India s Industrial Policy ( Today)

The Indian government has removed bureaucratic controls on industry, under its liberalization policy. However, licensing and restrictions still exist in the following sectors: Two sectors reserved for public sector viz., Atomic Energy and Railways Five Industries in which licensing is compulsory Distillation and brewing of alcoholic drinks Cigars and cigarettes of tobacco Electronic Aerospace and Defence equipment Industrial explosives Hazardous chemicals

FDI Policy
According to the current policy, FDI is not permitted in the following sectors Certain sectors, namely: Atomic energy; Lottery business/gambling and betting; Agriculture (excluding floriculture, horticulture, seed development, animal husbandry, pisciculture and cultivation of vegetables, mushrooms, etc.) Plantations (excluding tea plantation) Retail Trading (other than single brand retail)- Would Change very soon

FDI Policy
Manufacture of items reserved for Small Scale Sector. Proposals attracting locational restrictions Note The exemption from licensing also applies to all substantial expansion of existing units.

FDI Policy
foreign direct investment (FDI) and investment from Non-Resident Indians (NRI)s including Overseas Corporate Bodies (OCBs), that are predominantly owned by them, to complement and supplement domestic investment. Investment and returns are freely repatriable, except where the approval is subject to specific conditions such as lock in period on original investment, dividend cap, foreign exchange neutrality, etc. as per the notified sectoral policy.

FDI Policy
Foreign direct investment is freely allowed in all sectors including the services sector, except where the existing and notified sectoral policy does not permit FDI beyond a ceiling. FDI for virtually all items/activities can be brought in through the automatic route under powers delegated to the Reserve Bank of India (RBI), and for the remaining items/activities through Government Approval.

FDI Policy(contd)
Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB), chaired by the Secretary, Department of Industrial Policy and Promotion (Ministry of Commerce and Industry) with the Union Finance Secretary, Commerce Secretary, and other key Secretaries of the Government as its members.

FDI Policy (Contd)

There are two routes for FDI in India Automatic Route ( for all except the following) Where the foreign collaborator has an existing venture/tie-up in India in the same field. There are certain exceptions investment by a Venture Capital Fund registered with SEBI; existing joint venture has less than 3% investment by either party; Existing joint venture is defunct or sick

 Proposals falling outside notified sectoral policy/caps or sectors in which FDI is not permitted FIPB Route (Approval Route) In all other cases of foreign investment, where the project does not qualify for automatic approval, as given above, prior approval is required from FIPB. Decision of the FIPB is normally conveyed within 30 days of submitting the application. The proposal for foreign investment is decided on a case-to-case basis depending upon the merits of the case and in accordance with the prescribed sectoral policy.

Acquisition of Shares
Acquisitions may be made of an existing Indian company which may be either a private or a public company. Acquisition of shares of a public listed company is subject to the guidelines of the Securities Exchange Board of India (SEBI) Foreign investors looking at acquiring equity in an existing Indian company through stock acquisitions can do so under the automatic route.

Investment by Foreign Institutional Investors ( FII )

An FII must be registered with SEBI and must comply with certain investment limits. They may purchase shares and/or convertible debentures of an Indian company under the Portfolio Investment Scheme. The shares/convertible debentures of an Indian company must be purchased through registered brokers on recognized stock exchanges in India.

Investment by Foreign Institutional Investors ( FII )

FII s are also permitted to purchase shares/convertible debentures of an Indian company through private placement/arrangement. Foreign pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers or their power of attorney holders may invest In India as FIIs.

Foreign Technology Transfer

Foreign technology induction is encouraged by the Government both through FDI and through foreign technology collaboration agreements. No approvals are required in respect to all those foreign technology agreements which involve:
a lump sum payment of up to USD 2 million royalty payable up to 5% on net domestic sales and 8% on exports, subject to a total payment of 8% on sales, without any restriction on the duration of royalty payments.

Global Depository Receipts (GDRs)/ American Depository Receipts (ADRs)/ Foreign Currency Convertible Bonds (FCCBs)

Indian companies listed on the stock exchange are allowed to raise capital through GDRs/ADRs/FCCBs. Foreign investment through GDRs/ADRs/FCCBs is also treated as FDI. Issue of GDRs/ADRs does not require any prior approvals except where the FDI after such issue would exceed the sectoral caps, in which case prior approval of FIPB would be required. Issue of FCCBs upto USD 500 million also does not require any prior approvals

Preference shares
Indian companies can mobilize foreign investment through issue of preference shares for financing their projects/industries. Issue of preference shares is permissible only as rupee denominated instruments.

Exchange Control Regulations of India

Exchange control is regulated under the Foreign Exchange Management Act, 1999 ( FEMA ) Foreign exchange transactions have been divided into two broad categories current account transactions and capital account transactions. The Indian rupee is fully convertible for current account transactions, subject to a negative list of transactions that are prohibited/ require prior approval. The exchange control laws and regulations for residents apply to foreign invested companies as well.

Repatriation of Capital
Foreign capital invested in India is generally repatriable, along with capital appreciation, if any, after the payment of taxes due on them, provided the investment was on repatriation basis.

Laws Governing Business in India

The Companies Act, 1956 Arbitration and Reconciliation Act, 1996 The Competition Act, 2002 The Foreign Exchange Management Act, 1999 Income Tax Act, 1961 Central Sales Tax, 1956 Central Excise Act, 1944 Information Technology Act, 2000 Copyright Act, 1957 Trademarks Act, 1999

Laws Contd
Geographical Indications of Goods Act, 1999 Indian Patents Act, 1970 Designs Act, 2000 Industrial Disputes Act, 1947 Workmen Compensation Act, 1956 Employees Provident Fund Miscellaneous Provisions Act, 1952 Consumer Protection Act, 1956

Important Regulatory Authorities for Foreign Investment

Secretariat for Industrial Assistance (SIA) Foreign Investment Promotion Board (FIPB) The Foreign Investment Implementation Authority (FIIA) Reserve Bank of India (RBI) Registrar of Companies (RoC) Securities and Exchange Board of India (SEBI) Central Board of Excise and Customs (CBEC) Central Board of Direct Taxes (CBDT) Authority for Advance Rulings (AAR) Investment Commission (IC)

Some Sectors of economy and foreign investment

IT and ITES India is world s leader in global outsourcing with more than 80% of the market share. Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) schemes. Undertakings setup in EHTP/STP was eligible for deduction of 100% export profits till March 31, 2009 100% FDI permitted without any prior approvals.

Special Economic Zones (SEZ s)

SEZ Act and the rules framed there under have been notified with effect from February 2006. An SEZ is an export oriented duty free enclave, which is deemed to be outside the customs territory of India. 22 operational SEZ s in India and over 200 SEZ s are in various stages of approval and development. 100% tax deduction for 10 years for SEZ developer. Exemption from dividend distribution tax for SEZ developer. Exemption of Sales Tax on purchases from Domestic Tariff Area for both developer and a SEZ unit. Exemption from Service Tax for both developer and a SEZ unit.

SEZ Contd .
No minimum export obligation. 100% permitted under the automatic route for SEZ development. 15 year corporate tax exemption on export profits to a SEZ unit. Branches of foreign companies in SEZ s are eligible to undertake manufacturing activities.

Biotechnology and Bioinformatics

100% FDI permitted without prior approval. implementation of product patent regime in India in accordance TRIPS has resulted in growth of FDI.

Nanotechnology
100% FDI permitted without prior approval.

100% FDI
100% FDI is allowed in a number of sectors like Publishing & Media Travel & Tourism Infrastructure Development Power .

Forms of foreign enterprises in India

Joint Venture Company Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners. A joint venture is also the preferred route for foreign investors who wish to invest in any sector where 100% foreign direct investment is not permitted. Wholly Owned Subsidiary Company Foreign companies can set up wholly-owned subsidiary in the form of a private limited company in sectors where 100% foreign direct investment is permitted under the FDI policy.

Forms of enterprises contd

Branch Office A Branch Office is basically an extended arm of the foreign company and can undertake export/import of goods, consultancy, research, coordination with local buyers and sellers and provide technical support for products sold in India, development of software and operations related to airline/shipping business. However, a Branch Office is not allowed to undertake manufacturing activities except research work in which the parent company is engaged. Prior approval of Reserve bank of India is required to set up a Branch office.

Forms of enterprises contd

Liaison Office The role of such offices is limited to collecting information about the possible market and providing information about the company and its products to prospective Indian customers.A liaison office is not allowed to undertake any business activity other than liaison activities in India, and therefore cannot earn any income in India. Project Office Foreign companies planning to execute specific projects in India can set up a project office for this purpose. Conditions laid down by RBI need to be fulfilled. The foreign entity only has to furnish a report to the RBI giving the particulars of the project/contract

Business Tax Regime of India (in 2007)

Direct Tax Corporate Tax Domestic Company 33.66% Foreign Company 41.82% Dividend Tax Company 16.995% (w.e.f. Apr 1, 2007) Money Market Mutual Fund 25% Minimum Alternate Tax Capital Gains Securities Transaction Tax Taxation of know how fees in the hands of Foreign Companies Royalties/Technical fees payable to nonresidents are taxed on net basis.

Business Tax Regime of India(contd)

Fringe Benefit Tax (FBT) - ESOPs brought under FBT (w.e.f. Apr 1, 2007) Banking Cash Transactions Tax 0.1% to apply for withdrawals over INR 50,000 Double Tax Avoidance Agreements (DTAAs) Other Direct Tax Wealth Tax Important concept Transfer pricing and determination of arms length price ( ALP )

Indirect Tax
Customs Duty CENVAT (Excise Duty) Sales Tax Value Added Tax Service Tax Octroi Duty/Entry Tax Stamp Duty R&D Cess Works Contract Tax

Environmental Clearances for Business

Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for setting up an industrial project. A Notification (SO 60(E) dated 27.1.94) issued under The Environment Protection Act 1986 has listed 29 projects in respect of which environmental clearance needs to be obtained from the Ministry of Environment, Government of India.

Environmental Clearances for Business

This list includes industries like petro-chemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper etc. However if investment is less than Rs. 500 million, such clearance is not necessary, unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries.

Environmental Clearances for Business Also, any item reserved for the small scale sector with investment of less than Rs 10 million (1 crore) is also exempt from obtaining environmental clearance from the Central Government under the Notification. Powers have been delegated to the State Governments for grant of environmental clearance for certain categories of thermal power plants.

Environmental Clearances for Business Setting up industries in certain locations considered ecologically fragile (eg Aravalli Range, coastal areas, Doon valley, Dahanu, etc.) are guided by separate guidelines issued by the Ministry of Environment of the Government of India.