April 14, 2010New Delhi
Doing Business with India Policy Framework &
Opportunities
DepartmentDepartment of Industrial Policy & Promotionof Industrial Policy & PromotionMinistry of Commerce and IndustryMinistry of Commerce and Industry
Government of IndiaGovernment of India
Indian Economy – GDP Growth
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FDI Inflows – Recent Trends
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India: Entry OptionsBy incorporating a company under Company’s Act
1956, in a joint venture or a Wholly Owned Subsidiary. Foreign equity in such a company will be as per choice of the investor, subject to FDI policy.
(Concerned Authority: Registrar of Companies)As an unincorporated entity as a foreign company
through a Representative/Liason office, a Branch office or a Project office.
(Approving Authority: Reserve Bank of India)
Industrial PolicyNO LICENCE required for most activities Industrial Licensing limited to only 5 sectors (security, public
health & safety considerations listed below)Cigars and cigarettes of tobaccoDefence manufacturing Industrial explosivesHazardous chemicalsAlcohol
Large unit proposing to make items reserved (only 21 items) for small scale sector* will require Industrial licence.
*Investment in plant and machinery upto Rupees 50 million (US$ 1.123 million)
FDI Policy & Procedure Automatic Route– No prior approval route. RBI, India’s Central Bank, is
to be informed within 30 days of receiving remittances and also within 30 days issue of shares to non-residents.
FIPB Route– Activities under restricted category require prior Government approval by Foreign Investment Promotion Board (FIPB).
Activities requiring Government approval are indicated in a small negative list. Those activities not listed are treated under automatic route.
FIPB generally conveys decision within 4 to 6 weeks. Activities Prohibited under FDI Policy – cigarette manufacturing, Multi-
brand Retail Trade (single brand allowed upto 51%), Atomic Energy, Lottery, Gambling & betting, sectors reserved for public sector, agriculture (except specified activities), plantations (except tea plantation)
Extant FDI Policy – A SummarySECTORS UNDER AUTOMATIC ROUTE
UPTO 100% FDI
Most manufacturing activities Non-banking financial services Drugs and pharmaceuticals Food processing Electronic hardware Software development Film industry Advertising Hospitals Private oil refineries Pollution control and management Exploration and mining of minerals other
than diamonds and precious stones Management consultancy Setting up/development of industrial
parks/SEZ Petroleum Products Pipeline Wholesale Trading Mining of diamonds and precious stones Exploration and mining of coal and lignite
for captive consumption
INFRASTRUCTURE SECTORS UNDER AUTOMATIC ROUTE UPTO 100% FDI
Electricity Generation (except Atomic energy)
Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbours Hotel & Tourism Townships, Housing, Built-up
Infrastructure and Construction Development Project
Greenfield Airports
Main Sectors with FDI Equity/Route Limit
FDI equity limit-Automatic route
Insurance – 26%Domestic airlines – 49%Telecom services- Foreign
equity 74%Private sector banks- 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%Tea plantation – 100%Development of airports- 100%Single brand retail – 51%
Technology Transfer PolicyRoyalty and Lump sum payments permittedPayments to foreign collaborator do not require
Government approvalNo limit on the duration of paymentsA Wholly Owned Subsidiary or a JV of a foreign
company can make payments to its parent company abroad for technology transfer
Relevant regulation: Current Account Transaction under Foreign Exchange Management Act (FEMA)
India: Investment OutlookSecond most attractive destination –
(A.T. Kearney’s 2007, Foreign Direct Investment Confidence Index).
Third most attractive investment destination among Transnational Corporations for FDI for 2009-11 (UNCTAD’s ‘World Investment Report, 2009).
Investment Opportunities - Infrastructure
India needs to invest heavily in infrastructureInvestment requirement estimated at US$ 514
billion during 11th Plan period ( 2007-12)Share of investment in infrastructure to increase
from 5% of GDP to 9% by 2012Major sectors are Power, Highways & Roads,
Ports, Air transport / Airports
Investment Opportunities – Power
FDI Policy – 100% foreign investment permitted under automatic route in Power Generation, Transmission & Distribution (other than atomic power)
No limit on the project cost and quantum of FDITariff regulation through independent regulator at the
central & state Government levelIncentive - Income tax holiday for a block of 10 years in
the first 15 years of operation Waiver of capital goods import duties on mega power
projects (above 1000 MW)Investment Opportunity - Target to increase generation
capacity up to 200,000 MW by 2012 from current level of 1,47,000 MW
Estimated investment requirement is US$ 166 billion
Investment Opportunities – Roads & Highways
Policy – 100% FDI is permitted under automatic route in all road development projects
Incentive - 100% income tax exemption for a period of 10 years
Government provides viability gap funding for road projects and developers are permitted to recover investment by way of collection of tolls
Opportunity – Private Sector participation via both construction contracts and Build – Operate – Transfer (BOT) based on either toll or annuity basis
Investment requirement is projected at US$ 78 billion till 2012 and one third of this requirement is expected to come from private sector
Investment Opportunities – Telecom
Policy – 100% FDI permitted in the manufacture of telecom equipments
Basic & Cellular mobile services have a foreign equity cap of 74% subject to licensing and security requirements
Incentive – Exemption from basic custom duty is allowed on the import of specified infrastructure equipments to service provider
Opportunities – India is adding almost 12- 14 million new cellular phone connections every month
The total telecom subscriber base is expected to exceed 700 million by 2012
Rural areas in India offer big market for both land line as well as cellular phones as present penetration level is low
Investment Opportunities – Auto Sector
Policy – 100% FDI permitted under automatic route in automobile and auto components manufacturing
No licensing approval required for production of automobiles and import of component for assembly is freely permitted
Incentive – No specific incentive for this sector, however central incentives are available for units set up in certain states and in backward areas as well as in Special Economic Zone
Reduced basic custom duty available for new projects for import of capital equipments
Opportunities - India’s automobile sector growing at double digit rate and India expected to emerge as small car manufacturing hub
World’s largest two wheeler manufacturer is in India Indian auto component industry is well established and
supplied to major OEMs in Europe & USA
Investment Opportunities – Food Processing
Policy – 100% FDI under automatic route permitted in this sector
No licensing approval required for setting up food processing unit
Opportunities – An investment opportunity of US$ 22 billion exist in India for next 10 years
India is the largest producer of milk and dairy products. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.
Currently, only 5% of total production is processed The food processing industry is presently growing at 14 per
cent against 6-7 per cent growth in 2003-04.The retail food sector in India is likely to grow from around
US$ 70 billion in 2008 to US$ 150 billion by 2025
Other Important SectorsPorts and ship building sectorAir ports and Air transport servicesDrugs & pharmaceuticalsReal estate – Construction and development projects Investment Requirements of US$ 50 billion in 5 years
Housing 20 million new units in 5 yearsOrganized retail space 200 million sq ft by 2010Hotels & Hospitality : 50,000 new rooms in 5 years
Consumer durables and Fast Moving Consumer Goods