latest trends of fdi in infrastructure

7/28/2019 Latest Trends of FDI in Infrastructure

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INDIAN ECONOMIC ENVIRONMENT

LATEST TRENDS OF FDI

IN INFRASTRUCTURE:

HAVE WE ACHIEVED

REMARKABLY?

Prepared by:

GROUP NO: 20

DIV: II, T.Y BBA

Darshan kataria (65)

Shweta lalwani (72)

Riti nagarsheth (86)

Rima Prajapati (120)


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ACKNOWLEDGEMENT

Any accomplishment requires efforts of many people. I would like to thank all thepersons who helped me in my preparation and made this project possible.

We would like to express our gratitude to all our teaching faculty of INDIAN

ECONOMIC ENVIRONMENT, who helped us by giving proper guidelines

regarding the project. We would also like to thank MSU BBA for providing us this

opportunity.


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INDEX

TOPIC PAGE NO.

Foreign direct investment 4

Types of FDI and FDI in India 5

Benefits of FDI 6

Infrastructure sector in India 9

Power sector 10

FDI inflows in power sector 11

Analysis of power sector 13Telecommunication sector 15

Role in Indias development 16

FDI policy in telecommunication 21

Inflow of FDI in telecommunication sector 24

Civil aviation sector 29

Civil aviation at a glance 30

FDI in civil aviation 31

India investment overview 33

Bibliography 36


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FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) or foreign investment refers to the net inflowsof investment to acquire a lasting management interest (10 percent or more of

voting stock) in an enterprise operating in an economy other than that of the

investor. It is the sum of equity capital, reinvestment of earnings, other long-term

capital, and short-term capital as shown in thebalance of payments. Usually

involves participation in management,joint-venture, transfer of

technology and expertise.

There are two types of FDI: inward foreign direct investment and outward foreign

direct investment, resulting in a netFDI inflow (positive or negative) and "stock offoreign direct investment", which is the cumulative number for a given period.

Direct investment excludes investment through purchase of shares.

FDI is one example ofinternational factor movements.
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FDI is a measure offoreign ownership of productive assets, such as factories,

mines and land. Increasing foreign investment can be used as one measure of

growing economic globalization. The figure below shows net inflows of foreign

direct investment in the United States. The largest flows of foreign investment

occur between the industrialized countries (North America, WesternEurope and Japan). But flows to non-industrialized countries are increasing sharply

Types of Foreign Direct Investment

an individual;

a group of related individuals;

an incorporated orunincorporated entity;

apublic company orprivate company;

a group of related enterprises;

a government body;

an estate (law), trust or other social institution; or

any combination of the above.

Foreign Direct investment in INDIA
http://en.wikipedia.org/wiki/Foreign_ownershiphttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Unincorporated_entityhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Private_companyhttp://en.wikipedia.org/wiki/Estate_(law)http://en.wikipedia.org/wiki/Trust_(law)http://en.wikipedia.org/wiki/Foreign_ownershiphttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Unincorporated_entityhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Private_companyhttp://en.wikipedia.org/wiki/Estate_(law)http://en.wikipedia.org/wiki/Trust_(law)


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Starting from abaseline of less than USD 1 billion in 1990, a recent UNCTAD

survey projected India as the second most important FDI destination (after China)

for transnational corporations during 2010-2012. As per the data, the sectors which

attracted higher inflows were services, telecommunication, construction activities

and computer software and hardware. Mauritius, Singapore, the US and the UKwere among the leading sources of FDI. FDI for 2009-10 at USD 25.88 billion was

lower by five per cent from USD 27.33 billion in the previous fiscal. Foreign direct

investment in August dipped by about 60 per cent to aprox. USD 34 billion, the

lowest in 2010 fiscal, industry department data released showed. In the first two

months of 2010-11 fiscal, FDI inflow into India was at an all-time high of $ 7.78

billions up 77% from $ 4.4 billions during the corresponding period in the previous

year.

Benefits of Foreign Direct Investment

One of the advantages of foreign direct investmentis that it helps in the economic

development of the particular country where the investment is being made.

This is especially applicable for developing economies. During the 1990s,

foreign direct investment was one of the major external sources of financing for

most countries that were growing economically. It has also been noted that foreign

direct investment has helped several countries when they faced economic hardship.

An example of this can be seen in some countries in the East Asian region.

It was observed during the 1997 Asian financial crisis that the amount of foreigndirect investment made in these countries was held steady while other forms of
http://en.wikipedia.org/wiki/Baselinehttp://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://en.wikipedia.org/wiki/Baselinehttp://www.economywatch.com/foreign-direct-investment/benefits.html


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cash inflows suffered major setbacks. Similar observations have also been made inLatin America in the 1980s and in Mexico in 1994-95.

For host countries, inward FDI has the potential for job creation and employment,which is often followed by higher wages.

Resource transfer, in terms of capital and technical knowledge, is also a keymotivator that encourages inward FDI.

In recent years, FDI has been used more as a marketentry strategy for investors,rather than an investment strategy. Despite the decline in trade barriers, FDIgrowth has increased at a higher rate than the level of world trade as businessesattempt to circumvent protectionist measures through direct investments. Withglobalization, the horizons and limits have been extended and companies now see

theworld economy as their market.Additionally for investors, FDI provides the benefits of reduced cost through therealization of scale economies, and coordination advantages, especially forintegrated supply chains. The preference for a direct investment approach ratherthan licensing and franchising can also been viewed in terms of strategic control,where management rights allows for technological know-how and intellectual

property to be kept in-house.

In the global economy today, we see many developing countries competing forforeign direct investment. FDI is said to be an important factor for spurring thedevelopment of a nation.

Lets take a look at some advantages of foreign direct investment to a host country:

Integration into global economy A developing country, which invites FDI,can gain a greater foothold in the world economy by getting access to a

wider global market. Technology advancement FDI can introduce world-level technology and

technical know-how and processes to developing countries. Foreignexpertise can be an important factor in upgrading the existing technical

processes in a host country. For example, the civilian nuclear deal betweenIndia and the United States would lead to transfer of nuclear energy know-
http://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://www.economywatch.com/foreign-direct-investment/benefits.htmlhttp://www.economywatch.com/foreign-direct-investment/benefits.html


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how between the two countries and allow India to upgrade its civiliannuclear facilities.

Increased competition - As FDI brings in advances in technology andprocesses, it increases the competition in the domestic economy of the

developing country, which has attracted the FDI. Other companies will alsohave to improve their processes and products in order to stay competitive inthe market. Overall, FDI improves the quality of a products and processes ina particular sector.

Improved human resources Employees of a host country in which there isan FDI get exposure to globally valued skills. The training and skillsupgradation can enhance the value of the human resources of the hostcountry.

The advantages of foreign direct investment to the investor includes access to a

larger market in the host country, ability to tap the potential of a cheap and skilled

labour, making use of resources in the host country and pursuing growth goals by

diversification and optimising costs.

How important is FDI for developing countries?

During the past 15 years, the importance of FDI in the world economy has

increased rapidly. The total stock of FDI increased from 8% of world GDP in 1990

to 26% in 2006. Although the bulk of FDI continues to take place between OECD

countries, the increase in FDI has been particularly pronounced in developing

countries, largely reflecting the integration of large emerging economies, the so-called BRICs (Brazil, Russia, India and China), into the world economy.


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The increase of FDI into developing countries has been spectacular. The share of

non-OECD countries in the global stock of inward FDI has risen from 22% in

1990 to 32% in 2005 (see Figure 1). China is by far the most important nonOECD

country as a recipient of FDI, accounting for about one third of FDI in non-OECD

countries in 2005.

However, FDI inflows also tend to be sizable in many other emerging countries.

Indeed, since the mid-1990s, inward FDI has become the main source of external

finance for developing countries and is more than twice as large as official

development aid. Developing countries have also become increasingly active as

foreign direct investors themselves.

The share of non-OECD countries in the global stock of outward FDI has risen

from 10% in 1990 to 17% in 2005. The rise in outward FDI in emerging

economies reflects predominantly the increase in FDI between non-OECD

countries (South-South FDI). Outward FDI by emerging economies into the

OECD remains relatively small, despite recurrent claims in the popular media that

developing countries are acquiring strategic assets in OECD countries.

THE INFRASTRUCTURE SECTOR IN INDIA

Over the past four years, the Indian Economy consistently recorded growth

rates in excess of 8.5% per annum resulting in rapidly increasing infrastructure

spending.

Total infrastructure spending is expected to increase from


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US$ 24 billion in 2005 to US$ 47 billion in 2009.

(FICCI) Total investment requirement in the infrastructure sector over the next

five

years is US$ 445 billion

It is estimated that the Infrastructure Sector needs to grow at a CAGR of 15%

over the next five years to support the growing requirements of virtually

every other sector of the Indian Economy.

With the objective of stimulating and mobilizing increased private sector

Investments, either from domestic sources or foreign avenues, the government

has offered various incentives

POWER SECTOR

The huge size of the market in the power sector in India and high returns oninvestment are important factors in boosting FDI inflows to power. 100% FDI is

permitted to this sector under automatic route in almost all the power sectors inIndia except the Atomic energy. There are huge opportunities of FDI in power

sector in India.

The power sector in India has grown significantly and is an important part ofinfrastructure. Investment potential in the power sector of India is huge due to themarket size and returns on investment capital. Past few years have witnessed anoutstanding growth in the power sector especially the sectors based on renewablesources of energy. The total installed capacity of the electric power generation


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stations in India according to estimates of January 2007 is 128182.47 MW whichcomprise of the following:

THERMAL = 84149.84 MW

HYDRO = 33941.77 MW

NUCLEAR = 3900 MW

RENEWABLE ENERGY SOURCES (RES) = 6190.86 MW

The government of India aims at reaching 2, 00,000 MW by the year 2012. Theregional transmission network along with inter-regional capacity to transmit powerwill be expanded to ensure this growth. The total power generation in India hasincreased from 264.3 Billion Units (BUs) during 1990-91 to 551.7 Billion Unitsduring 2006-07(up to Jan.'07). The investments required in the execution of thistask will be generated from public-private partnerships in the sector.

Opportunities of Foreign Direct Investment (FDI) in the Power Sector in Indiaexist in

Hydro Projects

Captive Power

Ultra Mega Power Projects

Nuclear Power National Grid Program

Rural Electrification

Trading

Renewables


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FDI INFLOWS TO POWER:

100% FDI is allowed in the power sector under the automatic route in India with

the exception of Atomic Energy. Important aspects of FDI in the power sector ofIndia are

100 percent Foreign Direct Investment is allowed under automatic route inalmost all the power sectors in India except the Atomic Energy

Power projects involving generation and distribution tasks are allowed in alltypes and sizes

As per the Electricity Act 2003, trading in power is activated

A duration of 30 years will given as a renewable license period

Thermal power plants will get a return of 16 percent on equity and will get 68.5percent PLF

The import of equipments will be entitled to 20 percent of import duty

Power generating projects will have a five year tax holiday with five more yearswhich will have a deduction of 30 percent taxable profits.

FDI IN POWER SECTOR:

Cumulative FDI inflows during January 2000-2009 (up to December 2009) are Rs.472,231.23 crores (US$ 105.99 billion). Out of this, the amount of FDI inflows inthe Power Sector during January 2000 to December 2009 is Rs. 20,283.86 crores(US$ 4.50 billion) which is 4.24% of the total FDI inflows.

During the period from January 2000 to December 2009, cumulative FDI inflows

received from FIPB/SIA, acquisition of existing shares & RBIs automatic routes


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only. However, this amount does not include FDI inflows received through

acquisition route prior to January 2000.

Further, the FDI inflows data on Country specific in respect of Power Sector isavailable only for the period January 2000 to December 2009. The amount of FDI

inflows project specific in respect of all Countries & Sector are not centrally

maintained prior to January 2000.

SHARE OF TOP FIVE COUNTRY ATTRACTING FDI INFLOWS FOR POWER SECTOR(from January 2000 to December 2009):

Ranks Country Amount of FDI inflows %agewith totalFDIinflows inPowerSector

Rupees incrore

US $ inmillion

1. Mauritius 11,472.15 2,465.28 54.89


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2. Singapore 1,525.95 362.04 8.06

3. U.A.E. 1,283.99 265.42 5.91

4. U.S.A. 860.60 184.18 4.10

5. U.K. 512.51 106.11 2.36

Total of above 15,655.20 3,383.03 75.32

SHARE OF TOP FIVE RBIS REGION-WISE (WITH STATE COVERED) IN FDI INFLOWSFOR POWER SECTOR (from January 2000 to December 2009):

Ranks RBIs RegionalOffice

States Covered Amount of FDI inflows %age with FDIinflows for PowerSector

Rupees incrore

US $ inmillion

1. Mumbai Maharashtra,Dadra & Nagar

Haveli, Daman& Diu

5,058.61 1,097.81 24.44

2. New Delhi Delhi, Part OfUP andHaryana

3,638.53 770.74 17.16

3. Ahmedabad Gujarat 3,098.46 681.61 15.18

4. Hyderabad AndhraPradesh

2,084.04 457.78 10.19

5. Chennai Tamil Nadu,Pondicherry

1,215.74 256.30 5.71

Total Of Above 15,095.38 3,264.24 72.68

DETAILS OF TOP 10 FDI INFLOWS RECEIVED IN POWER SECTOR(Through Indian companies, from January 2000 to December 2009):

S. No Name Of Indian

Company

Country Name Of

ForeignCollaborator

Rbi Regional

Office

Item Of

Manufacture

Amount Of FDI Inflows

(In RsCrore)

(In US$Million)

1 Dabhol Power Company Ltd

Mauritius Mumbai 2,160.35 450.07

2 Reliance Utilities Ltd CountryDetails

Awaited

Royal BankOfScotlandPlc

Region NotIndicated

Generation AndSupply Of Power

1,320.00 327.09


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3 Essar Wind Power P.Ltd

Mauritius EssarPowerHoldingsLtd.

Mumbai ElectricityGeneration,Transmission &Distribution

1,299.03 266.01

4 Adani Power Ltd. U.A.E. VariousNirs

Ahmedabad Generation &Transmission OfElectric Energy

1,181.80 243.98

5 Sophia Power Company Ltd. Mauritius Fim Ltd. New Delhi Generation &Transmission OfElectric EnergyProduced InGas BasedThermal PowerPlants

987.55 203.71

6 Adani Power Ltd Mauritius 31 PowerInvestments A1 Ltd

Ahmedabad Generation AndTransmission OfElectric EnergyProduced InHydro-ElectricPower Plants.

750.00 188.76

7 Reliance Utilities Ltd. Singapore Bio MetrixMarketingP. Ltd.

Mumbai Generation AndTransmission OfElectricity

700.00 177.49

8 Reliance Utlities Ltd CountryDetails

Awaited

Royal BankOfScotland

Region NotIndicated

Generation AndSupply Of Power.

600.00 149.92

9 Sophia Power Company Ltd.

Mauritius Lnm IndiaInternetVentures

New Delhi Generation &Transmission OfElectric EnergyProduced InGas BasedThermal PowerPlants

592.53 122.23

10 Ptc India Ltd. U.S.A. As PerAnnexure

New Delhi ElectricityGeneration,Transmission &Distribution

499.99 103.22

TELECOMMUNICATION SECTOR

INTRODUCTION

The telecom services have been recognized the world-over as an important tool forsocio-economic development for a nation. It is one of the prime support servicesneeded for rapid growth and modernization of various sectors of the economy.Indian telecommunication sector has undergone a major process of transformationthrough significant policy reforms, particularly beginning with the announcementof NTP 1994 and was subsequently re-emphasized and carried forward under NTP1999. Driven by various policy initiatives, the Indian telecom sector witnessed a


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complete transformation in the last decade. It has achieved a phenomenal growthduring the last few years and is poised to take a big leap in the future also.

STATUS OF TELECOM SECTOR

The Indian Telecommunications network with 621 million connections (as onMarch 2010) is the third largest in the world. The sector is growing at a speed of45% during the recent years. This rapid growth is possible due to various proactiveand positive decisions of the Government and contribution of both by the publicand the private sectors. The rapid strides in the telecom sector have beenfacilitated by liberal policies of the Government that provides easy market access

for telecom equipment and a fair regulatory framework for offering telecomservices to the Indian consumers at affordable prices. Presently, all the telecomservices have been opened for private participation.

ROLE IN INDIAS DEVELOPMENT

Contribution to GDP


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According to the UNCTAD, there is a direct correlation between the growth inmobile teledensity and the growth in GDP per capita in developing countries,which tend to have a high percentage of rural population. The share of the telecomservices industry in the total GDP has been rising over the past few years (thetelecom sector contribution in GDP went up from 2.52% in FY05 to 2.83% inFY07).

LIBERALIZATION

The process of liberalization in the country began in the right earnest with theannouncement of the New Economic Policy in July 1991. Telecom equipment


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manufacturing was de-licensed in 1991 and value added services were declaredopen to the private sector in 1992, following which radio paging, cellular mobileand other value added services were opened gradually to the private sector. Thishas resulted in large number of manufacturing units been set up in the country. Asa result most of the equipment used in telecom area is being manufactured withinthe country. A major breakthrough was the clear enunciation of the governmentsintention of liberalizing the telecom sector in the National Telecom Policyresolution of 13th May 1994.

NATIONAL TELECOM POLICY 1994

In 1994, the Government announced the National Telecom Policy which definedcertain important objectives, including availability of telephone on demand,

provision of world class services at reasonable prices, improving Indiascompetitiveness in global market and promoting exports, attractive FDI andstimulating domestic investment, ensuring Indias emergence as majormanufacturing / export base of telecom equipment and universal availability of

basic telecom services to all villages. It also announced a series of specific targetsto be achieved by 1997.

TELECOM REGULATORY AUTHORITY OF INDIA (TRAI)

The entry of private service providers brought with it the inevitable need forindependent regulation. The Telecom Regulatory Authority of India (TRAI) was,thus, established with effect from 20th February 1997 by an Act of Parliament,

called the Telecom Regulatory Authority of India Act, 1997, to regulate telecomservices, including fixation/revision of tariffs for telecom services which wereearlier vested in the Central Government.

TRAIs mission is to create and nurture conditions for growth oftelecommunications in the country in manner and at a pace, which will enableIndia to play a leading role in emerging global information society.One of the


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main objectives of TRAI is to provide a fair and transparent policy environment,which promotes a level playing field and facilitates fair competition. In pursuanceof above objective TRAI has issued from time to time a large number ofregulations, orders and directives to deal with issues coming before it and providedthe required direction to the evolution of Indian telecom market from aGovernment owned monopoly to a multi operator multi service open competitivemarket. The directions, orders and regulations issued cover a wide range ofsubjects including tariff, interconnection and quality of service as well asgovernance of the Authority.

The TRAI Act was amended by an ordinance, effective from 24 January 2000,establishing a Telecommunications Dispute Settlement and Appellate Tribunal(TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSATwas set up to adjudicate any dispute between a licensor and a licensee, betweentwo or more service providers, between a service provider and a group ofconsumers, and to hear and dispose of appeals against any direction, decision ororder of TRAI.

NEW TELECOM POLICY 1999

The most important milestone and instrument of telecom reforms in India istheNew Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99)was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of

all the segments of the telecom sector for private sector participation. It clearlyrecognized the need for strengthening the regulatory regime as well asrestructuring the departmental telecom services to that of a public sectorcorporation so as to separate the licensing and policy functions of the Governmentfrom that of being an operator. It also recognized the need for resolving the

prevailing problems faced by the operators so as to restore their confidence andimprove the investment climate.

Key features of the NTP 99 include:

Strengthening of Regulator. National long distance services opened to private operators.

International Long Distance Services opened to private sectors.

Private telecom operators licensed on a revenue sharing basis, plus a one-

time entry fee. Resolution of problems of existing operators envisaged.


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Direct interconnectivity and sharing of network with other telecom

operators within the service area was permitted.

Department of Telecommunication Services (DTS) corporatized in 2000.

Spectrum Management made transparent and more efficient.

All the commitments made under NTP 99 have been fulfilled; each one of them, inletter and spirit, some even ahead of schedule, and the reform process is nowcomplete with all the sectors in telecommunications opened for privatecompetition.

INDIAN TELECOMMUNICATIONS AT A GLANCE

(As on 31st March 2010)

Rank in world in network size 3rd

Tele-density (per hundred populations) 52.74

Telephone connection (In millions)

Fixed 36.95

Mobile 548.32

Total 621.28

Village Public Telephones inhabited (Out of

5,93,601 uncovered villages)

5,69,385

Foreign Direct Investment (in millions) (fromApril 2000 till March 2010)

4070

Licenses issued

Basic 2

CMTS 38

UAS 241


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Infrastructure Provider I 219

ISP (Internet) 371

National Long distance 29

International Long Distance 24

FDI POLICY

1. In Basic, Cellular Mobile, Paging and Value Added Service, and GlobalMobile Personal Communications by Satellite, Composite FDI permitted is74% (49% under automatic route) subject to grant of license fromDepartment of Telecommunications subject to security and licenseconditions.

2. FDI up to 74% (49% under automatic route) is also permitted for thefollowing: -

Radio Paging Service

Internet Service Providers (ISPs)

3. FDI up to 100% permitted in respect of the following telecom services: -

Infrastructure Providers providing dark fibre (IP Category I);


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Electronic Mail; and

Voice Mail

Subject to the conditions that such companies would divest 26% of their equity infavour of Indian public in 5 years, if these companies were listed in other parts ofthe world.

4. In telecom manufacturing sector 100% FDI is permitted under automaticroute.

5. The Government has modified method of calculation of Direct and IndirectForeign Investment in sector with caps and have also issued guidelines ondownstream investment by Indian Companies.

6. Guidelines for transfer of ownership or control of Indian companies insectors with caps from resident Indian citizens to non-resident entities have

been issued

Foreign Direct Investment limit in telecom services is 74 percent subject to thefollowing conditions:

(i) This is applicable in case of Basic, Cellular, Unified Access Services,National/ International Long Distance, V-Sat, Public Mobile RadioTrunked Services (PMRTS), Global Mobile Personal Communications

Services (GMPCS) and other value added Services.(ii) Both direct and indirect foreign investment in the licensee company shall

be counted for the purpose of FDI ceiling. Foreign Investment shallinclude investment by Foreign Institutional Investors (FIIs), Non-residentIndians (NRIs), Foreign Currency Convertible Bonds (FCCBs),American Depository Receipts (ADRs), Global Depository Receipts(GDRs) and convertible preference shares held by foreign entity. In anycase, the `Indian shareholding will not be less than 26 percent.

(iii) FDI up to 49 percent is on the automatic route and beyond that on theGovernment route. FDI in the licensee company/Indian

promoters/investment companies including their holding companies shallrequire approval of the Foreign Investment Promotion Board (FIPB) if ithas a bearing on the overall ceiling of 74 percent. While approving theinvestment proposals, FIPB shall take note that investment is not comingfrom countries of concern and/or unfriendly entities.


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(iv) The investment approval by FIPB shall envisage the conditionality thatCompany would adhere to licence Agreement.

(v) FDI shall be subject to laws of India and not the laws of the foreigncountry/countries.

Tabular form of FDI policy for the Telecom Sector is as under:

Sr.No.

Sector/Activity FDI Cap/Equity Entry route

1. Basic and cellular, UnifiedAccess Services,

National/InternationalLong Distance, V-Sat,Public Mobile Radio

Trunked Services(PMRTS) Global MobilePersonal CommunicationsServices (GMPCS) andother value added telecomservices

74% (includingFDI, FII, NRI,FCCBs, ADRs,GDRs,convertible

preferenceshares, and

proportionateforeign equity inIndian

promoters/InvestingCompany)

Automaticupto 49%.

FIPBbeyond49%.

2. ISP with gateways, radio-paging, end-to-endbandwidth.

74% Automaticupto 49%

FIPBbeyond49%

3. a) ISP without gateway, *

b) Infrastructure providerproviding dark fibre, rightof way, duct space, tower(Category I);

c) Electronic mail andvoice mail

100% Automaticup to 49%

FIPBbeyond49%
http://www.dot.gov.in/osp/Investment%20Policy/FDI%20policy.htm#_ftn1http://www.dot.gov.in/osp/Investment%20Policy/FDI%20policy.htm#_ftn1


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4. Manufacture of telecomequipments

100% Automatic

5 Guidelines for calculation

of total foreign investmenti.e. direct and indirectforeign investment inIndian companies

- -

6 Guidelines for transfer ofownership or control ofIndian companies insectors with caps fromresident Indian citizens to

non-resident entities.

- -

STATEMENT ON FINANCIAL YEAR WISE FOR FOREIGN DIRECTINVESTMENT (FDI) INFLOWS OF TELECOMMUNICATIONS SECTOR

FROM APRIL 2000 TO AUGUST 2010

Sr.No.

Year (Apr-Mar) in Rs. crore in US$ million

1 2000-01 784.16 177.69

2 2001-02 3,938.46 873.23

3 2002-03 907.73 191.60

4 2003-04 408.78 88.87

5 2004-05 569.54 124.53

6 2005-06 2,774.18 623.16

7 2006-07 2,155.08 477.74

8 2007-08 5,102.61 1,261.46

9 2008-09 11,726.87 2,558.39

10 2009-10 12,338.32 2,553.95

11 2010-11 (Apr-Aug) 4,789.22 1,054.39

Grand Total 45,494.95 9,985.00


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COUNTRY WISE FDI INFLOW FROM APRIL 2000 TO AUGUST 2010

SECTOR-WISE FDI INFLOWS FROM APRIL 2000 TO AUGUST2010

(Amount in millions)

Sr.

No.

Name of the

Country

Amount of Foreign Direct

Investment Inflows

%age with

Inflows

(In Rs.

crore)

(In US$ million)

1 Mauritius 29,883.09 6,617.66 66.28

2 Singapore 6,642.95 1,430.13 14.32

3 Russia 1,902.39 394.48 3.95

4 Japan 1,533.44 313.92 3.14

5 U.S.A. 1,059.76 234.71 2.35

6 Country DetailsAwaited

801.56 181.55 1.82

7 Cyprus 764.79 162.06 1.62

8 U.K. 433.44 94.13 0.94

9 NRI(AsIndividualInvestor)

333.01 77.02 0.77

10 Netherlands 269.56 61.20 0.61


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Foreign direct investment has been one of the major contributors in the growth ofthe Indian economy. With a growth rate of 45%, Indian telecom industry has thehighest growth rate in the world. Hence the need for higher FDI is felt acrosssectors in the Indian economy. The telecom sector has played a crucial role inattracting FDI in India. The share of telecom sector in the total FDI inflows inIndia has gone up to 10% in FY09 as compared with just 3% in FY05.

The telecom sector requires huge investments for its expansion as it is capital-intensive and FDI plays a vital role in meeting the fund requirements forexpansion of the telecom sector. Telecom accounts for almost 10% of the totalFDI inflows in the country and has been the third-largest sector to attract FDI inIndia in the post-liberalisation era.

Sector

Amount of FDIInflows

%age of TotalInflows(In Rs.

crore)(In US$million)

TELECOMMUNICATIONS1. Telecommunications 15,354.29 3,437.68 2.88

2. Radio paging 26.25 5.70 0.00

3. Cellular mobile/basictelephone services

28,097.08 6,113.45 5.13

4. Other (telecom) 2,017.32 428.17 0.36

Sector Total 45,494.95 9,985.00 8.38


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The Indian telecom industry has been an attractive avenue for foreign investorsover the years. As per DIPP figures, the cumulative FDI inflow during August1991 to June 2009 period, in the telecommunication sector amounted to US$ 113

billion. FDI calculation takes into account radio paging, cellular mobile and basictelephone services in the telecommunication sector.

The relaxation in FDI norms has attracted many foreign telecom majors to thesector. The presence of foreign players has not only encouraged fasterinfrastructure development and up gradation but also has opened up the domesticindustry to foreign competition. Since 2004, there has been a large inflow of FDIin the sector. During 2004-05 and 2005-06, a period during which the FDI normswere relaxed, the FDI inflow grew by an astounding 300% to US$ 624 million in2005-06 from merely US$ 125 million in 2004-05. The inflow of FDI has

provided tremendous impetus to the sector in the past few years and theattractiveness of the sector has kept the FDI inflows growing steadily. DuringFY09 the FDI in the telecom sector at US$ 2,558 million was 103% higher than

that seen in FY08 at US$ 1,261 million. Further, the FDI in the sector has alreadyreached US$ 2010 million for a six month period of FY10 (Apr-Sep 09) and isexpected to surpass the total FDI for FY09.


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The governments liberalised FDI policies have resulted in several foreigncompanies entering into the Indian markets. The influx of foreign players in theIndian telecom industry has led to capacity creation, and better infrastructure,which in turn has bettered the network quality. The rise in FDI has also enabledtechnology transfer, market access and has improved organisational skills; goingforward, FDI could be used for providing telecom services to rural areas, whereteledensity is still very low.

The change in FDI policy that has raised the FDI limit from 49% to 74% for thesector has made it more attractive for foreign players. In the long run the growth

prospects of telecom players that have foreign partners will improve and otherplayers will get new avenues to raise capital.

There are multi-faceted advantages of encouraging foreign direct investment in

telecom sector. Apart from ensuring telecom services at subsidized prices, it cansatisfy the dire need of infrastructural reforms in rural areas. The inflows willallow multiple benefits such as technology transfer, market access, improvement invoice and data quality and organizational skills. It increases the flow of foreigncurrency and helps in maintaining harmonious relationship with the country fromwhich the investment is made. Moreover, India offers an unprecedentedopportunity for telecom service operators, infrastructure vendors, manufacturersand associated services companies.

FDI in services responds well to openness especially when it comes to the

telecommunications sector. This is quite evident looking at the recent boom in theIndian Telecommunication sector. Further liberalization of services involves

potential advantages for Indian economy. Benefits can arise from increasedcompetition, lower prices, and better quality of services. FDI in services likeTelecommunications provide key inputs to other productive activities that lead tofurther investment and competitiveness of an economy. Efforts should be madetowards attracting efficiency seeking FDI through a right policy that expandsoperation, improve local skills, establish linkages and upgrade technology.

The telecom industry in India has experienced exponential growth over the pastfew years and has been an important contributor to economic growth; however,the cut-throat competition and intense tariff wars have had a negative impact onthe revenue of players. Despite the challenges, the Indian telecom industry willthrive because of the immense potential in terms of new users. India is one of themost-attractive telecom markets because it is still one of the lowest penetratedmarkets. The government is keen on developing rural telecom infrastructure and is


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also set to roll out next generation or 3G services in the country. Operators are onan expansion mode and are investing heavily on telecom infrastructure. Foreigntelecom companies are acquiring considerable stakes in Indian companies.Burgeoning middle class and increasing spending power, the governments thruston increasing rural telecom coverage, favourable investment climate and positivereforms will ensure that Indias high potential is indeed realised.


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CIVIL AVIATION SECTOR

India is one of the few civil aviation markets in the world that witnessed neardouble-digit growth continuously for the past two decades and this growth storycontinues. While the aviation industry in many parts of the world faces arecessionary trend, Indian market has maintained its growth momentum both interms of passenger and cargo traffic. The domestic air passenger traffic in India haswitnessed a growth of over 19% between January and August 2010, compared tothe same period last year. Passengers carried by domestic airlines during January-August were nearly 34 million compared to 28.4 million in the corresponding

period in 2009.

India's domestic passenger traffic is expected to grow at a rate of 9-10 per cent toreach a level of 150-180 million by the year 2020. It makes India amongst thefastest growing aviation markets in the world with private airlines accounting formajor share. With the rapid growth achieved in the recent years, India has becomethe ninth largest civil aviation market and is expected to be fifth largest civilaviation market in the world in the next few years. It is projected that the centre ofgravity in the aviation industry will be shifting to the Asia-Pacific region in thecoming years. Considering the strategic position of India, hub-to-hub traffic out ofDelhi and Mumbai will be a key part of the future growth.

Further, India has an enormous potential for becoming a hub for 'air cargo logistics'and 'Maintenance, Repair & Overhaul' (MRO) work triggered primarily bymassive development across the country, fast-growing passenger traffic, aircraftdemand, availability of talented engineering workforce, manpower costcompetitiveness, fast developing engineering services/R&D expertise and strategic

position in the South East Asia.


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Indian Civil Aviation at a Glance:

Indian has become the ninth largest aviation market in the world From two scheduled airlines operating in 1990 this figure now has gone up

to 14 inclusive of cargo airlines

From only 100 scheduled Indian aircraft deployed by Indian carriers, thefigure has now gone up 4 times to 478. The number is expected to reachthousand in 2020

There are currently 325 non-scheduled aircraft and 793 in the miscellaneouscategory

The total number of aircraft holding current certificate of airworthiness is1034

With over a 300 million strong middle class, the demand is expected toincrease by 8% per annum till 2015

A total number of 557 charter flights were operated bringing 1,18,064tourists in 2009

Scheduled air services available to/from 82 airports as against only 50 inearly 2000

In 2004 - 05, 59 foreign airlines were flying into India. Now, 72 foreign

airlines from 49 countries are flying into India

International flights deployed by foreign carriers were 711 services / week inwinter 2004-05, which increased to 1315 services/week in summer 2009.This is an increase of 85%

International flights deployed by Indian carriers increased from 495services / week to 882 services / week during the same period. This is anincrease of 78%

Correspondingly, the number of passengers has risen from around 14 million

to 27 million to / from India, showing an increase of around 90%

With 82 airports already functional, the Government has already identifiedaround 18 new Greenfield airports to be developed


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It is estimated that the airport system may be handling over 300 millionpassengers per annum by 2020. For the purpose, a total of USD 30 billioninvestment is required including the USD 9 billion already identified.

FDI IN Civil Aviation Sector

The present policy of FDI in the Civil Aviation sector covers Airports and Air

Transport Services. The Civil Aviation sector, however, includes Airports,Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services/Seaplane services, Ground Handling Services, Maintenance and Repairorganizations; Flying training institutes; and Technical training institutions. It hasnow been decided to amplify and lay down the policy for Foreign DirectInvestment (FDI) for the Civil Aviation sector.For the purposes of the Civil Aviation sector:(i) Airport means a landing and taking off area for aircrafts, usually withrunways and aircraft maintenance and passenger facilities and includes aerodromeas defined in clause (2) of section 2 of the Aircraft Act, 1934;

(ii) "Aerodrome" means any definite or limited ground or water area intended to beused, either wholly or in part, for the landing or departure of aircraft, and includesall buildings, sheds, vessels, piers and other structures thereon or pertainingthereto;

(iii)"Air transport service" means a service for the transport by air of persons, mailsor any other thing, animate or inanimate, for any kind of remuneration whatsoever,whether such service consists of a single flight or series of flights;

(iv) "Air Transport Undertaking" means an undertaking whose business includesthe carriage by air of passengers or cargo for hire or reward;

(v) "Aircraft component" means any part, the soundness and correct functioning ofwhich, when fitted to an aircraft, is essential to the continued airworthiness or


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safety of the aircraft and includes any item of equipment;

(vi) "Helicopter" means a heavier-than -air aircraft supported in flight by thereactions of the air on one or more power driven rotors on substantially verticalaxis;

(vii) "Scheduled air transport service", means an air transport service undertakenbetween the same two or more places and operated according to a published timetable or with flights so regular or frequent that they constitute a recognizablysystematic series, each flight being open to use by members of the public;

(viii) Non-Scheduled Air Transport service means any service which is not ascheduled air transport service and will include Cargo airlines;

(ix) Cargo airlines would mean such airlines which meet the conditions as givenin the Civil Aviation Requirements issued by the Ministry of Civil Aviation;

(x) "Seaplane" means an aeroplane capable normally of taking off from andalighting solely on water;

(xi) Ground Handling means (i) ramp handling , (ii) traffic handling both ofwhich shall include the activities as specified by the Ministry of Civil Aviationthrough the Aeronautical Information Circulars from time to time, and (iii) anyother activity specified by the Central Government to be a part of either ramphandling or traffic handling.

Policy for Foreign Direct Investment (FDI) in Civil Aviation sector

The policy for FDI in the Civil Aviation Sector would be subject to the Aircraft Rules, 1934 asamended from time to time, Civil Aviation Requirements, and Aeronautical InformationCirculars as notified by the Ministry of Civil Aviation

Sector/Activity % of FDI

Cap/Equity

Entry Route

Greenfieldprojects

100% Automatic

Existing projects 100% Automatic up to 74%

Government route beyond 74%


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Air Transport Services

(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Airlines; Chartered Airlines; Cargo Airlines; helicopter and seaplane services.

(b) No foreign airlines would be allowed to participate directly or indirectly in the equity of anAir Transport Undertaking engaged in operating Scheduled, Non-Scheduled, and Charteredairlines.

(c) Foreign airlines are allowed to participate in the equity of companies operating Cargoairlines, helicopter and seaplane services.

Sector/Activity % of FDI

Cap/Equity

Entry Route

1. Scheduled Air Transport Service/Domestic Scheduled Passenger Airline

49% FDI

(100% for NRIs)

Automatic

2. Non-Scheduled Air Transport Service/Non-Scheduled airlines, Chartered airlines,

and Cargo airlines

74% FDI

(100% for NRIs)

Automatic up to49%

Government routebeyond 49% and upto 74%

3. Helicopter services/seaplane servicesrequiring DGCA approval

100% Automatic

Other services under Civil Aviation sector

1. Ground Handling Services subject tosectoral regulations and security clearance

74% FDI

(100% for NRIs)

Automatic up to49%

Government routebeyond 49% and upto 74%

2. Maintenance and Repair organizations;flying training institutes; and technicaltraining institutions

100% Automatic


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INDIA INVESTMENT OVERVIEW (Figures in dollars billion)

SECTOR TOTALINVESTMENT

INCOMPLETEDPROJECTSIN PAST 5

YRS12

INVESTMENTSANNOUNCED/

UNDERWAY13

POLICY/OTHER

DETERRENTSTOINVESTMENTINVESTMENT(LOW/MEDIUM/HIGH)

TOTALINVESTMENT

GOAL OVER 5YEARS

Civil Aviation &Airport

0.13 2.9 High (C) 15-17

Investment Goal - $ 1517 billion by 2010

Rapid growth in passenger and cargo traffic can be sustained only if there issignificantimprovement in aviation infrastructure. Delays in execution of green-field airportsand leasingof existing airports are unaffordable. Apart from green-field airports at Hyderabad,Bangalore,

Navi Mumbai, Ludhiana, Pune and Goa, the sector also requires investments in up-

gradationand modernization of about 30 major air-ports which account for over 95% of thecountrysaviation traffic. The visibility of investments currently is only about 20% of thetotalrequirement of about $ 15 billion over the next 5 years.

Impediments

Lack of transparency and consistency in tender conditions and project execution

Inordinate delay between decision to set up a green-field airport and its financialclosure

Recommendations


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Permit 100% FDI in green-field airports

Invite bids for green-field airports in select cities based on demand forecasts E.g. Navi Mumbai, NOIDA, Nagpur, Goa, Ludhiana

Implement privatization of Chennai and Kolkata expeditiously Incorporate learnings from Delhi/ Mumbai tenders

Form SPVs for the next 10 large airports40 (mix of city and resort destinations),and

privatize - provide viability gap funding where required

Ensure developers have adequate experience and develop world-class facilitiesfor all

airports (green-field as well as up-gradation and modernization of existing)

Modernize Air Traffic Control (ATC) systems and enhance capabilities ofpersonnel

Ensure airport facilities and ATC are comparable to best in class airports likeSingapore,Dubai, Hong Kong etc.

Remove restrictions on foreign ownership in domestic airlines

Complete open skies at the earliest (as done with the US) with all other keymarkets e.g.UK, Singapore no seasonal window, no restrictions

Reduce cost of ATF to international levels

Passenger traffic is projected to grow at a CAGR of over 15% in the next 5 years

Passenger traffic is projected to grow at a CAGR of over 15% in the next 5 years To cross 100 million passengers p.a. by 2010

Cargo traffic to grow at over 20% p.a. over the next five years.


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BIBILOGRAPHY

www.dot.gov.in

www.dipp.com

business.mapsofindia.com Fdi-india Sectors

www.dpncindia.com/.../..
http://www.dipp.com/http://www.google.co.in/url?url=http://business.mapsofindia.com/fdi-india&rct=j&sa=X&ei=kNg6TtXPGYH4rQfB1cgR&ved=0CDYQ6QUoADAC&q=fdi+in+power+sector&usg=AFQjCNGwQ1IB2Xu_nnYkz6T8wDfQzPPpHwhttp://www.google.co.in/url?url=http://business.mapsofindia.com/fdi-india/sectors&rct=j&sa=X&ei=kNg6TtXPGYH4rQfB1cgR&ved=0CDcQ6QUoATAC&q=fdi+in+power+sector&usg=AFQjCNF-KFz0blBzPjtT8KA9x3uhVG2iWAhttp://www.dipp.com/http://www.google.co.in/url?url=http://business.mapsofindia.com/fdi-india&rct=j&sa=X&ei=kNg6TtXPGYH4rQfB1cgR&ved=0CDYQ6QUoADAC&q=fdi+in+power+sector&usg=AFQjCNGwQ1IB2Xu_nnYkz6T8wDfQzPPpHwhttp://www.google.co.in/url?url=http://business.mapsofindia.com/fdi-india/sectors&rct=j&sa=X&ei=kNg6TtXPGYH4rQfB1cgR&ved=0CDcQ6QUoATAC&q=fdi+in+power+sector&usg=AFQjCNF-KFz0blBzPjtT8KA9x3uhVG2iWA

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