Foreign Investment in India - An Overview
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Foreign Investment in India - An Overview

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Foreign Investment in India - An Overview Foreign Investment in India - An Overview Presentation Transcript

  • “ The Most Extraordinary Country”* Doing Business in India When You Think INTERNATIONAL , Think Fulbright. TM
      • Tuesday, February 20, 2007
      • 7:15 - 9:00 a.m.
      • The Houstonian Hotel
      • 111 North Post Oak Lane
      • Houston, Texas 77024
    *Mark Twain
  • Foreign Investment in India: An Overview Presented by: Julie B. Hunt Email: jhunt@fulbright.com Phone: (214) 855-8046
  • Recent Growth & Opportunities in the Indian Market
    • Facts and Figures
    • Recent GDP Growth
    • 2000-2003 4.6%
    • 2003-2004 8.5%
    • 2004-2005 7.5%
    • 2005-2006 8.4%
    • 2006-2007 (Q1) 8.9%
    Source: Reserve Bank of India
  • Recent Growth & Opportunities in the Indian Market (cont’d)
    • Facts and Figures
    • Foreign Investment Growth
    Source: Ministry of Finance, Government of India
  • Recent Growth & Opportunities in the Indian Market (cont’d)
    • Facts and Figures
    • Population of more than 1 billion
    • Middle class of 300 million
    • Stable democracy with a common law legal system
    • Large English-speaking, highly educated workforce
    • Vibrant capital markets – 23 stock exchanges with 9000 listed companies
    • New Industrial Policy (1991) and continuing liberalization of foreign investment
  • Foreign Investment - Legal Regime
    • Sources of Law and Policy
    • Foreign Exchange Management Act, 1999 (FEMA) and related regulations
    • Press notes issued by the Ministry of Commerce and Industry
    • Securities & Exchange Board of India Act, 1992 and related regulations
    • Companies Act, 1956
    • Sector-specific laws and rules
  • Foreign Investment - Legal Regime
    • Key Regulatory Players
    • Foreign Investment Promotion Board (FIPB)
    • Reserve Bank of India (RBI)
    • Securities & Exchange Board of India (SEBI)
    • Stock Exchanges (Largest: National Stock Exchange (NSE), Bombay Stock Exchange (BSE))
    • Sector-specific regulators (e.g., insurance, telecom, transportation)
  • Foreign Investment - Options
    • Three Main Routes for Foreign Investment
    • Foreign Direct Investment (FDI)
    • Investment as a Foreign Institutional Investor (FII) or a sub-account of an FII
    • Investment as a Foreign Venture Capital Investor (FVCI)
  • Foreign Investment - Options
    • Foreign Direct Investment (FDI)
    • Subscription to new shares
    • Transfer of existing interests
  • Foreign Investment - Options
    • Foreign Direct Investment (FDI)
    • Automatic Route
    •  No approval needed from FIPB or the RBI
    •  Widely available, subject to certain percentage caps and non-compete restrictions
    •  Requires certain after-the-fact filings and declarations with the RBI (within 30 days after payment for investment)
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment – Approval Route
    •  Automatic Route not available (i.e., prior FIPB approval is required) if the investment is:
    •  in an area where foreign investment is prohibited; for example: retail trading (except single brand retail), gambling, atomic energy, defense
    •  above the equity cap applicable to certain sectors; for example: 74% in telecom, mining or banking.
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment – Approval Route
    •  Automatic Route not available if the investment is:
    •  in the same field where the foreign investor has an existing (pre-Jan 15, 2005) collaboration/joint venture in India
    •  a more than 24% equity investment in companies which manufacture for the small-scale sector.
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment – Approval Route
    • Approval Route
      • Any investment not qualifying for the Automatic Route
      • Requires prior approval from the Foreign Investment Promotion Board (FIPB)
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment – Approval Route
    • Approvals take approximately 30 days to obtain, decided on a case-by-case basis
    •  Relevant criteria:
        • the amount of investment
        • jobs creation
        • other benefits to India such as export creation or technology development
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment (FDI)
    • P ricing Restrictions
      • If listed on a stock exchange, price cannot be lower than the average weekly high and low of closing prices during the preceding (a) 6 months, or (b) 2 weeks, whichever average is higher
      • If unlisted, determined by a formula prescribed by the Controller of Capital Issues
  • Foreign Investment - Options (cont’d)
    • Foreign Direct Investment (FDI)
    • Transfers of Existing Shares – requires FIPB approval if:
      • activities are not under the Automatic Route
      • non-resident shareholding would exceed sectoral limits
      • price does not comply with the pricing restrictions
    • Transfers of Existing Shares – requires RBI approval if:
      • company is involved in the financial services sector
      • price does not comply with the pricing restrictions
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • What is an FII?
      • An institution established outside India, which invests in securities traded on the primary and secondary markets in India
      • Examples: pension funds, mutual funds, investment trusts, university endowment funds
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • Foreign investment banks are not permitted to directly invest in shares on the Indian stock exchange
    • Makes investments on behalf of foreign investors, referred to as “sub-accounts”
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • Qualifying as an FII
      • Requires a certificate from the Securities and exchange Board of India (SEBI)
      • Strict qualification standards including professional experience requirements and reputational considerations (“Fit and proper person” determination)
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • SEBI “Fit and proper person” criteria include:
      • financial integrity
      • absence of convictions or civil liabilities
      • competence
      • good reputation and character
      • efficiency and honesty
      • no violation of securities regulations in home jurisdiction
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • Qualifying as a Sub-Account
      • Also requires a fit and proper person analysis
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • FIIs may invest in:
      • securities in the primary and secondary markets (shares, debentures, warrants of listed and unlisted companies)
      • units issued by domestic mutual funds
      • dated Government securities
      • derivatives traded on a recognized stock exchange
      • commercial paper
      • debt instruments – provided a 70/30 equity/debt ratio is maintained
  • Foreign Investment - Options (cont’d)
    • Foreign Institutional Investors (FII)
    • Limits on the type and amount of investments apply to FIIs
      • no more than 10% of the equity in any one company
      • no more than 10% in the equity in any one company on behalf of a fund sub-account
      • no more than 5% in the equity in any one company on behalf of a corporate/individual sub-account
      • no more than 24% in the aggregate of the total issued capital of a company to be held by FIIs
  • Foreign Investment - Options (cont’d)
    • Foreign Venture Capital Investors (FVCI)
    • What is an FVCI?
      • An investor established outside of India, who proposes to make venture capital investments in India
  • Foreign Investment - Options (cont’d)
    • Foreign Venture Capital Investors (FVCI)
    • Qualifying as an FVCI
      • Requires registration with SEBI; a copy of the application is forwarded to the RBI for approval as well
      • Involves a “fit and proper person” determination as for FIIs
  • Foreign Investment - Options (cont’d)
    • Foreign Venture Capital Investors (FVCI)
    • Benefits of registering as an FVCI
      • one-time approval of the RBI for investments in Indian companies
      • ability to purchase or sell securities at a price that is mutually acceptable to buyer and seller
      • shares held by FVCI in an unlisted company are not subject to the one-year lock-in generally applicable to the shares of a company undergoing an IPO
  • Foreign Investment - Options (cont’d)
    • Foreign Venture Capital Investor (FVCI)
    • Investment Requirements and Restrictions
      • At least 66.67% of its funds must be invested in unlisted equity shares (or equity-linked instruments of unlisted entities)
      • Up to 33.33% of its funds may be invested in an IPO subscription for a venture capital undertaking, or through a preferential allotment of equity shares of a listed company
  • Foreign Investment - Options (cont’d)
    • Foreign Venture Capital Investor (FVCI)
    • Investment Requirements and Restrictions
      • Subject to certain sectoral percentage caps, limitations on foreign investment
      • No more than 25% of its funds may be invested in any one venture capital undertaking
  • Project Finance - Infrastructure
    • “Infrastructure Deficit” requiring estimated investments of US $300 billion by 2012
    • FDI of up to 100% is now permitted in most infrastructure sectors
    • Shortage of domestic funding
    • Particular emphasis on power sector, airports, roads
  • Recent Deals
    • Mumbai and Delhi airports – Public/Private Partnership (PPP) with 26% government participation
    • Vodafone – $11.1 billion purchase of a 67% stake in Hutchison Essar (fourth largest mobile phone company in India)
    • Airbus – announced $1 billion investment in an engineering facility and pilot training school
    • Cisco – investing $1.1 billion in various initiatives (manufacturing facility, VC investments, broadband and digital media), and planning to move 20% of top executives to India
  • Future Prospects
    • Projections for future growth
    • Continued annual GDP growth of 8%
    • GDP of US $11 trillion by 2011, US $27 trillion by 2050 (making India the third-largest economy in the world)
    • Trend of increasing liberalization of foreign investment
  • In Summary
    • Three main regulatory categories of foreign investment: FDI, FII, FVCI
    • Certain sector caps and pricing restrictions may apply
    • Infrastructure development is a particular focus for the Government
    • Regulations continue to evolve
  • When You Think INTERNATIONAL, Think Fulbright. TM