8/8/2019 Indian Para-legal & Economic Analysis by Hemant K Batra

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Indian Para-legal & Economic Analysis by Hemant K

Batra

India, the worlds largest democracy, is the 7th largest country in the world and the 4th largesteconomy in terms of purchasing power parity. Indias richness and diversity of culture,geographic and climatic conditions, natural and mineral resources are matched only by fewother countries in the world. Indias enduring institutions, rooted in the principles of democracyand justice, ensure a transparent predictable and secure environment for domestic and foreignprivate investment.

The existence of an independent judiciary, strong legal and accounting system, a free andvibrant press, reservoir of highly skilled manpower, and the use of English as the principallanguage of business and administration are some of the attractive features of the Indianbusiness environment. A highly regulated business environment, a pervasive license systemand high tariff barriers characterized the Indian economy, until 1991.

Sweeping reforms, introduced in 1991 and continued by successive governments, haveradically changed the course of the Indian economy. Today, a new spirit of economic freedom isstirring India, bringing sweeping changes in its wake and unleashing the vast potential of theIndian economy. The Governments policies are now relatively simple, transparent and gearedtowards promoting domestic and foreign private investment. There exists a strong politicalconsensus on the economic liberalization policies at the central and state government levels.This augurs well for the continuation and progressive strengthening of investor friendly policiesthat have created a sea of opportunities for domestic and foreign investors particularly in theinfrastructure sector.

General Foreign Direct Investment (FDI) Policy Foreign direct investment is freely allowed inall 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 inthrough the automatic route under powers delegated to the Reserve Bank of India (RBI), and forthe remaining items/activities through Government Approval. Government approvals areaccorded on the recommendation of the Foreign Investment Promotion Board (FIPB).

With a view to injecting the desired level of technological dynamism in Indian industry and forpromoting an industrial environment where the acquisition of technological capability receivespriority, foreign technology induction is encouraged both through FDI and through foreigntechnology collaboration agreements. Foreign technology collaborations are permitted eitherthrough the automatic route under delegated powers exercised by the RBI, or by theGovernment. However, cases involving industrial licenses/small scale reserved items do notqualify for automatic approval and would require consideration and approval by the

Government. Automatic route for technology collaboration would also not be available to thosewho have, or had any previous technology transfer/trade-mark agreement in the same or alliedfield in India.

Today, only two industries are reserved for the public sector i.e., Atomic Energy and Railwaytransport. Even Arms and ammunition industry and allied items of defence equipment, defenceaircraft and warships have been opened up for private investment. Today, there are very fewindustries for which industrial licensing is compulsory and these include Distillation and brewingof alcoholic drinks, Cigars and cigarettes of tobacco and manufactured tobacco substitutes,

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Electronic Aerospace and defence equipment: all types, Industrial explosives includingdetonating fuses, safety fuses, gun powder, nitrocellulose and matches, Hazardous chemicals,Drugs and Pharmaceuticals. Today, use of foreign brand names/trade marks for sale of goodsin India is allowed. Today, Indian capital markets are open to foreign institutional investors.Today, Indian companies are permitted to raise funds from international capital markets. Today,India has entered into agreements for avoidance of double taxation with over 45 countries.

Today, India has signed several bilateral investment protection agreements. Today, specialinvestment and tax incentives are extended for exports and certain sectors such as power,telecommunications, electronics, software and food processing.

India since 1991 is undergoing revolutionary fiscal and economic reforms and is undoubtedlymoving away from the doctrine of State control, towards a free market economy. Permits,sanctions and controls are giving way to de-regulation, de- centralization, de-nationalization anddis-investment. The notorious restrictions of the past are being cleaned up by a popular willdriven with logical and legal mechanism. The reform packages having been introduced in thepast and as being introduced now appear to be moving away from restrictions on the movementof foreign exchange in and out of the country. The changing investment climate in the regionhas swept aside the centrally planned and regulated economies. The agenda of privatization in

India or for that matter in almost all the South Asian countries now covers a wide spectrum likeindustries, banks, development financial institutions, telecommunications, airlines, shipping androad construction and power generation. And, in each of these sectors, law is playing animportant role, because it is entering to the privatization of each of these units.

By Hemant Batra, Lead Partner, Kaden Boriss Legal LLP, India; Vice President, SAARCLAW;

Chairperson, IICLAM, Singapore; Advisory Board Member, OIC, USA