india - market and investment ppt

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India, and Investment Potential

in India

for

The Center For American and International Law

By :Gautam Mahajan

President - Inter-Link Services Pvt. Ltd.

June 13, 2006

Inter-Link Services Pvt. Ltd. Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: [email protected] /

[email protected] Website: www.interlinkindia.net



1. General Business Tips

2. India, and Investment Potential inIndia

3. Foreign Lawyers and Legal Servicesin India: Frequently Asked Questions

DISCUSSION POINTS



1. General Business Tips� General Business Tips

� American Companies in India

� Legal Opportunities

2. India, and Investment Potential in

India

3. Foreign Lawyers and Legal Services inIndia: Frequently Asked Questions

DISCUSSION POINTS



General Business Tips

� From the American Business Experiencein India: Lessons from successful American companies: ± Know the rules and the law and follow them

± Conduct rigid due diligence

± Do not get guided by ³quick methods´ or ³short-cuts´

± Avoid un-ethical practices

± Hire a good knowledgeable consultant onIndia



American Companies in India

Top 5 American employers in India 2 years ago:General Electric: : 17,800 employeesHewlett-Packard : 11,000 employeesIBM : 6,000 employeesAmerican Express : 4,000 employeesDell : 3,800 employees (today 10,000, growing to 20,000)

General Electric (GE) with $80 Million invested in India employs 16,000 staff,

1,600 R&D staff who are qualified with PhD¶s and Master¶s degrees.

The number of patents filed in USA by the Indian entities of some of the MNCs(upto September, 2002) are as follows: Texas Instruments - 225, Intel - 125,Cisco Systems - 120, IBM - 120, Phillips - 102, GE - 95.

Staff at the offices of Intel (India) has gone up from 10 to 1,000 in 4 years,

and will reach 2000 staff by 2006.

GE's R&D centre in Bangalore is the company's largest research outfit outsidethe United States. The centre also devotes 20% of its resources on 5 to 10 year fundamental research in areas such as nanotechnology, hydrogen energy,photonics, and advanced propulsion.

It is estimated that there are 150,000 IT professionals in Bangalore as against120,000 in Silicon Valley.



Legal Opportunities

� Help Indian companies wishing to enter USA, China etc.

� Help Indian companies and lawyers incollaborative projects with Americancompanies outside India

� Buy legal and paralegal services fromIndia at low rates.. Example is GE

� Send lawyers to India acceptable to theIndian bar rules or willing to pass theIndian bar exam



"There are lots of opportunities to use [foreign]

lawyers in place of outside counsel or other lawyers at a lower cost structure," saysSuzanne Hawkins, senior counsel at GeneralElectric Co. For two GE businesses -- GEPlastics and GE Consumer Finance -- savings

from those lower rates are adding up. GEbegan adding lawyers and paralegals to itsoffice in Gurgaon, India, in late 2001. It nowhas eight lawyers and nine paralegals there

and has saved more than $2 million in legalfees that would otherwise have been spent onoutside counsel, according to Hawkins.

Jennifer Fried

The Recorder August 25, 2004



1. General Business Tips2. India, and Investment Potential in

India

± Foreign Direct Investment in India ± An overview of Indian Economy

± Investing in India ± Entry Routes

± Foreign Direct Investment: Policy

± India¶s Competitive Advantage

± Investment Opportunities

3. Foreign Lawyers and Legal Services

in India: Frequently Asked Questions

DISCUSSION POINTS



Foreign Direct Investment in India

Largest democracy ² political stability

& consensus on

reforms

Liberal &transparent

investment

policiesLargest

reservoir of

skilled

manpower

Long-term

sustainable

Competitive

advantage

- High growth rate

economy

Fourth largestEconomy (PPP) - A

safe place

to do business



An overview of Indian Economy

� Economic Performance

� Foreign Trade

� Investment

� Mature Capital Markets

� A well developed banking system




Economic Performance

o Sustained economic growtho Average last 10 years 6.5%

o 2004-05 6.9%o Forecast up to 2006-07 >7.0%

o Forecast till 2050 ± Goldman Sachs 5 % p.a.

o Services share in GDP over 50% (52.4% share in

GDP in 2004-05)

o Manufacturing sector grew at 8.8% in 2004-05 (17.4%share in GDP in 2004-05)




Foreign Trade

o Merchandise exports grew by 25% in 2004-05, nowUS$80 billion

o Imports grew by 36%, now US$106 billion

Investmento Foreign Investment ± over US$14 billion in 2004-05

(FDI US$5.5 billion, FII US$8.9 billion)

Mature Capital Marketso NSE third largest, BSE fifth largest in terms of number

of trades



Goldman Sachs Report of 1 October,2003 ±

"Dreaming with BRICs: The path to 2050"

India's GDP will reach $ 1 trillion by 2011,$ 2 trillion by 2020,$ 3 trillion by 2025,$ 6 trillion by 2032,$ 10 trillion by 2038, and$ 27 trillion by 2050,becoming the 3rd largest economy after USA

and China.

In terms of GDP, India will overtake Italy by theyear 2016, France by 2019, UK by 2022,Germany by 2023, and Japan by 2032.



Economic Reforms - Fiscal

� Rationalization of tax structure ± both direct and indirect

� Progressive reduction in peak rateso Peak Customs duty reduced to 15%o Corporate Tax reduced to 30%o Customs duties to be aligned with ASEAN levels

� Value Added Tax introduced from 1st April 2005-

o only 6 states left

� Fiscal Responsibility & Budget Management Act, 2003o Revenue deficit to be brought to zero by 2008



Economic Reforms - Liberalisation of

Investment & Trade Policies

� Industrial Licensingo Progressive movement towards delicensing and deregulation

� Licensing limited to only 5 sectors (security, public health & safetyconsiderations)

� Foreign Investmento Progressive opening of economy to FDIo Portfolio investment regime liberalisedo Liberal policy on technology collaboration

� Trade Policyo

Most items on Open General License, Quantitative Restrictionslifted

� Foreign Trade Policy seeks to double India¶sshare in global merchandise trade in 5 years



Manufacturing Competitiveness

µMade in India¶

� Second most attractive destination for manufacturingo AT Kearney¶s FDI Confidence Index 2004

� Indian industry globally competitive in a wide range of manufacturing skill-intensive products:

o Apparels, electrical and electronics components; specialitychemicals; pharmaceuticals; etc.

� Automotive components: Major MNC¶s & their OEMssourcing high-quality components from India

o Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever, Cliariant,Cummins, Delphi

� Indian companies now having manufacturing presence inmany countries

o Over 55% of approved outward investment by India companies

in manufacturing activities



Evolution of FDI Policy

FDI Policy Liberalization

Pre 1991

1991

1997

2000

2000-05

Allowed selectively up to40%

Up to 74/51/50% in 112 sectors under the Automatic Route 100% in some sectors

Up to 100% under Automatic Route in all sectors except asmall negative list

More sectors opened ; Equity caps raised in many other sectorsProcedures simplified

FDI up to 51% allowed under the Automatic route in 35 Priority sectors



Investing in India ± Entry Routes

Automatic RoutePrior Permission

(FIPB )

Investing in India

G eneral Rule

No prior permission

requiredInform Reserve Bankwithin 30 days of inflow/issue of shares

By Exception

Prior Government

Approval needed.Decision generallywithin 4-6 weeks



FDI Policy Initiatives : 2000-2004

� New sectors opened to FDIo to 26% divestment in 5 years Defence production, Insurance,print media - up to 26%

o Development of integrated townships up to 100%o e-commerce, ISP with out gateway, voice mail, electronic mail,

tea plantation -100% subject

� FDI equity limits raisedo Private sector banks raised from 49% to 74%o Drugs and pharmaceuticals from 74% to 100%o Advertising from 74% to 100%o

Private sector refineries, Petroleum product marketing,exploration , petroleum product pipelines ± 74% to 100%

� Procedural simplificationo Issue of shares against royalty payable allowed



Recent Initiatives : June 2004 onward

� FDI in domestic airlines increased from 40% to 49%.

Automatic route allowed� FDI up to 100% allowed under the automatic route in

development of townships, housing, built upinfrastructure and construction development projects

� Foreign investment limit in Telecom services increased

to 74%� FDI and portfolio investment up to 20% allowed in FM

Broadcasting. Hitherto only Portfolio investment wasallowed.

� Transfer of shares allowed on automatic route in mostcases

� Fresh guidelines for investment with previous jointventures

� A WTO (TRIPs) IPR regime compliant in position since2005 ± Patents Act amended to provide for productpatent in pharma and agro-chemicals also.



Policy on FDI

� FDI up to 100% allowed under the µAutomaticRoute¶ in all activities except for

o Sectors attracting compulsory licensing

o Transfer of shares to non-residents (foreign investors)

o In Financial Services, or o Where the SEBI Takeovers Regulation is attracted

o Investor having existing venture in same field

o Sector specific equity/route limit prescribed under

sectoral policy� Investments made by foreign investors are given

treatment similar to domestic investors



Main Sectors with

FDI Equity/Route Limit

FDI equity limit-

Automatic route

� Insurance ± 26%

� Domestic airlines ± 49%

� Telecom services- Foreignequity 74%

� Private sector banks- 74%

� Mining of diamonds andprecious stones- 74%

� Exploration and mining of coaland lignite for captiveconsumption- 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%

� Courier services- 100%

Corrected as of December µ05



Foreign Technology

Collaboration Policy

� Foreign technology agreements also allowedunder Automatic route:

o Lump-sum fees not exceeding US$2 Milliono Royalty @ 5% on domestic sales and 8% on exports,

net of taxeso Royalty up to 2% on exports and 1% also permitted

for use of Trade Marks and Brand name, without anytechnology transfer

� Wholly owned subsidiaries can also pay royaltyto their parent company

� Payment of royalty without any restriction on theduration allowed.



India: FDI Outlook

� 2nd most attractive investment destination among

the Transnational Corporations (TNCs) -UNCTAD¶s World Investment Report, 2005

� 3rd most attractive investment destination ± ATKearney Business Confidence Index, 2004

o Up from 6th most attractive destination in 2003 and 15th in 2002

o 2nd Most attractive destination for manufacturing

� Among the top 3 investment µhot spots¶ for the

next 4 yearso UNCTAD & Corporate Location ± April 2004

� Most preferred destination for services - ATKearney¶s 2005 Global Services Location Index

(previously Offshore Location Attractiveness Index)



India¶s Competitive Strengths

HRD Contd.

Rank out of 102 countries

� Availability of scientist and engineers 3

� Quality of management schools 8

� Quality of scientific research institutions 20

� Quality of educational system 36



IT Advantages

� IT ±ITES Industryo Exports US$17.2 billion in 2004-

05, growth of 34% over previousyear

o 2008 exports target : US$60billion, to be 35% of India¶s totalexports

� High quality standardso 76 SEI/CMM level 5 companies,

two third of world¶s total, areIndian

o Over 250 of the Fortune 500companies are clients of Indianfirms

o R&D base of over 100 FORTUNE

500 companies

� Investment Opportunitieso Collaborative ICT researcho Joint Software development in a

variety of applications

IT- ITES Exports

In US $ illion

6.2

10

12.8

17.2

8

0

2

4

6

8

10

12

14

16

18

20

2000-01 2001-02 2002-03 2003-04 2004-05



Recent Infrastructure Initiatives

� National Highway Development Programme to develop

over 24,000 km of highwayso Golden Quadrilateralo NSEW Corridor o Links to ports and State capitals

� Modernisation of airportso Metro and other airports

� Development of ports with private sector � The Electricity Act, 2003 provides the framework for

development of power sector � µBharat Nirman¶ Programme to develop rural

infrastructure at an estimated cost of Rs. 1,74,000 crore(~US$40 billion)

� Jawhar Lal Nehru Urban Renewal Mission ±Rs. 100,000crore (US$22 billion)

� Country wide rural connectivity programme to link allunconnected village having population of 500 with fair

weather road undertaken



Telecommunications

� Among the fastest growing telecommarketso 550,000 km of optical fibre cable

laid

� 2 million Cellular phones added everymonth

o Among the lowest mobile tariff in

the world� Share of private sector 50%

� Tele-density of 10.66, expected to be20 in next three years

� New Broad Band Policy announced:o 690,000 connections since April

2005o Internet subscribers 6 million

(March 05)

� Investment Opportunitieso Setting up manufacturing facilities;o Supply of hand sets and

equipmentso Telecom & Value added service.

8

8 77 7

9

9

7

8

u to

ct

o

i n m i l l i o



Roads

� Policyo FDI up to 100% is permitted for construction and

maintenance of roads, highways, vehicular bridges,toll roads, vehicular tunnels

o Ten year tax holiday for road and highway projects

� Recent Initiativeso Existing road network of 3.3 million kilometerso 24,000 km of Highways being developed under

National Highway Development Programmeo billion envisaged Golden Quadrilateral : 5846 kms- 5000 kms

completedo NSEW Corridor: 7300 kms ± 784 kms completed, 3691 kms

under implementationo Investment US$20 billion

� Investment Opportunitieso Projects for 12,000 km would be on offer o Many more opportunities in the States



Power � Policy & Incentive

o FDI up to 100% is permitted on

the automatic route in allsegments except atomic power

o Ten-year tax holiday for generation and distribution or transmission and distribution of power

� Institutional Reformso The Electricity Act 2003 allows

trading in power and provides for further deregulation;

o Independent Regulator in moststates

� Investment Opportunitieso Additional capacity required

100,000 MW till 2012

o Investment US$120 billion needed

o Financial closure of over 6000MW capacity achieved in last oneyear

Share of Installed Capacity

Hydro+Wind22%

Thermal

76%

Nuclear

2%



Ports

� Policy & Incentiveso FDI up to 100% permitted for construction and

maintenance of ports and harbors.o Ten year tax holiday

� Public-private partnershipo 12 major ports, 185 minor portso 14 private/ captive projects with investment of US$

600 million completedo 24 projects with investment of US$1.6 billion under

implementation/award

� Investment requirement of US$22 billion todevelop maritime sector

o Ports & Shipping

o Inland waterways



Special Economic Zones

� Policyo Duty free zones, deemed foreign

territories

o FDI up to 100% permitted inalmost all manufacturing activities

o Transfer of goods from DTA toSEZ treated as exports,

o Units to be net foreign exchangeearner within 5 years. No exportcommitments

o No limits on DTA sales

o Can be set up in the public,private or joint sector

o Single Window Clearance

� Incentiveso For developer : Income tax exemption

for a block of 10 years in 15 years

o For units: 100% Income Taxexemption for first 5 years, 50% for next 5 years and 50% of the ploughedback export profits for next 5 years

o Exemption from indirect taxes; excise,sales, services tax, etc.

o Freedom to raise ECB with out anymaturity restrictions

New Law onSEZ enacted

Cont«««



Special Economic Zones

� 11 Special Economic Zones are functionalo SEEPZ Mumbai, Kandla, Cochin, Chennai,

Visakhapatnam, Falta, NOIDA, Surat, Salt Lake,Indore and Jaipur

o Over 800 functional units employing over 100,000persons

o Exports of US$4 billion in 2004-05� 42 new Special Economic Zones have been

approved and are under establishmento Many have participation with State Governments and

Private Sector

� Major Industries in Special Economic Zoneso Gems & Jewellery, Electronics & Hardware, Software,

Textile & Garment, Engineering Goods, SportsGoods, Leather Products, Chemicals & AlliedProducts



Public Private Partnership

� Infrastructure projects might not be financially viable on

their own;

� Public Private Partnership to bring in private sector resources and techno-managerial capabilities;

� µViability Gap Funding¶ for o Roads, railways, seaports, airports;o Power o Water supply, sewerage, solid waste disposal in urban areas;o International convention centres.

� Funding in the form of capital grant, Operation &Management support, interest subsidy, etc.

� Support linked with predefined milestones.



Food Processing

� Third largest producer of food items

o Largest milk producer o Largest livestock population;o 2nd largest in fruits & vegetables

� Opportunities in food processing sector o 50% of household income spent on food itemso With increasing income levels and urbanisation fast growth in demand

of processed food expected; over 250 million strong middle classo Low levels of value addition in food sector: only 7%

� New Integrated Food Law being enacted

� Investment of US$ 28 billion required to raise foodprocessing from 2% to 8-10%.

� Investment opportunities ino Processing of fruit & vegetable, meat, fish & poultry, milk products,

packaged food & drinks.o Establishing infrastructure, cold chain, etc.



Incentives for the Development of

Industrially Backward Areas

� A special package of incentives to promoteindustrialization of industrially backward regions

o North Eastern states, Skim, Jammu & Kashmir,Uttaranchal and Himachal Pradesh

� Incentiveso 100% Income Tax Exemptions for 10 years

o Excise Duty Exemptions for 10 years

o Transport Subsidy for transportation of raw materialand finished products,

o Investment Subsidy (50-90%)



Governance and Regulatory System

� Central, State and Local levels of Government withtheir specified powers and responsibilities seen ascomplicated in regulatory administration by investors

� 11.9% of Senior Management¶s time spent in dealingwith Government agencies(Source: World Bank¶s Report - India Investment Climate

Assessment, 2004)

� World Bank¶s Report µDoing Business in 2006¶o 71 days required to set up a Company and start business ±

Incorporation of Company and PAN/TAN allotment taking mosttime

o Paying taxes: 59 transactions taking 264 hours in a year o Closing a business: time taken 10 years



Governance - Initiatives

� Major e-governance initiatives undertaken at Central andState level

� National e-Governance Action Plano Projects being taken up in Mission mode at Central and State

level.o Integrated services projects for services across Departments.o MCA-21 - Ministry of Company Affairs, to cover all Registrar of

Companies by June 2006� e-Biz project being taken up by the Department of IPP

o To set up a web enabled portal to provide for the services at theCentral, State and Local level during the entire life cycle of business

o To begin with a pilot project covering 25 services in four states

o Project capable of rapid upscaling to cover other services andextend to other areas

� Right to Information Act for greater transparency inpublic administration



Investment Opportunities

� Development and management of infrastructure

� Food processing, including logistic and supportservices, development of cold chain

� Manufacturing ± relocation into India

� R&D ± leveraging on abundant skilledmanpower

� IT & ITES, Software as well as hardware



1. General Business Tips

2. India, and Investment Potential in

India

3. Foreign Lawyers and Legal Services inIndia:

o Frequently Asked Questions

o Judgment of Bombay High Court

DISCUSSION POINTS



Foreign Lawyers and Legal Services in

India: Frequently Asked Questions

1.C an I give advice on USA legal issues to Indiancompanies?No. (see below)

2 .C an I give advice to Indian companies in India on

Indian issues?No. Please refer to the attached extract of a Bombay High CourtJudgment attached

3.If I have an associate law firm in India, what can

my partners do or not do when they come toIndia?

They can only provide inputs to the Indian firm. They can beemployed by an Indian firm. They can (if qualified) enroll but thatis a difficult process requiring eligibility, qualifications and

reciprocity. Cont«««





4. C an I set up a rep. office in India? If yes, What am I allowed to do and not do?Yes, but not much at all. Liaison and no commercialbusiness (same judgment).

5 . Is my legal degree recognised in India?No. In most cases of US degrees. Some may berecognised (like Oxford degree) but you¶ll need to checkwith the Bar Council of Delhi which ones are covered (if any) from the U.S.

6 . What do I have to do be a solicitor in India?This is a complex question. Probably not allowed.

Cont«««





7 . What do I have to do if I wish to appear in

an Indian court?

Enroll as an advocate.

8 . H ow is the law on the above likely to

change and when?

Some change and a minor easing is likely in this year or

over the next years but it is likely to be cosmetic.



Extract of a Bombay High Court

Judgment

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORIGINAL SIDE

WRIT PETITION NO. 1526 OF 1995

Lawyers Collective «Petitioner

Versus

Bar Council of India & Ors.

OCTOBER 4 & 9, 1995

"In our view, considering the aforesaid quotations from the New York Judiciary

Law and Halsbury¶s Laws of England, it is apparent that the phrase ³topracticethe profession of law´ would be wide enough which would includenot only appearance before the Court but also to carry on such activitieswhich are specifically provided in the aforesaid paragraphs which providefor restrictions on unqualified persons against drawing or preparing anyinstrument, agreement, power of attorney or such other things. If that wasnot so, there was no necessity of restricting it by specific regulations."

Cont«««




JudgmentThe Court quoted with approval:

" As there is no direct decision on the question involved, the learned Counselappearing for the Petitioner has brought to our notice a decision rendered by theCourt of Appeals of New York. In the Matter of New York County Lawyers Association v. Lorenzo J. Roel, (165 N. Y. S. 2d 31, page 14,) wherein the Courthas interpreted Section 270 of the Penal Law which, inter alia, provides asunder:-

³It shall be unlawful for any natural person to practice « as an attorney-at-law « or to hold himself out to the public as being entitled to practice law as aforesaid, or in any other manner, « or advertise the title of lawyer « in such manner « or advertise the title of lawyer « in such manner as to convey the impression thathe « conducts or maintains a law office « without having first been duly and

regularly licensed and admitted to practice law in the courts of record of thisstate, and without having taken the constitutional oath.´

Cont«««




Judgment

In that case it was contended by the appellant that his practice is restricted toMexican law and he does not practice law in New York since he onlygives advice and prepares instruments based on Mexican law andMexican law is not ³law´ in New York. Therefore he is not covered bySection 270 of the Penal Law. The Court negatived the said contentionby holding that whether a person gives advice as to New York law.Federal law, the law of a sister State, or the law of a foreign country, he isgiving legal advice. It was further held that when legal documents areprepared for a layman by a person in the business of preparing suchdocuments, that person is practicing law whether the documents beprepared in conformity with the law of New York or any other law. TheCourt further observed that to hold otherwise would be to state that amember of the New York Bar only practices law when he deals with locallaw. It was further observed: ³A foreign lawyer who is familiar with the law

of the country in which he is a lawyer is in a similar position. He is aspecialist in a particular field of the law, but is nevertheless a layman inthis state when he is not a member of the Bar here´. The Court held thatprotection of the members of the lay public of State, when they seek legaladvice ± and that was what defendant purported to furnish ± was thebasis of the requirements of licensing of attorneys by the State.

Cont«««




Judgment

From the aforesaid discussion, the submissions made before this Court andthe affidavit in reply filed on behalf of Respondent Nos. 12, 13 and 14, primafacie, it appears that the activities mentioned above carried on byRespondent Nos. 12 to 14 would amount to practising the profession of law. As stated above, Respondent Nos. 12 to 14 have established liaison officesin this country; they are carrying on work of drafting documents, reviewingand providing comments on documents, conducting negotiations and

advising clients on international standards and customary practice relatingto clients transactions; gathering information from prospective clients inIndia and conducting market research to assess the feasibility of providinglegal services in India.If, therefore, the said activities are held to be not covered by the phrase ³topractice the profession of law´, then the whole objects of the Advocates Actwould be frustrated, in the sense that there would not be any disciplinary

control nor these activities can be controlled by any method.

" [End of quote]



W e gratefully acknowledge the help given by the

Department of Industrial Policy and Promotion - Ministry of

Commerce, G overnment of India, New Delhi



T H ANK YOU

For further Information, Contact:Gautam Mahajan

President - Inter-Link Services Pvt. Ltd.

K-185 Sarai JullenaNew Delhi, India 110025

Tel: +91-11-26922006, 26831226; Fax: +91-11-26929055;E-mail: [email protected] / [email protected]: www.interlinkindia.net

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