Doing%20Business%20in%20India%20Breakfast%20Seminar%20-%20Hunt%20PPP%20(6).PPT

“ 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)

Subscription to new shares
Transfer of existing interests

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.

 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.

Approval Route
Any investment not qualifying for the Automatic Route
Requires prior approval from the Foreign Investment Promotion Board (FIPB)

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

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

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 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 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”

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)

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

Qualifying as a Sub-Account
Also requires a fit and proper person analysis

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

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 Venture Capital Investors (FVCI)
What is an FVCI?
An investor established outside of India, who proposes to make venture capital investments in India

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

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 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 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

Doing%20Business%20in%20India%20Breakfast%20Seminar%20-%20Hunt%20PPP%20(6).PPT

by hackday08 on Sep 15, 2008

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Doing%20Business%20in%20India%20Breakfast%20Seminar%20-%20Hunt%20PPP%20(6).PPT Presentation Transcript