Dr. R. N.

Pandey

Director
Department of Industrial Policy and
Promotion
Ministry of Commerce and Industry

1
INDIAN Reforms-The Philosophy

Plug into the

Global Economy

FDI recognised as a Growth

Driver

Large scale economic reforms

2
 Attracting long-term
foreign capital to
supplement domestic
investment efforts,
particularly in infrastructure
and export competitive sectors
FDI
Developing attractive
Configurations of
locational advantages
at global level
Creating skilled employment
Opportunities and Import
of world Class managerial
practices
Promoting technology
and other linkages to
enhance domestic industry
competitiveness
3
 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

4
Source: UNCTAD WIR01
 % Share of Selected Countries in Total FDI Inflow in
Developing Countries
1995 1998 1999 2000
Brazil 4.9 15.1 14.1 13.9
China 31.6 23.2 18.2 17.0

India 1.0 1.4 1.0 1.0

Malaysia 5.1 1.4 1.6 2.3
South Korea 1.6 2.9 4.8 4.2
Singapore 7.8 3.3 3.2 2.7

Thailand 1.8 2.7 1.6 1.0

Total Dev. 113.3 188.4 222.0 240.2
Countries
(US$ Bn)
5
 Ratio of FDI Inflow (%) to Gross Domestic Product
1995 1998 1999 2000
Brazil 0.8 3.6 5.9 5.7
China 5.1 4.6 4.1 3.8
India 0.6 0.6 0.5 0.5
Malaysia 6.8 3.8 4.4 3.9
South Korea 0.4 1.7 2.6 2.2
Singapore 10.5 7.6 8.6 7.0
Thailand 1.2 4.6 3.0 2.0

6
Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)
Sector FDI Target (US$ Bn)
Telecom 2.5
Power 1.2
Financial Services 0.8
LNG & Oil Exploration 1.0
Food & beverage 0.4
Transportation 0.4
Textiles 0.3
Ports 0.3
Chemicals & Petrochemicals 0.2
Hotels & Tourism 0.2
Real Estate 0.2
Roads 0.2
Civil Aviation 0.2
Dis-investment 0.5
Total 8.9 7
 AN IDEAL INVESTMENT DESTINATION
 World’s 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
8
 Key Economic Indicators: GDP Growth
Rate (1993-94 as base year)

9%
7.6% 7.8%
8%
7%
6.8% 6.40%
Growth Rate (%)

6% 5.1%
5% 5.40%
4.0%
4%
3%
2%
1%
0%

9
 Key Economic Indicators: External sector
Foreign Exchange Reserves (US$ billion)

80 56
48.8 48.33
70 46.64 49
42.5 43.6 63.93

Exchange Rate (Rs/US$)

60 37.2 42
35.5 54.15
50
33.5 35
42.26
40
38 28
30
30 26 21
22
20 17 14

10 7

0 0
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03(as
on 11-10-02) 10
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.
11
 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.
12
 Some Independent Studies

• JBIC Survey 2002 ranks India as

the 5th most promising investment
destination
• EIU’s ‘World Investment
Prospects 2002’ projects steep
growth in FDI inflows to India

13
 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
14
 INVESTMENT OPPORTUNITIES

INFRASTRUCTURE
INVESTMENT REQUIREMENT: US $ 347 Bn
Sector Present Capacity Investment By
Capacity Addition By 2006
2006 (US $ Bn)
Power 1.1 7Lakh MW 1,11,500 MW 178

Telecom 37 M Lines 52 M Lines 55

Ports 344 MT 350 MT 7

Roads
a. National Highways 58, 112 Kms 23,000 Kms 27

b. State Highways 1,37,119 Kms 60,000 Kms

c. Super N. H. 4,000 Kms

Urban Infrastructure 80
Service
15
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

16
 Industrial Parks
• Concept
Industrial Parks - Self contained island with developed
plots/pre-built factories, power, telecom, water and other high-
quality infrastructural facilities for industrial, residential, and
commercial areas
• Incentives
100% tax exemption under section 80IA subsection 4(iii) of the IT
Act, available to any undertaking engaged in developing, developing
and operating or operating and maintaining an Industrial Park for
ten consecutive years out of the fifteen years for the Industrial Park
developed between 1.4.97 and 31.03.2006 and approved by
Department of Industrial Policy and Promotion under the Industrial
Park Scheme, 2002 notified vide S.O. No. 354(E) dated 01.04.2002

17
Approval and Investment in Industrial Parks under
Industrial Park Scheme, 2002 (Till 18.10.2002)
Total No. of Industrial Parks Approved – 38
State No. of State No. of
Industrial Industrial
Parks Parks
UP 5 Punjab 1

Gujarat 4 Tamil Nadu 2

West Bengal 3 Maharashtra 4

J&K 1 Andhra Pradesh 2

Pondicherry 3 Karnataka 11

Kerala 2

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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

19
Modes of Establishing Operations in India
Project Office

WoS Joint Venture

Branch Office
20
 FDI Approval Procedure

Automatic Route in most Government Route for few

Sector sectors

RBI FIPB

No permission required, only Approval is

to notify RBI within 30 days of granted generally
issue of shares to foreign in 30 days
investors 21
Foreign Investment Policy

Automatic route available in all

sectors except
 Licensable items
 Multiple ventures of an investor in
same/allied category
 Acquisition of existing shares
 Beyond notified policy

22
Foreign Investment Policy (contd.)
NO CAP ON FOREIGN EQUITY
except for the following sectors:
atomic minerals, banking,
broadcasting, coal & lignite,
telecom services (basic, cellular,
GMPCS and certain value added),
passenger airlines, defence
industry, insurance, petroleum
other than private refineries, and
mining of diamonds and precious
stones.
23
 Foreign Investment Policy (contd.)
NBFC’s FDI up to 100 % permitted on
automatic route

FDI up to 49 % permitted
Banking
FDI up to 26% permitted on the
Insurance automatic route subject to licensing

Broadcasting FDI up to 49% permitted in uplinking

hub and up to 20% in DTH

MRTS FDI up to 100% permitted, including

associated real estate development
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 Foreign Investment Policy (contd.)
FDI up to 100 % permitted on automatic
route for non-licensable and non-
Drugs & recombinant DNA technology category
Pharma
Hotels & FDI up to 100% permitted on automatic
Tourism route
Defence FDI up to 26% permitted subject to
Industry licensing
Telecom FDI up to 74% in ISPs with gateways
Services and limit raised from 49% to 74% in
radio paging and end-to-end bandwidth

Townships FDI up to 100% permitted in integrated

townships and settlements 25
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 26
 Important Features of Department’s 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)
27
 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

4.7 4.8
5.00 4.6
4.0
US $ billion

4.00
3.4
3.0
3.00
2.2
2.00
1.0
1.00 0.6
0.3
0.1
0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-01 2001-02 28
29
Others
37%
Japan
5%
USA
25%
Korea (South)
4% U.K. Mauritius
Germany 15%
10%
4%
Countrywise FDI approvals (1991- August 2002)
30
Others
44%
USA
12%
Japan
5%
UK Mauritius
4% 28%
Netherlands
Germany 3%
4%
Countrywise FDI inflows (1991- August 2002)
 Sectoral Distribution of FDI Inflows
(1991-August 2002)
Fuels
10% Electrical
Equipment
13%
Telecom
13%

Chemicals (Other Others

than Fert.) 34%
7%
Services Sector
8%

Food Processing Transportation

Industries Industry
4% 31
11%
Sectoral Distribution of Technology Transfer
(1991- August 2002)

Transportation
Industry
Others 8%
48%
Chemicals
(Other than
fertilizer)
11%

Metallurgical
Industry
5%
Electrical
Equipment
Industrial
16%
Machinery
12% 32
 Major MNCs in INDIA
Automobile Chemicals & Pharma Auto Components Telecom
Fiat Auto AKZO NOBEL Denso Corporation AT&T
Daewoo CIBA India Graziano Swiss Telecom
Daimler Benz Sinco Engg. Robert Bosch Deutsche Telekom AG
Ford Bayer Carraro Motorola
General Motors EMS Inventa AG SIAP S.P.A STET International
Honda Mining Toyota Telesystem International
Hyundai Ashton Power Telstra Corp
Suzuki American Exploration Power Gen SIET International
Toyota Rio Tinto Siemens Consumer Goods
Volvo Oil & Gas ST Power System Fosters
Hardy Oil & Gas Miscellaneous AB Electrolux
Trading
Metro Cash & International Petroleum Asea Brown Boveri Kellogg
Carry GMBH SHV Energy Buhler* Nestle SA
FIDIA Unocal Schindler Perfetti
Mitsubishi Van Ommeren Italcementi Coca Cola
SHV Macro Cerestar Holding Pepsi
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