This document discusses India's policy on foreign direct investment (FDI). It outlines the philosophy behind attracting long-term foreign capital to supplement domestic investment efforts. FDI is recognized as a key driver of economic growth. Large scale economic reforms have created an attractive investment destination in India. The document provides statistics on global and regional FDI trends. It highlights sectors targeted for FDI inflows and incentives provided. Key economic indicators of India that make it an ideal investment destination are also noted.

1. Dr. R. N. Pandey
Director
Department of Industrial Policy and
Promotion
Ministry of Commerce and Industry
1

2. INDIAN Reforms-The Philosophy
Plug into the
Global Economy
FDI recognised as a
Growth Driver
Large scale economic reforms
2

3. Attracting long-term Creating skilled employment
foreign capital to Opportunities and Import
supplement domestic of world Class managerial
investment efforts, practices
particularly in infrastructure
and export competitive sectors
FDI
Developing attractive Promoting technology
Configurations of and other linkages to
locational advantages enhance domestic industry
at global level competitiveness
3

4. Global FDI trends 2000
s Record FDI flows of US$ 1.3 trillion in 2000
Developed world still favourite (over 75% of
global share; mainly cross-border M&A)
d US$ 240 billion to developing countries
t Developing Asia gets US$ 143 billion, of
which China and Hong Kong-China alone
account for US$ 105 billion
1 Latin America gets US$ 86 billion
t WHAT WE ARE REALLY LOOKING
AT IS A SIGNIFICANT SHARE OF
WHAT COMES TO ASIA 4
Source: UNCTAD WIR01

5. % Share of Selected Countries in Total FDI Inflow in
Developing Countries
1995 1998 1999 2000
Brazil 4.9 15.1 14.1 13.9
China 31.6 23.2 18.2 17.0
India 1.0 1.4 1.0 1.0
Malaysia 5.1 1.4 1.6 2.3
South Korea 1.6 2.9 4.8 4.2
Singapore 7.8 3.3 3.2 2.7
Thailand 1.8 2.7 1.6 1.0
Total Dev. 113.3 188.4 222.0 240.2
Countries
(US$ Bn)
5

6. Ratio of FDI Inflow (%) to Gross Domestic Product
1995 1998 1999 2000
Brazil 0.8 3.6 5.9 5.7
China 5.1 4.6 4.1 3.8
India 0.6 0.6 0.5 0.5
Malaysia 6.8 3.8 4.4 3.9
South Korea 0.4 1.7 2.6 2.2
Singapore 10.5 7.6 8.6 7.0
Thailand 1.2 4.6 3.0 2.0
6

7. Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)
Sector FDI Target (US$ Bn)
Telecom 2.5
Power 1.2
Financial Services 0.8
LNG & Oil Exploration 1.0
Food & beverage 0.4
Transportation 0.4
Textiles 0.3
Ports 0.3
Chemicals & Petrochemicals 0.2
Hotels & Tourism 0.2
Real Estate 0.2
Roads 0.2
Civil Aviation 0.2
Dis-investment 0.5
Total 8.9 7

8. AN IDEAL INVESTMENT DESTINATION
 World’s largest democracy
 Second largest emerging market (US$ 2.4 trillion)
 Liberal Foreign Investment Regime
 Skilled and competitive labour force
 Amongst the highest rates of return on investment
 Large domestic market
 Independent judiciary
8

9. Key Economic Indicators: GDP Growth
Rate (1993-94 as base year)
9%
7.6% 7.8%
8%
7%
6.8% 6.40%
Growth Rate (%)
6% 5.1%
5% 5.40%
4.0%
4%
3%
2%
1%
0%
6
1
7
8
9
0
E)
-9
-0
-9
-9
-9
-0
(A
95
97
98
99
00
96
2
19
20
19
19
19
19
-0
01
20
9

10. Key Economic Indicators: External sector
Foreign Exchange Reserves (US$ billion)
80 56
48.8 48.33
70 46.64 49
42.5 43.6 63.93
Exchange Rate (Rs/US$)
60 37.2 42
35.5 54.15
50
33.5 35
42.26
40
38 28
30
30 26 21
22
20 17 14
10 7
0 0
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03(as
on 11-10-02) 10

11. INDIA: TRACING FIRST GENERATION REFORMS
• Industrial delicensing
• Liberal FDI regime
• Freedom to invest & expand
• Simplification of investment procedures
• Tax rationalisation
• Current Account convertibility
• Public sector divestment
• WTO compatibility – Patents, etc.
11

12. The Reforms Process Ahead
e Public sector divestment
v Cutting fiscal deficit
e Amendments to crucial economic legislations
u Financial sector reforms
Labour reforms
Corporate governance
a Meeting all multilateral commitments in terms of GATT,
GATS, TRIPS, etc.
12

13. Some Independent Studies
• JBIC Survey 2002 ranks India as
the 5th most promising investment
destination
• EIU’s ‘World Investment
Prospects 2002’ projects steep
growth in FDI inflows to India
13

14. INVESTMENT OPPORTUNITIES
INFRASTRUCTURE
10 year tax holiday for developers of SEZs/
Industrial Parks
s 100% tax Exemption for 5 Years and 50%
thereafter for two years for SEZ Units
w 100% Tax holiday for 10 years for
infrastructure undertakings
100% tax deduction for 10 consecutive
assessment years to undertakings providing
Telecom services
14

15. INVESTMENT OPPORTUNITIES
INFRASTRUCTURE
INVESTMENT REQUIREMENT: US $ 347 Bn
Sector Present Capacity Investment By
Capacity Addition By 2006
2006 (US $ Bn)
Power 1.1 7Lakh MW 1,11,500 MW 178
Telecom 37 M Lines 52 M Lines 55
Ports 344 MT 350 MT 7
Roads
a. National Highways 58, 112 Kms 23,000 Kms 27
b. State Highways 1,37,119 Kms 60,000 Kms
c. Super N. H. 4,000 Kms
Urban Infrastructure 80
Service
15
Source: Rakesh Mohan Committee Report (1996-2006)

16. Integrated Townships
• FDI policy
100% FDI for development of integrated townships,
including housing, commercial premises, hotels,
resorts, city and regional level urban infrastructure
facilities such as roads and bridges, mass rapid
transit systems and manufacture of building
materials
• Incentives
Ten years tax holiday to undertaking developing or
operating and maintaining or developing, operating
and maintaining infrastructure facilities such as;
water supply project, water treatment system,
sanitation and sewerage system or solid waste
management system
16

17. Industrial Parks
• Concept
Industrial Parks - Self contained island with developed plots/
pre-built factories, power, telecom, water and other high-
quality infrastructural facilities for industrial, residential, and
commercial areas
• Incentives
100% tax exemption under section 80IA subsection 4(iii) of the
IT Act, available to any undertaking engaged in developing,
developing and operating or operating and maintaining an
Industrial Park for ten consecutive years out of the fifteen years
for the Industrial Park developed between 1.4.97 and 31.03.2006
and approved by Department of Industrial Policy and Promotion
under the Industrial Park Scheme, 2002 notified vide S.O. No.
354(E) dated 01.04.2002
17

18. Approval and Investment in Industrial Parks under
Industrial Park Scheme, 2002 (Till 18.10.2002)
Total No. of Industrial Parks Approved – 38
State No. of State No. of
Industrial Industrial
Parks Parks
UP 5 Punjab 1
Gujarat 4 Tamil Nadu 2
West Bengal 3 Maharashtra 4
J&K 1 Andhra Pradesh 2
Pondicherry 3 Karnataka 11
Kerala 2
18

19. Recent Initiatives on FDI
• FDI up to 100% allowed in Tea sector, including tea
plantations with prior Government approval
• 100% FDI permitted on automatic route in Advertising & Films
• Royalty on brand name/trademark payable as percentage of net sales
• Guidelines for licensing production of Arms & Ammunition
notified
26% FDI permitted
3 year lock-in period for transfer of equity from one investor to another
Import of equipment/prototype allowed
• Guidelines for development of integrated Townships
including housing & building material notified
100% FDI permitted
minimum capitalisation norm - US$10 million for WoS & US$ 5
million for JVs
3 year lock-in period
19

20. Modes of Establishing Operations in India
Project Office
WoS Joint Venture
Branch Office
20

21. FDI Approval Procedure
Automatic Route in most Government Route for few
Sector sectors
RBI FIPB
No permission required, only Approval is
to notify RBI within 30 days of granted generally
issue of shares to foreign in 30 days
investors 21

22. Foreign Investment Policy
Automatic route available in all
sectors except
 Licensable items
 Multiple ventures of an investor in
same/allied category
 Acquisition of existing shares
 Beyond notified policy
22

23. Foreign Investment Policy (contd.)
NO CAP ON FOREIGN EQUITY
except for the following sectors:
atomic minerals, banking,
broadcasting, coal & lignite,
telecom services (basic, cellular,
GMPCS and certain value added),
passenger airlines, defence
industry, insurance, petroleum
other than private refineries, and
mining of diamonds and precious
stones.
23

24. Foreign Investment Policy (contd.)
FDI up to 100 % permitted on
NBFC’s
automatic route
FDI up to 49 % permitted
Banking
FDI up to 26% permitted on the
Insurance automatic route subject to licensing
Broadcasting FDI up to 49% permitted in uplinking
hub and up to 20% in DTH
MRTS FDI up to 100% permitted, including
associated real estate development
24

25. Foreign Investment Policy (contd.)
FDI up to 100 % permitted on automatic
route for non-licensable and non-
Drugs & recombinant DNA technology category
Pharma
Hotels & FDI up to 100% permitted on automatic
Tourism route
Defence FDI up to 26% permitted subject to
Industry licensing
Telecom FDI up to 74% in ISPs with gateways
Services and limit raised from 49% to 74% in
radio paging and end-to-end bandwidth
Townships FDI up to 100% permitted in integrated
townships and settlements 25

26. Foreign Investment Implementation Authority
(FIIA)
• Provides pro-active one-stop after care service to foreign investors
• Facilitates quick translation of FDI approvals into implementation
• Sorts out operational problems and finds solution
Supporting mechanism
• Fast Track Committees
 review individual projects
 review and suggest deletion of redundant procedures
 simplify existing procedures
• Nodal Officers for follow up of FDI cases in states 26

27. Important Features of Department’s Web Site
 Web Site: www.indmin.nic.in
 All the publications and forms for seeking
License, FIPB approval, etc. available in
downloadable format
 Present Status of Application Submitted for
FIPB and PAB Approvals are posted on the web site
 Chat Facility during 1600 to 1700 Hrs on Every
Working Day
 Bulletin Board facility for Seeking Clarifications
on Complicated Matters ( Replies sent just after
one day)
27

28. Foreign Direct Investment Annual Inflow
Cumulative FDI Approval 1991-2002(August): US$ 76.15 billion
Cumulative FDI Inflow 1991-2002 (August): US$ 30.98 billion
6.00
4.7 4.8
5.00 4.6
4.0
US $ billion
4.00
3.4
3.0
3.00
2.2
2.00
1.0
1.00 0.6
0.3
0.1
0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-01 2001-02 28

29. Countrywise FDI approvals (1991- August 2002)
29

30. Countrywise FDI inflows (1991- August 2002)
30

31. Sectoral Distribution of FDI Inflows
(1991-August 2002)
Fuels
10% Electrical
Equipment
13%
Telecom
13%
Chemicals (Other Others
than Fert.) 34%
7%
Services Sector
8%
Food Processing Transportation
Industries Industry
4% 31
11%

32. Sectoral Distribution of Technology Transfer
(1991- August 2002)
Transportation
Industry
Others 8%
48%
Chemicals
(Other than
fertilizer)
11%
Metallurgical
Industry
5%
Electrical
Equipment
Industrial
16%
Machinery
12% 32

33. Major MNCs in INDIA
Automobile Chemicals & Pharma Auto Components Telecom
Fiat Auto AKZO NOBEL Denso Corporation AT&T
Daewoo CIBA India Graziano Swiss Telecom
Daimler Benz Sinco Engg. Robert Bosch Deutsche Telekom AG
Ford Bayer Carraro Motorola
General Motors EMS Inventa AG SIAP S.P.A STET International
Honda Mining Toyota Telesystem International
Hyundai Ashton Power Telstra Corp
Suzuki American Exploration Power Gen SIET International
Toyota Rio Tinto Siemens Consumer Goods
Volvo Oil & Gas ST Power System Fosters
Hardy Oil & Gas Miscellaneous AB Electrolux
Trading
Metro Cash & International Petroleum Asea Brown Boveri Kellogg
Carry GMBH SHV Energy Buhler* Nestle SA
FIDIA Unocal Schindler Perfetti
Mitsubishi Van Ommeren Italcementi Coca Cola
SHV Macro Cerestar Holding Pepsi
33

34. 34