 Foreign Direct
Investment Policy & Business Opportunities
Welcome to India
India is the second most populous country
and the largest democracy in the world. The far reaching and sweeping economic reform
undertaken since 1991 have unleashed the enormous growth potential of the economy. There
has been a rapid, yet calibrated, move towards deregulation and liberalisation, which has
resulted in India becoming a favourite destination for foreign investment. The mood is
upbeat and the signals strong. Undoubtely. India has emerged as one of the most vibrant
and dynamic of the developing economics.
What India
Offers
One of the largest economies of the world,
fourth largest economy in terms of purchasing power parity.
Large and rapidly growing consumer
market-up to 300 million people constitute the market for branded consumer products.
Easy access to markets of the other
nations belonging to the South Asian Association for Regional Cooperation (Bangladesh,
Bhutan, Maldives, Nepal, Pakistan and Sri Lanka).
Large and diversified infrastructure
spread across the country.
Promising future in the Information
technology industry.
Large manufacturing capability, spanning
almost all areas of manufacturing activities.
Well-developed research and development
(R&D) infrastructure and technical and marketing services.
Well established knowledge industry.
Abundance of natural resources (has a rich
mineral base), and agricultural self-sufficiency.
Developed banking system-commercial
banking network of over 63,000 branches supported by a number of National and State level
financial institutions.
Vibrant capital market consisting of 22
stock exchanges with over 9,000 listed companies.
Skilled manpower and professional
management including engineers, managerial personnel, accountants, and lawyers, available
at competitive costs.
Conducive foreign investment environment
that provides freedom of entry, investment, location, choice of technology, import and
export.
The policy environment provides clear
guidelines for entry, freedom of location, choice of technology, production, repatriation
of capital, dividends, etc., which is specifically aimed of enhancing the flow of FDI.
Well-balanced package of fiscal
incentives.
Stable democratic environment fostered by
over 53 years of Independence.
Established, Independent judiciary.
English the preferred business language.
Investment
Policy
Foreign
Direct Investment
As part of the economic reforms programme,
policy and procedures governing foreign investment and technology transfer have been
significantly simplified and streamlined.
Automatic Route
Today, foreign investment is freely
allowed in all sectors including the services, sector except in cases where there are
sectoral ceilings.
All items/activities except the following
are under the automatic route for foreign direct investment (FDI):
i. All
proposals that require an industrial Licence. An industrial Licence is mandatory if:
- the item involved requires on industrial licence under the
Industries (Development & Regulation) Act, 1951 or
- the foreign equity portion is more than 24% of the equity
capital of units manufacturing items reserved for small scale industries; or
- the item concerned requires on industrial Licence in terms
of the locational policy
ii All proposals in which the
foreign collaborator has a previous venture or tie-up in India. (excluding IT Sector).
iii All proposals relating to the
acquisition of shares in an existing Indian company in favour of a foreign investor.
- iv. All proposals outside the notified sectoral
polict/caps, or under sectors in which FDI is not permitted
Investment in public sector units as also
in Export Oriented Units (EOUs), and units in Export Processing Zones (EPZs), Special
Economic Zones (SEZs), Software Technology Parks (STPs) and Electronics Hardware
Technology Parks (EHTPs) also quality for the Automatic Route.
FDI in the Sector upto 26%, is allowed
under the automatic route subject to licence from the insurance regulatory &
development Authority for undertaking insurance activities.
In addition to Automatic Approval for new
companies, such approval can also be granted for existing companies proposing to induct
foreign equity, for existing companies with an expansion programme, the additional
requirements are that:-
- the increase in equity level must result from the expansion
f the equity base of the existing company.
- the money to be remitted should be in foreign currency, and
- the proposed expansion programme should be predominantly in
the sector(s) under automatic route.
For existing companies without an
expansion programme, the additional requirements for eligibility for automatic approval
are :
- they should be engaged predominantly in industries under
the automatic route.
- the increase in equity level must be from expansion of the
equity base, and
- the foreign equity must come in foreign currency.
Otherwise, the proposal would need
Government approval through the Foreign Investment Promotion Board (FIPB).
Investors coming through the Automatic
Route are required to file relevant documents with the Reserve Bank of India within 30
days after the issue of shares to foreign investors. Proposals which do not fulfill the
conditions for automatic approval will require the approval of the Government. The
investors have to make an application to the Foreign Investment Promotion Board, Ministry
of Commerce & Industry, Udyog Bhawan, New Delhi, for obtaining such approval.
Trade Policy-Year 2000
Special Economic Zones to be set up,
Export processing zones at Mumbaii, Kandala, Visakhapatnam and Cochin to be coverted into
special economic zones.
Quantitative restrictions on 714 items
removed.
Duty free replenishment certificate scheme
for over 5,000 products introduced.
Major sector sperecific intitiatives in
gems & jewellery, agro-chemicals, bio-technology, pharmaceuticals, leather, garments,
silk, etc.
Boost to e-commerce - electronic filing of
applications to be the norm.
Deemed export benefits extended to core
infrastructural sectors involving an investment of Rs. 1 billion or above, like coal and
hydrocarbon, and also for renovation of power plants.
Import of second-hand capital goods less
than 10 years and allowed without licences, against surrender of special import licences.
Pre-export Duty Entitlement Passbook
Scheme abolished.
Export Promotion Capital Goods scheme
extended to all industrial sectors, at 5% import duty.
Pharmaceutical and bio-tech firms allowed
to import R & D equipment and goods duty-free up to 1% of free-on-board value of their
exports.
Trriff protection and safeguards under
antidumping and anti-subsidy mechanism to continue for domestic industry.
Business
opportunities
The reform process has deregulated the
economy and stimulated domestic and foreign investments, taking India firmly into the
forefront of investment destinations. The Government, keen to promote investment in the
country has radically simplified and rationalised polices, procedures and regulatory
aspects, Foreign investment is welcome in almost all sectors, except those of strategic
concern ( for instance, defence and atomic energy).
A series of incentives has been announced
to promote investments. These include import of capital goods at concessional customs duty
(subject to fulfillment of certain export obligations), liberalisation of external
commercial borrowing norms, tax holiday, and concessional tax treatment for certain
sector. In addition, several State Government offer incentives, such as subsidy on fixed
capital, loans at concessional rates of interest, and attractive power rates, While
several incentives are project specific, a number of firms have been successful in
negotiating favourable investment terms with the State Government concerned.
Since the initiation of the economic
liberalisation process in 1991, sectors such as automobiles, chemicals, food processing,
oil & natural gas, petrochemicals, power, services, and telecommunications have
attracted considerable investments. Today, in the changes investment climate, India offers
exciting business opportunities in virtually every sector of the economy.
Energy
Power
Investment Policy
The 1991 Power Policy seeks to attract
significant private sector investment in the Indian power sector. The key initiatives
include:
Private sector permitted to set up cool,
gas or liquid based thermal project, hydel projects and wind or solar projects of any
size.
Foreign equity participation brought under
automatic approval of generation, transmission and distribution of power generated in
hydro-electric, oil based and coal/lignite based power projects.
Role of the Central Government curtailed
and the State Governments and State Electricity Boards (SEBs) empowered to negotiate
directly with developers, facilitating speedy clearances for the investor.
Ancillary sector such as cool
significantly deregulated.
100% foreign equity permitted.
Opportunities
Demand is expected to grow to 570 billion
Kwh by 2001-02 and to 782 billion Kwh by 2006-07. Over the 10 year period from 1997-2007,
a total capacity addition of 98,000 MW is envisaged, entailing an investment of Rs. 5,750
billion in power generation, transmission and distribution.
The specific project opportunities
expected in the near future include:
Liquid Fuel Based Projects using low
sulphur heavy stock (LSHS), furnace oil (FO), heavy petroleum stock (HPS), Naphtha, Vacuum
Residue, Condensate and Orimulsion are permitted by the Government. Import of liquified
natural gas (LNG) is also being considered for setting up large capacity combined cycle
power plants, Transmission projects for power transfer are available for competitive
bidding by the Central Transmission Utility (Power Grid) and State Transmission Utilities
(SEBs)/Grid Corporations). The transmission system project are being identified for
competitive bidding by the Central and State Transmission Utilities.
Attractive investment opportunities are
likely to develop in distribution of power as several State governments have agreed to
allow the gradual entry of the private sector in distribution.
Non-Conventional
Energy Sources
Investment Policy
Foreign Investors can enter into a joint
venture with an Indian partner for financial and/or technical collaboration and also for
setting up of renewable energy based power generation projects. The liberalised foreign
investment approval regime is aimed at facilitating foreign investment and transfer of
technology through joint ventures.
100% foreign investment as equity is
permissible.
Government of India encouraging foreign
investors to set up renewable energy based pwer generation project on Build-Own-Operate
basis.
Opportunities
In India, investment opportunities are
available for the following types of investors and users:-
Investment by foreign investors in
renewable energy:
Wind, Solar Photo-voltaic, Solar
Thermal, Small Hydro, Biomass, Co-generation, Geothermal, Tidal and Urban & Industrial
Wastes based power projects.
Investment by foreign investors for
manufacturing of renewable energy systems and devices based on:
Wide, Solar Photo-voltaic, Solar Thermal,
Small Hydro, Biomass, Co-generation, Geothermal, Tidal and Urban & Industrial Wastes
for their utilisation in India and also for exports to developing and Third World
countries.
OIL & NATURAL GAS
Investment Policy
The Government has announced significant
new policy initiatives to attract foreign investment:
In exploration and production, oil and gas
fields are open to the private sector as well as for foreign participation under
production sharing contracts. Foreign investment it to be permitted up to;
100% in small-sized oil fields
60% for unincorpoorated joint ventures and
51% for incorporated joint ventures
100% for exploration and production of
blocks identified under the new Exploration Licensing Policy
In the case of private Indian companies,
FDI in refining is permitted up to 49%. The level of FDI in the oil refining sector under
automatic approval has been raised from 49% to 100% EOU refineries, 100% FDI is permitted.
For gas fields developed in the private
sector, promoters are free to market the gas at market related prices.
For the petroleum products and pipeline
sector, FDI is permitted up to 51%
FDI is permitted up to 74% in
infrastructure related to marketing and marketing of petroleum products.
100% wholly owned subsidiary (WOS) is
permitted for purpose of market study and formulatopn.
100% wholly owned subsidiary is permitted
for investment /financing.
For actual trading and marketing, minimum
26% Indian equity is required over 5 years.
Opportunities
Total sedimentary basins, including deep
waters; 3.14 million sq . kms (41% of this still unexplored)
Large demand for natural gas:
| Year
|
Demand
(MMSCMD) |
| 1999 |
110 |
| 2002 |
151 |
| 2007 |
231 |
| 2012 |
313 |
| 2025 |
391 |
MMSCMD : Million Standard
cubic Metres Per Day
The present domestic gas supply is only 65
MMSCMD. The increasing demand-supply gap is expected to be met by imports.
Development of infrastructure
1998-99 |
2024-25 |
| Product Pipeline Capcaity (MMTpa) Port Capacity (MMT) |
22.85111.00 |
166361
|
Private Indian companies setting up or
operating power projects as well as cool or lignite mines for captive consumption are
allowed FDI up to 100%.
100% FDI is allowed for setting up coal
processing plants subject to the condition that the company shall not do coal mining and
shall not sell washed coal or sized coal from its coal processing plants in the open
market and shall supply the washed or sized coal to those parties who are supplying raw
coal to coal processing plants for washing or sizing.
FDI upto 74% is allowed for exploration or
mining of coal or lignite for captive consumption. In all the above cases, FDI is allowed
up to 50% under the Automatic Route subject to the condition that such investment shall
not exceed 49% of the equity of a PSU.
Communication &
Information Technology
TELECOMMUNICATION
Investment Policy
In Basic, cellular Mobile, Paging and
Value Added Service, and Global mobile personnel communications by satellite, FDI is
limited to 49% subject to grant of licence from the Department of Telecommunications and
adherence by the companies (who are investing and the companies in which investment is
being made) to the licence condition for foreign equity cap and lock-in-period for
transfer and addition of equity and other licence provisions.
FDI upto 100% is allowed for the following
activities in the telecom sector.
- ISPs not providing gateways (both for satellite and
submarine cables):
- Infrastructure Providers providing dark fibre (IP
category);
- Electronic Mail; and
- Voice Mail
Upto 100% FDI in telecom manufacturing
activities on automatic approval basis.
Opportunities
There exists an enormous demand-supply gap
for basic services, with the average waiting period for telephone connections exceeding
one year.
Sector |
Current Size |
Projections |
Basic Service |
19 million lines |
Additional 64 million lines required over the next 9 years to meet
the demand for basic services; 20.4 million lines expected to be provided by the private
sector |
Cellular Services |
0.9 million subscribers |
Cellular subscribers expected to cross 1.6 million by
March, 2000 |
Radio Paging |
0.8 million subscribers |
1.5 million subscribers expected by the end of financial year 2000 |
Very Small Apertue Terminal (VSAT) |
6,000 |
VSAT demand estimated at 11,000 shared hubs and dedicated hub
terminals by 2000 |
Internet |
150,000 |
2 million Internet subscribers expected by the year 2000 |
Internet Services
There in no restriction on the number of
Internet Service Providers (ISPs). No licence fee is payable up to October 31, 2003;
thereafter a taken licence fee of Rs. 1 per annum is payable, ISP are free to fix their
own tariff; ISPs have been permitted to establish their own international gateways for
carrying internet traffic. They can obtain transmission link on lease from DTS, licensed
basic service providers, railways, SEBs, Power Grid Corporation or any other operator
specially authorised to lease such lines, ISPs can also establish their own transmission
link within their service area if such links are not available from any of the authorised
agencies.
Basic Telephone Services
Basic service providers are permitted to
establish last mile linkages and carry their own long distance traffic within their
service area. They are to be permitted direct interconnectivity and sharing of
infrastructure with other basic service providers or any other type of service providers
in their area of operation.
Cellular Mobile Services
Cellular service providers are permitted
to carry their own long distance traffic within their service area. They are to be
permitted direct interconnectivity and sharing of infrastructure with other cellular
service providers or any other type of service providers in their area in their area of
operation.
National Long Distance Services
As per the National Telecom policy `99,
National Long Distance Services (NLD) beyond the service area shall be opened for
competition. With a view to providing choice to consumers and promoting competition, all
access provides would be mandatorily required to provide interconnection to all NLD
providers.
Global Mobile Personal
Communication By Satellite (GMPCS)
There is no restriction on the number of
GMPCS licences and licences are issued on first-come-first-served basis. Gateways for
GMPCS are to be located in India and operation and maintenance of the same are to be with
an organisation designated by the Government. A two-tier licence fee is payable- a fixed
component plus a variable component as percentage of revenues.
Other Value Added Services
As the telecommunications and Information
Technology(IT) infrastructure in the country is expanding, there is a surge in demand for
a range of value added services. The scheme for value added services has been considerably
liberalised. These services include radio paging, public mobile radio trunking, and
domestic data using VASTs, Evolving of new services- Tele-education, Tele-medicine,
Tele-banking, Call Centre-is catching up with the Indian Industry and has recently
witnessed significant investments from domestic and foreign investors.
INFORMATION TECHNOLOGY
Investment Policy
Automatic approval for foreign equity in
software and almost all areas of electronics.
Automatic approval accorded for foreign
technology agreements in all areas of electronics except aero-space and defence, subject
to specified conditions.
100% foreign investment permitted in units
set up exclusively for exports. Such units can be set up under any one of the following
schemes; EHTPs, STPs, Free Trade Zones/EPZs, and 100% EOUs.
Opportunities
According to a recent World Bank study,
India is the preferred location for software vendors for its quality and cost. India has
strong Unix base which provides opportunity for the development of products for internet
based applications. Further, India has global connectivity with international dialing
facility from over 13220 locations, Leased/switched high-speed data links from major
centres through STPs and VSNL for point-to-point communication are also available.
Internet connectivity is provided through several networks. Abundant investment
opportunities exist in the following thrust areas in India:
Communication Infrasture
Optic Fibre Cable
Gateways
Satellite based Communication Wireless
Software Development
IT-enables Services
IT Education (100,000 post graduate professionals in IT required annually by 2004)
IT-enabled education
Data Centres & Server Farms
E-commerce
Investment
Policy
Upto 100% FDI is permitted for e-commerce,
subject to the condition that the companies concerned would divest 26% of their equity in
favour of the Indian public in five years, if the companies are listed in other parts of
the world.
Opportunity
According to a study by ICRA Ltd., the
volume of e-business in India is likely to increase from the level of Rs. 4.7 billion in
1999-00 to a level above Rs. 250 billion in the next three to four years, The figure makes
a clear case for large scale investments in the Indian e-commerce sector.
Knowledge
Based Industries
Pharmaceuticals
Investment
Policy
Automatic approval for up to 74% foreign
equity in the case of bulk drugs, their intermediates and formulations (except those
produced by the use of recombinant DNA technology).
Opportunities
India pharmaceutical industry has shown
tremendous progress in terms of infrastructure development, technology base and range of
production, India derives its technological strengths in pharmaceuticals on the following
bases:
Self reliance displayed by the production
of 70% of bulk drugs and almost the entire requirement of formulations within the country.
Low cost of production
Low R&D Costs.
Innovative scientific manpower
Strength National Laboratories
Increasing balance of trade in Pharma
sector.
Chemicals and
biotechnology
Investment Policy
As referred t
in section on Investment Policy
Opportunities
Chemicals
The chemical industry in India is well
established and has recorded a steady growth in the overal Indian industrial scenario. The
chemical and allied industries have been amongst the faster growing segments of the Indian
industry. The Indian chemical industry had a turnover of around Rs. 900 billion in
1996-97. The chemicals industry also accounted for over 10% of total Indian exports during
1997-98. The chemical industry is highly heterogeneous encompassing many sector like
organic and inorganic chemicals, dyestuffs, paints, pesticides, and specialty chemicals,
Some of the prominent individual chemical industries are caustic soda, soda ash, carbon
black, phenol, acetic acid, mathanol and azo dyes.
Currently, there is tremendous scope for
growth in chemical sector. The per capita consumption of chemicals in India is well below
the prevailing world level. For instance, in sulphuric acid, which is considered the
barometer of growth in the chemical industry, the per capita consumption is only about 5kg
per annum in India as compared to 40kg in industrially develoed countries.
Biotechnology
The setting up of a separate Department of
Biotechnology (DBT) under the Ministry of Science and Technology in 1986 gave a new
impetus to the development of modern biology and biotechnology in India. In more than a
decade of its existence, the department has promoted and accelerated the pace of
development of biotechnology in the country. In India, concerted efforts for over a decade
in R&D in the identified areas of modern biology and biotechnology have paid rich
dividends. The proven technologies at the laboratory level have been scaled up and
demonstrated in field. Patenting of innovations, technology transfer to industries and
close interaction with them have given a new direction to biotechnology research.
Necessary guidelines for transgenic
plants, recombinant vaccines and drugs have also been evolved. A strong base of indigenous
capabilities has been created.
Opportunities
Biotechnology industry serves as a
research arm to Agritech, and Pharma industry with increased Potential for strategic
alliances.
Global trends show that all large
pharmaceutical players are putting their money in healthcare for long term benefits. It is
expected that nearly half the drugs in the next decade would be biotech Products.
Tremendous potential in agri business in
an agrarion economy like India.
Potential therefore for transgenic seeds,
bio-fertilizers etc.
Number of small firms is high, knowledge
based, research intensive industry, withlow capital Requirements.
Status and Scope
| Sector |
Turnover
(1997) |
Estimated Turnover
for 2000
(million USD) |
Estimated Turnover
for 2005
(million) |
| Healthcare
Products |
650 |
800 |
1,300 |
| Agriculture |
480 |
650 |
1,110 |
| Industrial
Products |
556 |
67 |
830 |
| Total
(including other) |
1,790 |
2,100 |
3,240 |
The field of
biotechnology both for new innovations and application would form a mojor research and
commercial endeavour for socio economic development in this decade.
Infrastructure
Sector
Roads
Investment Policy
FDI upto 100% under automatic route is
permitted in projects for construction and maintenance of roads, highways, vehicular
bridges, toll roads, vehicular tunnels, ports and harbours.
Opportunities
Investment worth an estimated US$34
billion needed, till 2005-06, for the development of National and Stte Highways. Of this
figure, the requirement of private sector investment is US$8.3 billion.
Opportunities exists in :
Highway construction
Four-Laning of over 35,000 km of National
Highways.
Highway related en route activities like
restaurants, motels, and rest/parking areas as may be decided by the implementing agency.
Select project opportunities include :
Chennai-Nellor (US$ 350 million)
Bangalore-Chennai (US$ 305 million)
Surat-Manor (US$ 180 million)
Jaipur-Ajmer (US$ 147 million)
Ports
Investment Policy
The principal legislations governing
Indian ports are The Indian Ports Act, 1908, and the Major Ports Trust Act, 1963, the
Indian Government recently announced a series of measures to promote foreign investment in
the port sector as listed below:
No approval required for foreign equity up
to 51% in projects providing supporting services to water transport, such as operation and
maintenance of piers, loading and discharging of vehicles.
Automatic approval for foreign equity upto
100% in construction and maintenance of ports and harbours, However, if the total foreign
equity investment exceeds Rs. 15 billion, the proposal will be referred to the FIPB.
Open tenders are to be invited for private
sector participation on a Build-Operate-Transfer (BOT) basis. Evaluation of bids will be
based on the maximum licence period will not exceed 30 years and at the end of the BOT
period all assets will revert to the port in accordance with the conditions of the
agreement.
The Government has announced guidelines
for private/foreign participation that permit formation of joint venture between major
ports and foreign ports, between major ports and minor ports, and between major ports and
companies.
The measures are aimed at attracting new
technology, fostering strategic alliances with minor ports to create on optimal port
infrastructure and enhancing private sector confidence in the funding of ports.
The guidelines permit the formation of a
joint venture between :
a major port and foreign ports for the
purposes of constructing new port facilities within existing ports, improving productivity
of existing ports, and development of new port ;
a major port trust and a company or a
consortium of companies where ;
a company or a consortium of companies,
selected through a BOT bidding under the guidelines of private sector participation
alliances with a major port trust for improving the viability of the scheme and/or to
enhance the confidence of the private sector.
A company or a consortium of companies is
selected under the scheme of innovative/unsolicited proposals
Oil PSUs/a joint venture company of oil
PSUs are/is selected for oil related port facility as a port based industry.
Opportunities
The areas identified for privatisation or
investment by the private sector include:
Leasing out of existing port assets
Creating of additional assets :
Construction or operation of container
terminals
Construction or operation of break-bulk,
multipurpose and specialised cargo berths
Warehousing, container freight stations,
Storage facilities and tank farms
Cranage and handling equipment
Setting up captive power plants,
Dry docking and ship repair frailties
Leasing of equipment and floating craft
from the private sector
Pilotages
Captive facilities for port based
industries.
Civil Aviation
Investment Policy
The momopoly of public sector air carriers
ended with the repenling of Air Corporarion Act, 1953 on March1,1994.
Automatic approval for foreign equity
participation in Airport infrastructure upto100 percent
Foreign equity upto 40 per eent; investment by Non Resident Indians upto 100 per cent
permitted
In domestic air-transport services.
Equity from foreign airlines not allowed in domestic air-transport services either or
indirectly.
Foreign Financial Institutions allowed to hold equity in the domestic air-transport sector
provided they do not have foreign airlines as their shareholders
Foreign Investors allowed to have representation (upto 33 per cent of total) on Board of
Directors of the domestic airline company.
Government to consider private sector participation construction and operation new
airports on a BOT basis.
Minimum fleet size for a scheduled operator raised from the existing 3 aircrafts to 5
Management contract with a foreign airline is not permitted
Opportunities
Construction of world class international
airports in five cities, permitting upto100% foreign equity investment announced.
Important private sector aided projects;
New airport near Kochi (US$ 85.7 million). Projects for development of new airports at
Bangalore and Mumbai with private sector participation are under consideration
Other private sector aided airports
planned; Ahmedabad airport, Amritsar airport upgration, Chennai cargo complex, new
international terminal and a second runway for Delhi airport, runway extension and
international block for Jaipur airport
Private
Sector-Where?
Restructuring & privatization through
long term lease
Green-field airports
Construction of terminal/facilities
Ground handling
---------- |
