Investing in India

Department of Industrial Policy & Promotion

Ministry of Commerce & Industry
Government of India

Website: www.dipp.gov.in
1
Indian Economy – GDP Growth
10
9.2
9 8.5 9.1
8 7.1 8.4
6.7 6.5
7 6 7.5
5.8 7.4
6 5.3 2005-06 H1
5 6.1 8.1%
4 4.8
4.4 4.4
3 3.8
2 2.9 GDP Growth
1 Mfg Growth
0
%

Services share in GDP over 50% (52.4% share in GDP in 2

2004-05)
Indian Economy – External Trade
300

Trade

250
in US$ bn

241
200
189

142
150

100
114
95
86 95
50 73 76 76

TotalExternal Trade (2005-06)US $ 241 billion- growing annually above

20% in real terms 3
Exports crossed US$100 billion mark in 2005-06
 Indian Economy – FDI Inflows
6
in US$ bn 5.5
5

4.2
4 3.6
3.1
3
3 3.2
2.9
2.7 2.6
2 2.4

 FDI inflows grew by 72% in

2005-06
 70% of FDI going into
manufacturing industry

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Economic Reforms:

FDI Policy
 Most sectors including manufacturing
activities permitted 100% FDI under automatic
route (No prior approval required)
Industrial Licensing
 Licensing limited to only 5 sectors (security,
public health & safety considerations)
Exchange Control
 All investments are on repatriation basis
 Original investment, profits and dividend can
be freely repatriated
Taxation
 Companies incorporated in India treated as
Indian companies for taxation
 Convention on Avoidance of Double Taxation
with 71 countries including Korea
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Foreign Direct Investment Routes

Investing in India

Prior Permission
Automatic Route
(FIPB)

By Exception
General Rule
Prior Government
No prior permission
Approval needed.
required
Decision generally
Inform Reserve Bank
within 4-6 weeks
within 30 days of
inflow/issue of shares

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Extant Policy on FDI
SECTORS UNDER  INFRASTRUCTURE SECTORS
AUTOMATICROUTUPTO 100% FDI UNDER AUTOMATIC ROUTE UPTO
 Most manufacturing activities 100% FDI
 Non-banking financial services  Electricity Generation (except Atomic
 Drugs and pharmaceuticals that do not energy)
attract compulsory licensing or involve use  Electricity Transmission
of recombinant DNA technology  Electricity Distribution
 Food processing  Mass Rapid Transport System
 Electronic hardware  Roads & Highways
 Software development  Toll Roads
 Film industry  Vehicular Bridges
 Advertising  Ports & Harbours
 Hospitals  Hotel & Tourism
 Private oil refineries  Townships, Housing, Built-up Infrastructure
 Pollution control and management and Construction Development Project
 Exploration and mining of minerals other  Greenfield Airports
than diamonds and precious stones
 Management consultancy
 Venture capital funds/companies
 Setting up/development of industrial
park/model town/SEZ
 Petroleum Products Pipeline
 Wholesale Trading
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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%
 Mining of diamonds and
precious stones- 74%
 Exploration and mining of coal
and lignite for captive
consumption- 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%
 Trading- wholesale cash and
carry, export trading, etc.,
100%
 Tea plantation – 100%
 Development of airports- 100%
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Foreign Technology Collaboration Policy

 Foreign technology agreements also

allowed under Automatic route:
 Lump-sum fees not exceeding US$2 Million
 Royalty @ 5% on domestic sales and 8% on
exports, net of taxes
 Royalty up to 2% on exports and 1% also
permitted for use of Trade Marks and Brand
name, without any technology transfer
 Payment of royalty without any restriction on
the duration allowed.
 Wholly owned subsidiaries can also pay
royalty to their parent company
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India: Investment Outlook

 2nd most attractive investment destination among the

Transnational Corporations: UNCTAD’s World
Investment Report, 2005
 2nd most attractive investment destination – AT
Kearney Business Confidence Index, 2005:
 Among the top 3 investment ‘hot spots’ for 2004-
07:UNCTAD Corporate Location – April 2004
 Most preferred destination for services - AT
Kearney’s 2005 Global Services Location Index
 As per FICCI FDI Survey 2005: 70 percent of the
foreign companies, who participated in survey, are
making profits in their Indian operations

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India’s Competitive Strengths - Human Capital

 India’s competitive edge - its highly-skilled

manpower and entrepreneurial expertise

 Ranks 3rd in availability of scientist and engineers

 Ranks 8th in quality of management schools
 Over 200,000 engineering graduates
 Over 300,000 post graduates from non-engineering
colleges
 2,100,000 other graduates
 Knowledge workers in software industry
increased from 56,000 in 1990-91 to over 1
million by 2004-05;
 India would continue to be surplus in working
population for a long-time
 Would contribute 25% to the additional working
population globally over the next 5 years.
 54% of India’s population under 25 years of age
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 ICT Advantages

IT- ITES Exports  IT –ITES Industry

In US $ Billion
 Exports US$23 billion in 2005-06, Growth=34%
25  2010 exports projection : US$60 billion, to be 35%
23
of India’s total exports
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 High quality standards
17.2  76 SEI/CMM level 5 companies, two third of world’s
total, are Indian
15
12.8  400 of Global Fortune 500 companies are clients of
Indian firms
10
 R&D base of over 100 FORTUNE 500 companies
10
8
6.2
 Investment Opportunities
 Collaborative ICT research
5
 Joint Software development in a variety of
applications
0  Hardware manufacturing
2000-01 2001-02 2002- 2003- 2004- 2005-
03 04 05 06

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Source: NASSCOM
Investment Opportunities- Power
 Policy & Incentives
 FDI up to 100% except in atomic power
 Ten-year tax holiday for generation and distribution or
transmission and distribution of power
 Electricity Act 2003 de-controlled power
sector
 Independent Regulators
 Investment Opportunities
 Additional capacity required 100,000 MW till 2012
 Investment US$120 billion needed
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Investment Opportunities- Roads & Ports

 Policy
 FDI up to 100%
 Model agreements on Public-private partnership

 Investment Opportunities
 US$ 35 billion to develop national highways alone
 Road Projects for 12,000 km on offer
 US$22 billion to develop Ports, Shipping & Inland
waterways
 24 projects with investment of US$1.6 billion under
implementation/award
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 Investment Opportunities-Telecommunications
 5 million+ phones added every
month
Mobile Subscribers
 Among the lowest mobile tariff
100
in the world 90
13.8
 Share of private sector >50% 80

No. in m illion
70 This year
 Tele-density of 12.73 expected to be
60 Pre. Years 27.93
20 in next three years
50
 Broad Band: 1 million connections 40 19.9 75.94
 Internet subscribers 6.1 million 30
48.01
 Investment Opportunities 20 17.7
28.2
10 5
 Setting up manufacturing 0 1.5
1.6
2.4
3.1 5.5 10.5

facilities;
 Supply of hand sets and
equipments
 Telecom & Value added service.

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Investment Opportunities- Automobile
 Existing makers- GM, Ford, Honda, Hyundai, Toyota, Fiat, Daimler
Chrysler, Suzuki , Tata
 Auto Component Industry- US$ 8.7 billion industry in 2004-05
 Annual growth rate 30%
 US$17billion by 2012 (AT Kearney )
 Top global vehicle manufacturers/ tier 1 suppliers sourcing
components from India- General Motors, Daimler Chrysler, Volvo,
Cummins, Ford, Fiat, Renault, Toyota Motors
 Auto Production 2005-06: > 9 million
 Passenger Cars: > 1 million
 Two wheelers: > 7.6 million
 Opportunities to leverage on low cost, high-skilled
manpower to reduce cost of production
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Investment Opportunities- Food Processing

 Third largest producer of food items

 Vision 2015: US$ 22 billion for
increase in processing
 Fruit & vegetables from 1.4% to
15%
 Dairy from 13% to 30%
 Buffalo meat from 21% to 45%
 Poultry from 6% to 25%
 Marine products from 8% to 20%
 Investment opportunities in
 Processing and support
infrastructure like cold chain

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Special Economic Zones
 Policy  Incentives
 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
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
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Advantage INDIA
 Abundant availability of Skilled Human Resources -Young
Demographic Profile- 54% population below 25 years -
 Adequate natural resources and raw materials- Iron ore, Coal,
bauxite, Fruits and Vegetables.
 A middle class of 250 million persons growing by 20 million annually
- major consumer of consumption goods, white goods and other
durables.
 Setting up manufacturing base- low wage costs, high skilled labour
availability, and low capital cost
 Judicial System- Established rule of law and a vibrant three tiered
democracy

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Indo Korea Investment Scene
 Cumulative FDI inflows from Korea: 0.76 billion (2.07%)
 Korea ranks 9th
 Top sectors attracting FDI inflows (from January 2000 to June
2006) from South Korea are Electrical Equipments (including
computer software & electronics) (41.49%), Metallurgical Industries
(26.13%), Food Processing Industries (9.81%), Transportation
Industry (6.69%) & Industrial Machinery(1.69%).
 Top companies include Tae Hyun Jeongl & Posco, Samsung
Electronics Co. Ltd., Lotte Confectionery Co. Ltd., LG Electronics
Ltd., Ezentech Co. Ltd
 Korea’s Investment abroad :
 2002 : US$ 2.6 billion
 2003 : US$ 3.4 billion
 2004: US$ 4.7 billion

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Thank You

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