite destination for foreign
  investment, and a land of immense opportunity for
  all.
• India should maintain its open door policy in
  production, investment and external trade.
• Carried to their logical ends, reforms would make
  India as one of the most dynamic and fastest
  growing economies of the world.
• India is an economic miracle waiting to happen.
  All of you are welcome to participate in that
  exciting process of Indian development.

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• Thank you
• Have a Good Day