F.D.I.

In India
Business Environment

Suneel Gupta

INDIAN Reforms-The Philosophy

Plug into the Global Economy

FDI recognised as a Growth Driver

Large scale economic reforms

India A Good Place to Put Your Money

Fourth largest Economy (PPP) - A safe place to do business Largest democracy political stability & consensus on reforms

Largest reservoir of skilled manpower

Liberal & transparent investment policies

Long-term sustainable Competitive advantage - High growth rate economy

Second Largest Emerging Market

Attracting long-term foreign capital to supplement domestic investment efforts, particularly in infrastructure and export competitive sectors

Creating skilled employment Opportunities and Import of world Class managerial practices

FDI
Developing attractive Configurations of locational advantages at global level Promoting technology and other linkages to enhance domestic industry competitiveness
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

The confidence called India

One of the fastest growing economies, second only after China

Fourth-largest economy on purchasing power parity basis

3rd in investor confidence for FDI investments

India offers the best return on investment among emerging markets

The Time is now..to be in India. This is perhaps the most optimistic Ive felt about India in the last 10-15 years that I ve been coming here. Jeffrey Immelt

Global Business Leaders on India

India is a developed country as far as intellectual capital is concerned JACK WELCH, GE India has evolved into one of the worlds leading technology centres.
CRAIG BARRET, INTEL

India can be the test bed for developing solutions for the poorest nations.
GERARD KLEISTERLEE , PHILIPS

India is handling the most sophisticated projects in the world. I am impressed with the quality of work

BILL GATES, MICROSOFT

Advantage India the growth factor

Indian Economy The 4th largest & 2nd fastest growing economy in the world (based on PPP adjusted GDP ~ USD 3.3 tri) Estimated GDP growth (2005-06) is 8,1 % GDP composition is well diversified across sectors with robust growth. Agriculture 22.1%, Industry 21.7% & Services 56.2%

10 9 8 7 6 5 4 3 2 1 0

8.6 6.2

10 year GDP growth CAGR %

5.0

5.0

4.8

4.6

4.2

3.5

3.1

2.8

India

China

Malaysia

Hong Kong

Singapore

Indonesia

Phillipines

Thailand

Korea

Taiwan

Growth of Economy

India: FDI Outlook

2nd most attractive investment destination among the Transnational Corporations (TNCs)
UNCTADs World Investment Report, 2005

2nd most attractive investment destination AT Kearney Business Confidence Index, 2005

Up from 3rd place in 2004, 6th place in 2003 and 15th place in 2002
UNCTAD & Corporate Location April 2004

Among the top 3 investment hot spots for 2004-07 Most preferred destination for services - AT Kearneys 2005 Global Services Location Index (previously Offshore Location Attractiveness Index)
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Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)

Sector
Telecom

FDI Target (US$ Bn)

2.5

Power
Financial Services LNG & Oil Exploration Food & beverage

1.2
0.8 1.0 0.4

Transportation
Textiles Ports Chemicals & Petrochemicals Hotels & Tourism

0.4
0.3 0.3 0.2 0.2

Real Estate
Roads Civil Aviation Dis-investment

0.2
0.2 0.2 0.5

Total

8.9

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Global Leaders from India

One of the top IT Services company in the world 3rd largest producer of optical storage media in the world Largest producer of motorbikes in the world

Worlds largest refinery plant

Amongst top 3 truck manufacturers in the world

Worlds largest tube based television manufacturer

World leader in viscose staple fibre and 3rd largest producer of insulator

Worlds 2nd largest forging company with outsourcing to major car manufacturers

Worlds largest producer of terrytowels

AN IDEAL INVESTMENT DESTINATION

Worlds largest democracy Second largest emerging market (US$ 2.4 trillion) Liberal Foreign Investment Regime Skilled and competitive labour force Amongst the highest rates of return on investment Large domestic market Independent judiciary
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Key Economic Indicators: GDP Growth Rate (1993-94 as base year)

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

7.6%

7.8% 6.8% 5.1% 5.40% 4.0% 6.40%

Growth Rate (%)

19 95 -9 6

19 96 -9 7

19 97 -9 8

19 98 -9 9

19 99 -0 0

20 00 -0 1

20 01 -0 2

(A E)

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Key Economic Indicators: External sector

80 70 56

46.64 42.5 43.6 35.5 37.2

38 22 17 26 30 42.26

48.8
54.15

48.33
63.93
49 42 35 28 21 14 7 0

60 50 40 30 20 10 0 1995-96 1996-97

33.5

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03(as on 11-10-02)

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INDIA: TRACING FIRST GENERATION REFORMS Industrial delicensing

Liberal FDI regime

Freedom to invest & expand Simplification of investment procedures Tax rationalisation Current Account convertibility

Public sector divestment

WTO compatibility Patents, etc.
15

The Reforms Process Ahead

Public sector divestment

Cutting fiscal deficit

Amendments to crucial economic legislations Financial sector reforms Labour reforms Corporate governance

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

16

Some Independent Studies

JBIC Survey 2002 ranks India as the 5th most promising investment destination EIUs World Investment Prospects 2002 projects steep growth in FDI inflows to India
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INVESTMENT OPPORTUNITIES

INFRASTRUCTURE 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
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INVESTMENT OPPORTUNITIES

INFRASTRUCTURE
INVESTMENT REQUIREMENT: US $ 347 Bn
Sector Present Capacity
1.1 7Lakh MW 37 M Lines 344 MT 58, 112 Kms 1,37,119 Kms

Capacity Addition By 2006

1,11,500 MW 52 M Lines 350 MT 23,000 Kms 60,000 Kms 4,000 Kms

Investment By 2006 (US $ Bn)

178 55 7 27

Power Telecom Ports Roads a. National Highways b. State Highways c. Super N. H. Urban Infrastructure Service

80
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Source: Rakesh Mohan Committee Report (1996-2006)

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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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
21

Rationalisation of FDI Policy

Procedural further simplified New sectors opened Equity caps raised More sectors opened Equity caps raised Procedures simplified Up to 100% Under Automatic Route in all sectors except a small negative list

up to 74/51/50% in 112 sectors under Automatic Route 100% in some sectors Up to 51% under Automatic Route for 35 Priority Sectors

Allowed selectively up to 40%

Pre 1991

1991

1997

2000

2000-05

2006

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Investing in India Entry Routes

Investing in India

Automatic Route
General Rule

Prior Permission (FIPB)

By Exception

No prior permission required Inform Reserve Bank within 30 days of inflow/issue of shares

Prior Government Approval needed. Decision generally within 4-6 weeks

23

FDI Approval Procedure

Automatic Route in most Sector Government Route for few sectors

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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Main Sectors with FDI Equity/Route Limit

FDI equity limitAutomatic route
Insurance 26% Domestic airlines 49% Telecom servicesForeign equity 74% Private sector banks74%

FDI equity limit - prior approval required

FM Broadcasting - foreign equity 20% Defence production 26% News and current affairs- 26% Broadcasting- cable, DTH, uplinking foreign equity 49% Single Brand retailing 51% Tea plantation 100% Courier services- 100% 25

Foreign Direct Investment Annual Inflow

Cumulative FDI Approval 1991-2002(August): US$ 76.15 billion Cumulative FDI Inflow 1991-2002 (August): US$ 30.98 billion
6.00

5.00

4.6 3.4 3.0 2.2

4.7 4.0

4.8

4.00

3.00

2.00

1.0 0.1 0.3

1992

1.00

0.6

0.00

1991

1993

1994

1995

1996

1997

1998

1999

2000-01 2001-02

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Manufacturing Sectors with 100% FDI under Automatic Route

Cars and motor vehicles Refrigerator and fire fighting equipments Food processing Electronic Hardware Iron and steel Private Oil Refineries Agriculture tools and implements Fertilizers and pesticides Pollution control equipments Tyres and tubes Packaging products Construction Machinery Domestic air conditioners Electric motors, industrial electric furnaces Mining and Querying Machinery Steam engines and turbines Non-metallic mineral products Rice, oil mill machinery Chemical machinery Drugs and pharmaceuticals except those requiring industrial licensing Medical equipments Office computing and accounting machinery
27

Infrastructure Sectors with 100% FDI Under Automatic Route

Electricity Generation (except Atomic energy) Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads and Highways Toll Roads Vehicular Bridges Ports and Harbors *Hotel and tourism

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Advertising and films Computer related services Research and development services Construction and related engineering services Pollution control and Management services Urban Planning and Landscape services Architectural services Health related and social services Travel related services Road transport services Maritime transport services Internal waterways transport services

Services Sector with 100% FDI under Automatic Route

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Sectors with Restrictions on FDI

Sectors with limits on FDI Caps
Private Banking ( 49%) Insurance (26%) Domestic Airlines (40%) Basic and mobile services (49%) Print Media (26%) Defence production (26%)

Sectors where FDI is prohibited

Gambling, betting, lottery Retail Trade Agriculture Plantation, except tea plantation

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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 Departments 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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Dreaming with BRICs: The Path to 2050- by

Goldman Sachs
BRICs (Brazil, Russia, India & China) economies could be larger than G-6 in less than 40 years;
By 2025 over half of G-6 size against less than 15% at present;

India has potential to growth rate higher than 5% over the next 30 years and close to 5% as late as 2050;
Only India among BRICs to have growth rates significantly above 3% by 2050;

Indian economy can overtake Italy by around 2017, Germany by around 2027 and Japan by 2032; India has the potential to raise its per capita income in US$ terms by 35 times by 2050.
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India: FDI Outlook

Rated as the best BPO destination; AT KEARNEY Best technology licensing regime - UNCTADs Global Competitiveness Report, 2003; Rated among the most favourite investment destinations (UNCTAD, JETRO, JBIC, Deutsche Bank, EIU, etc.) Major destination for foreign venture capital funds (Far Eastern Economic Review) Sixth most attractive investment destination ATKEARNEY Business Confidence Index, 2003 Also among the top 10 Tourist Destinations.

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Sectoral Distribution of FDI Inflows (1991-August 2002)

Fuels 10% Electrical Equipment 13%

Telecom 13%

Chemicals (Other than Fert.) 7% Services Sector 8% Food Processing Industries 4% Transportation Industry 11%

Others 34%

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Major MNCs in INDIA

Automobile Fiat Auto Daewoo Daimler Benz Ford General Motors Honda Hyundai Suzuki Toyota Volvo Trading Metro Cash & Carry GMBH FIDIA Mitsubishi SHV Macro Chemicals & Pharma AKZO NOBEL CIBA India Sinco Engg. Bayer EMS Inventa AG Mining Ashton American Exploration Rio Tinto Oil & Gas Hardy Oil & Gas International Petroleum SHV Energy Unocal Van Ommeren Auto Components Denso Corporation Graziano Robert Bosch Carraro SIAP S.P.A Toyota Power Power Gen Siemens ST Power System Miscellaneous
Asea Brown Boveri

Buhler* Schindler Italcementi Cerestar Holding

Telecom AT&T Swiss Telecom Deutsche Telekom AG Motorola STET International Telesystem International Telstra Corp SIET International Consumer Goods Fosters AB Electrolux Kellogg Nestle SA Perfetti Coca Cola Pepsi
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