c
 

 

India has been ranked at the third place in global foreign direct investments in 2009 and will
continue to remain among the top five attractive destinations for international investors during
2010-11, according to United Nations Conference on Trade and Development (UNCTAD) in a
report on world investment prospects titled, 'World Investment Prospects Survey 2009-2011'
released in July 2009.

The 2009 survey of the Japan Bank for International Cooperation released in November 2009,
conducted among Japanese investors continues to rank India as the second most promising
country for overseas business operations, after China.

A report released in February 2010 by Leeds University Business School, commissioned by UK

Trade & Investment (UKTI), ranks India among the top three countries where British companies
can do better business during 2012-14.

According to Ernst and Young's 2010 European Attractiveness Survey, India is ranked as the 4th
most attractive foreign direct investment (FDI) destination in 2010. However, it is ranked the 2nd
most attractive destination following China in the next three years.

Moreover, according to the Asian Investment Intentions survey released by the Asia Pacific
Foundation in Canada, more and more Canadian firms are now focussing on India as an
investment destination. From 8 per cent in 2005, the percentage of Canadian companies showing
interest in India has gone up to 13.4 per cent in 2010.

India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative amount
of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according
to the data released by the Department of Industrial Policy and Promotion (DIPP).

The services sector comprising financial and non-financial services attracted 21 per cent of the
total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March 2009-10,
while construction activities including roadways and highways attracted second largest amount
of FDI worth US$ 2.9 billion during the same period. Housing and real estate was the third
highest sector attracting FDI worth US$ 2.8 billion followed by telecommunications, which
garnered US$ 2.5 billion during the financial year 2009-10. The automobile industry received
FDI worth US$ 1.2 billion while power attracted FDI worth US$ 1.4 billion. during April-March
2009-10, according to data released by DIPP.

In April 2010, the telecommunication sector attracted the highest amount of FDI worth US$ 430
million, followed by services sector at US$ 355 million and computer hardware and software at
US$ 172 million, according to data released by DIPP. During the financial year 2009-10,
Mauritius has led investors into India with US$ 10.4 billion worth of FDI comprising 43 per cent
of the total FDI equity inflows into the country. The FDI equity inflows in Mauritius is followed
by Singapore at US$ 2.4 billion and the US with US$ 2 billion, according to data released by
DIPP.
During April 2010, Mauritius invested US$ 568 million in India, followed by Singapore which
invested US$ 434 million and Japan that invested US$ 327 million, according to latest data
released by DIPP

Inv
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In May 2010, the government cleared 24 foreign investment proposals, worth US$ 304.7 million.
These include:

à Asianet's proposal worth US$ 91.7 million to undertake the business of broadcasting non-
news and current affairs television channels.
à ålobal media magnate Rupert Murdoch-controlled Star India holdings' investment of
US$ 70 million to acquire shares of direct-to-home (DTH) provider Tata Sky.
à AIP Power will set up power plants either directly or indirectly by promotion of joint
ventures at an investment of US$ 24.4 million.
à
c
 
 
à Sembcorp Utilities, a company based in Singapore, has picked up 49 per cent stake in the
1,320 mega watt (MW) coal-fired plant of Thermal Powertech Corporation India Ltd, a
special purpose vehicle and subsidiary of åayatri Projects Ltd, for US$ 235.1 million.
à Cinepolis, a Mexico-based multiplex operator, is looking at expanding its footprint in
India. The company which started operations in India last year plans to invest US$ 350
million in the next five years to operate 500 screens in 40 cities.
à According to a study released by global consultancy Bain & Company, private equity
(PE) and venture capital (VC) investments are projected to reach US$ 17 billion in 2010.
The report includes a survey conducted across leading PE investors globally. The survey
revealed number of respondents planning to invest in the range of US$ 200-500 million
in 2011 has risen nearly four-fold to 27 per cent. Further, as per figures released by årant
Thornton, the food processing and agri-based companies have attracted US$ 300 million
PE investments during January-June 2010. In 2009, PE investments in these sectors were
about US$ 398 million.
à IL&FS Investment Managers (IIML) plans to invest US$ 300 million, in real estate and
urban infrastructure projects by the end of 2010.
à AWe are in the advance stages of finalising 3-4 deals in residential real estate and urban
infrastructure space like roads and hospitality,´ said Shahzaad Dalal, Vice-Chairman and
MD, IIML.
à Investments by French companies in India is expected to touch US$ 12.72 billion by
2012, and would focus on automobile, energy and environment sectors among others,
according to Jean Leviol, Minister Counsellor for Economic, Trade and Financial Affairs,
French Embassy in India.
à Japanese pharmaceutical major, Eisai plans to invest US$ 21.25 million in India to
expand its manufacturing capacity and research capabilities. The investment will be used
for increasing the manufacturing capacity of Active Pharmaceutical Ingredients (APIs)
and product research at the Eisai Knowledge Centre in Visakhapatnam.
 à Japan's Kobelco Cranes, a subsidiary of Kobe Steel, is planning to invest US$ 12.7
million to set up a plant near Chennai to produce crawler cranes. The plant will begin
production in 2011.
à Franco-American telecom equipment maker, Alcatel-Lucent plans to shift its global
services headquarters to India. The headquarters would need about US$ 500 million in
investments over three years, according to Ben Verwaayen, Chief Executive Officer,
Alcatel-Lucent
à hIn v

à The åovernment of India has released a comprehensive FDI policy document effective
from April 1, 2010. The Circular 1 of 2010 consolidates into one document all the prior
policies/regulations on FDI which are contained in FEMA, 1999; RBI Regulations under
FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP and reflects
the current 'policy framework' on FDI.
à Furthermore, the government has allowed the Foreign Investment Promotion Board
(FIPB), under the Ministry of Commerce and Industry, to clear FDI proposals of up to
US$ 258.3 million. Earlier all project proposals that involved investment of above US$
129.2 million were put up before the Cabinet Committee of Economic Affairs (CCEA)
for approval. The relaxation would expedite FDI inflow, according to Mr P
Chidambaram, Union Home Minister.
à Exchange rate used: 1 USD = 47.07 INR (as on July 2010

http://www.ibef.org/economy/fdi.aspx

2  
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More specifically the global players are interested in India due to following reasons:

I) c n 2: India enjoys unique geographical advantage. It is

strategically located in Asia with access to all leading markets of the World. With total area of
32, 87,590 Sq. Km, Coastline of 7000 Km and borders with six countries India becomes most
promising destination for the foreign direct investment.

II)
 2
 Demographically with a population of more than 1.1 billion
and diverse culture, India is a land of all seasons. India presents a real cosmopolitan population
with diverse religions and culture. Hinduism, Buddhism, Jainism, Sikhism, Christianity and
Islam are the main religions of India. This variety of religions provides India with a diverse
culture. Besides, India has versatile population of urban and rural nature. This versatility of
population makes India a ready made market for foreign retailers.

III)
nn On economic front, India the largest democracy of the world,
have a stable åovt. with robust programme of economic reforms. India with a foreign exchange
reserve of more than US $120 billion, FDI of more than US $9.9 billion ,average åDP growth of
more than 7% per annum, rupee appreciation Vs U.S dollar of more than 2% in last two years
and with a rapidly growing investment in infrastructure has all the ingredients of a emerging
economic super power. India is tipped to be third largest economy in terms of åDP by the year
2050 (Table 1)

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I)  n 2nv

nRetailing is the largest private industry in India and
second largest employer after agriculture. The sector contributes to around 10 percent of åDP.
With over 12 million retail outlets, India has the highest retail outlets density in the world. This
sector witnessed significant development in the past 10 years from small unorganized family
owned retail formats to organized retailing. Liberalization of the economy, rise in per capita
income and growing consumerism has encouraged large business and venture capitalist in
investing in retail infrastructure. The importance of retail sector in India can be judged from
following facts (a) Retail sector is the largest contributor to the Indian åDP (b) The retail Sector
provides 15% employment (c) India has world largest retail network with 12 million outlets (d)
Total market size of retailing in India Is U.S $ 180 billion (e) Current Share of Organized
Retailing is just 2% which comes around to $3.6 trillion (f) Organized retail sector is growing @
28% per annum.

)In n n!

n
n": India is sometimes referred to as the nation
of shopkeepers. This is because the country has the highest density of retail outlets - over 12
million. However, unlike most developed and developing countries, Indian retail sector is highly
fragmented and bulk of the business is in the unorganized sector. As compared to China (Table
2) the presence of global players in India is very less

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India in such a scenario presents following facts to foreign retailers:

à =here is a huge, huge industry with no large players. Some Indian large players have entered just
recently like Reliance, =rent
à India can support significant players averaging $1 bn. in Grocery and $0.3- 0.5 bn. in apparel
within next ten years.
à =he transition will open multiple opportunities for companies and investors

In addition to the above, improved living standards and continuing economic growth, friendly
business environment, growing spending power and increasing number of conscious customers
aspiring to own quality and branded products in India are also attracting to global retailers to
enter in Indian market.


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FDI in retailing is favoured on following grounds:

(1) The global retailers have advanced management know how in merchandising and inventory
management and have adopted new technologies which can significantly improve productivity
and efficiency in retailing. (2) Entry of large low-cost retailers and adoption of integrated supply
chain management by them is likely to lower down the prices. (3) FDI in retailing can easily
assure the quality of product, better shopping experience and customer services. (4) They
promote the linkage of local suppliers, farmers and manufacturers, no doubt only those who can
meet the quality and safety standards, to global market and this will ensure a reliable and
profitable market to these local players. (5) As multinational players are spreading their
operation, regional players are also developing their supply chain differentiating their strategies
and improving their operations to counter the size of international players. This all will
encourage the investment and employment in supply chain management. (6) Joint ventures
would ease capital constraints of existing organised retailers and (7) FDI would lead to
development of different retail formats and modernisation of the sector.


n
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Many trading associations, political parties and industrial associations have argued against FDI
in retailing due to following reasons:

(1) Indian retailers have yet to consolidate their position. The existing retailing scenario is
characterized by the presence of a large number of fragmented family owned `



, who
would not be able to survive the competition from global players.

(2) The examples of south east Asian countries show that after allowing FDI, the domestic
retailers were marginalised and this led to unemployment.

(3) FDI in retailing can upset the import balance, as large international retailers may prefer to
source majority of their products globally rather than investing in local products.

(4) ålobal retailers might resort to predatory pricing. Due to their financial clout, they often
sell below cost in the new markets. Once the domestic players are wiped out of the market
foreign players enjoy a monopoly position which allows them to increase prices and earn profits.

(5) Indian retailers have argued that since lending rates are much higher in India, Indian
retailers, especially small retailers, are at a disadvantageous position compared to foreign
retailers who have access to International funds at lower interest rates. High cost of borrowing
forces the domestic players to charge higher prices for the products.

(6) FDI in retail trade would not attract large inflows of foreign investment since very little
investment is required to conduct @`


. åoods are bought on credit and sales are made
on cash basis. Hence, the working capital requirement is negligible. On the contrary; after
making initial investment on basic infrastructure, the multinational retailers may remit the higher
amount of profits earned in India to their own country.

_ I in Retailing in India - Policy and Entry Routes

In India, till recently, FDI was not allowed in retailing, but the Union cabinet on January
24, 2006 rationalised and simplified the FDI policy and allowed the contentious issue of foreign
investment in retail sector by allowing FDI up to 51 percent with prior government approval for
retail trade in single brand products. This would imply that foreign companies would be allowed
to sell goods sold internationally under a single brand, viz. Reebok, Nokia, Adidas. Retailing of
goods of multiple brands, even if such products are produced by same manufacturer would not
be allowed. However, there are indications that the åovernment may allow foreign investments
in retail segments where small domestic players do not operate. The Department of Industrial
Policy and Promotion is preparing a detailed policy for further liberalisation of FDI in the
country, which is likely to be announced before the budget 2007-08. As part of the proposed
move, the Ministry has marked out sports goods, electronics and building equipment as some of
the sectors that may be opened up with a 51% cap on FDI. The government is also considering to
permit multi-brand retail in such areas. The government is likely to discuss the matter with the
left parties before taking a final call on the issue. The Left has initially stalled the government¶s
plans to allow FDI in multi-brand retail on the grounds that it will adversely affect mom-and-pop
stores.

It is worth mentioning that FDI restrictions have not deterred prominent international players
from entering India. Many U.S and other international retailers and consumer goods companies
consider India a top-priority market with the potential for breakthrough growth. In this context
(a) Wal-Mart CEO, John Menzar visited India in 2005 and met with Prime Minister to discuss
relevant issues. Wal-Mart¶s sourcing from India, which was U.S.$300 million in 2004 reached to
U.S.$1.2 billion in 2005.(b) Fashion brand DKNY is set to foray into Indian fashion industry
through franchise agreement with Indian company, S. Kumar¶s. (c) Tommy Hilfiger,
International fashion icon says that AWe are going to build a wonderful lifestyle business here´
(d) Phillip Morris is ready to unveil its plans for kraft in India through Kraft Jacob Suchard
(KJS) India, a wholly owned arm of Philip Morris India (e) Starbucks has expressed its interest
in entering India through the franchise route.

Although before January 24, 2006 FDI was not allowed in retailing, many international
players are operating in the country. Some of entry routes employed by them are discussed in
details as below:

ï )% n
# 
n nc 
nCompanies that set up manufacturing facilities are
allowed to sell the products in the domestic market. Consumer durable companies such as Sony
and Samsung have entered the retail sector through this route. Due to high labour cost in their
domestic market, many international brands are setting up manufacturing bases in developing
countries such as India and China and / or are sourcing products from local manufacturers. For
example, Levi's and Tommy Hilfiger are sourcing products from Indian manufacturers like
Arvind Mills. Benetton has a manufacturing unit in India. Other international brands like åIVO
from Italy have set up export-oriented manufacturing facilities. These companies are allowed to
sell products to Indian consumers through franchising, local distributors, existing Indian retailers,
own outlets, etc.

ï)$ n2
n Franchising is the most preferred mode through which foreign players have
entered the Indian market. It is the easiest route to enter the Indian market. Franchising is often
used as a mode to expand the market of a particular retail enterprise outside domestic economy
since it allows firms to expand without investing their own capital, is based on local expertise
and enables firms to curb local oppositions and regulations. This is the most common mode for
entry of fast food chains across the world. Apart from fast food chains like Pizza Hut, players
such as Lacoste, Mango, Nike and Marks and Spencer, have entered the Indian market through
this route.

For setting up franchising operation, the foreign players are required to take permission
from the Reserve Bank of India (RBI). RBI often imposes the condition that franchisers have to
bring in foreign investment and set up a base for carrying on operational activities. A foreign
franchiser not wishing to make a direct investment would have to render technical assistance to
the franchisee. Some franchisee, such as Pizza Hut has made significant investment in the
supply chain.

The arrangements between franchisee and franchiser are found to be extremely flexible
and are based on negotiation between the two. Some Indian franchisees have complained about
high franchising fees together with high real estate costs, high import duties and other costs
escalate the prices. For instance, the cost of a Marks and Spencer product is higher than not only
the brands produced domestically but also in comparison to the price of the product in the UK.
The high prices restrict the ability of the foreign players to penetrate the market but they have
entered the country to make their brands visible to the huge Indian market.

If FDI is allowed in retailing, franchisees are not very sure whether they would hold the
retailing rights for the brands. According to industry representatives, since franchisees largely
constitute of domestic traders (even some unorganised retailers have take up franchising rights)
who have made significant investment in infrastructure, government through legislation must
ensure that they do not loose out their franchising rights if FDI is allowed in retailing and the
franchisers decide to change the mode of operation. The existing franchisees have also
expressed an interest in entering into joint venture with the franchisers if FDI is allowed in
retailing.

ï) 
% &nTest marketing is another route through which many foreign players have
entered the Indian market. Foreign investment Promotion Board (FIPB) allows foreign
companies for test marketing of their products for a two-year period by the end of which they are
required to set up manufacturing facilities in India. Direct selling companies like Amway and
Oriflame entered the Indian market through this route. Initially, Amway got an approval for test
marketing for a period of two years but they managed to secure an extension of one more year.
At the end of the third year, they set up contract manufacturing facilities and brought in foreign
investment and technical know-how. Oriflame too extended its test marketing license for a third
year and at the end of which had set up a manufacturing facility in Noida (UP) for producing
certain specific products. Other products are imported and would continue to be imported from
abroad.

Nokia came to India through the test marketing route in mid-1990s. Initially they got a
license for two years to test their products in the Mumbai circle. After three months of their
entry they tied up with the service providers to provide integrated services to their customers.
Due to pressure from the FIPB, Nokia had tied up with the HCL Infotech as a strategic partner
for all India distribution of Nokia products. After the success of its products in the country,
Nokia had opened up an office but had not set up a manufacturing facility and continued to
import all products (even models made specifically for India). After another two years they
divided the country into four zones and entered into a strategic alliance for distribution with
Supreme for East and West India while HCL continued with North and Southern zone. Nokia
had also applied for the cash and carry license from the FIPB and has recently got the license.
Nokia is aggressively targeting the Indian consumers and plan to capture 75 percent of the
mobile market in the next seven years. The company, which currently operates as a wholesale
cash-and carry, recently announced that it would set up manufacturing facilities very soon.

The test marketing route allows foreign players to test the demand for their products in
Indian market before undertaking investment. Even if FDI is allowed in retailing, many foreign
players would like to enter the Indian market through this route.

ï)'2
(
2 n ( ! nThis is the route through which large international
retailers such as åermany's Metro Cash & Carry åmbH and Shoprite Checkers of South Africa
have entered the Indian market. The wholesale cash-and-carry operation is defined as any
trading outlets where goods are sold at the wholesale rate for retailers and businesses to buy.
The transactions are only for business purposes and not for personal consumption as in the case
of retailing.

ï)

Companies such as Swarovski and Hugo Boss have set up distribution offices
in India and these offices supply the products to local retailers. All products of Hugo Boss are
imported and distributed through the company's distributor.

ï#) (

The Sri Lankan retailers have entered the India market through the initiatives
of Export Development Board of Sri Lanka (EDB) which obtained special permission from the
RBI to set up retail operations in India. The EDB has leased 17 retail outlets in Spencer Plaza in
Chennai in which Sri Lankan retailers are showcasing and selling their products. The Sri Lankan
products showcased in these stores are mostly at the higher end of the quality spectrum and can
be brought into the country free of duty. This gives an advantage to large Sri Lankan retailers
like Hameedia not only to establish a global presence but also to access the large customer base
of India at competitive prices. The EDB is also exploring the possibilities of setting up similar
trade centres in other cities like Delhi and Mumbai. Although this mode has allowed retailers
from Sri Lanka to enter the Indian market without domestic manufacturing and sourcing
conditions and some products sold by these traders are similar to those sold by Indian retailers,
EDB did not face any opposition from Chambers, retailers and the trading houses.

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Conclusion

It is evident that ever growing urban and rural markets in India represent an
unprecedented and vast unexplored opportunity for retailing to all types of formats. Initially there
may be certain reservations and apprehensions in allowing global players in India¶s retailing but
if they are allowed in a phased manner on the basis of a well conceived and chalked out policy,
they are likely to lead to more investment in organized retailing and allied sectors. As already
discussed, it would also lead to inflow of latest technical know how, establishment of well
integrated and sophisticated supply chains, availability of standard, latest and quality products,
help in up gradation of human skills and increased sourcing from India. Yet the following points
may be kept into consideration in this context:

1. Since the Indian retail sector is highly fragmented and domestic retailers are in the process of
consolidating their position, the opening up of _ I regime should be in phased manner over 5 to
10 years time frame so as to give the domestic retailers enough time to adjust changes.
2. _ I should not be allowed for multi brand stores in near future, as Indian retailers will not be
able to face competition with these stores immediately.
3. At present it is also not desirable to increase _ I ceiling to more than 51% even for single
premium brand stores. It will help us to ensure check and control on business operations of
global retailers and to protect the interests of domestic players. However, the limit of equity
participation can be increased in due course of time as we did in telecom, banking and insurance
sectors.
4. _oreign players should not be allowed to trade in certain sensitive products like arms and
ammunition, military equipment, etc. and the list of excluded products should be clearly stated
in the _ I policy.
5. Generally super markets and hyper markets should not be allowed in the mid of city so as to
protect the existence of unorganised or comparatively medium sized retail organizations.

The strategy of opening up should be backed by appropriate reform measures. India can
learn from the experiences of other developed and developing countries and develop its own
strategies, laws and regulations that would be in the best interest of the country. As of now,
there is no proper definition of retailing or retail formats in India. International players are
exploiting the situation and are often entering the market and expanding their businesses through
multiple routes and are operating in the country with more than one format of retailing. The
regulatory regime should address these issues. The entry norms should clearly state the approval
requirements, conditions / restrictions if any imposed, etc. The government should also strictly
enforce the quality standards for local production and imports.

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' 

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100% FDI is permissible in the sector on the automatic route.

The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry include
travel agencies, tour operating agencies and tourist transport operating agencies, units providing
facilities for cultural, adventure and wild life experience to tourists, surface, air and water
transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for
tourists and Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy
services including fees for architects, design, supervision, etc.
ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and up
to 10% of gross operating profit is payable for management fee, including incentive fee.

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(

           
 
 a. _ I/NRI/OCB investments allowed in the following 19 NB_C activities shall be as per levels
indicated below:

i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. _inancial Consultancy
vi. Stock Broking
vii. Asset Management
viii. Venture Capital
ix. Custodial Services
x. _actoring
xi. Credit Reference Agencies
xii. Credit rating Agencies
xiii. Leasing & _inance
xiv. Housing _inance
xv. _oreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. Micro Credit
xix. Rural Credit

b. Minimum Capitalization Norms for fund based NB_Cs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million
to be brought upfront and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted non-
fund based NBFCs with foreign investment.

d. Foreign investors can set up 100% operating subsidiaries without the condition to disinvest
a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50 million as at b)
(iii) above (without any restriction on number of operating subsidiaries without bringing in
additional capital)

e. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will
also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the
subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii)
above.
 f. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of
the Reserve Bank of India. RBI would issue appropriate guidelines in this regard.

In

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nIn 
FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining
licence from Insurance Regulatory & Development Authority (IRDA)


n n$In 
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i. In basic, cellular, value added services and global mobile personal communications by satellite,
_ I is limited to 49% subject to licensing and security requirements and adherence by the
companies (who are investing and the companies in which investment is being made) to the
license conditions for foreign equity cap and lock- in period for transfer and addition of equity
and other license provisions.
ii. ISPs with gateways, radio-paging and end-to-end bandwidth, _ I is permitted up to 74% with
_ I, beyond 49% requiring Government approval. =hese services would be subject to licensing
and security requirements.
iii. No equity cap is applicable to manufacturing activities.
iv. _ I up to 100% is allowed for the following activities in the telecom sector :
a. ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fiber (IP Category 1);
c. Electronic Mail; and
d. Voice Mail

The above would be subject to the following conditions:

e. _ I up to 100% is allowed subject to the condition that such companies would divest
26% of their equity in favor of Indian public in 5 years, if these companies are listed in
other parts of the world.
f. =he above services would be subject to licensing and security requirements, wherever
required.

Proposals for _ I beyond 49% shall be considered by _IPB on case to case basis.
  n$In  n( n
nIn 
Trading is permitted under automatic route with FDI up to 51% provided it is primarily export
activities, and the undertaking is an export house/trading house/super trading house/star trading
house. However, under the FIPB route:-

i. 100% _ I is permitted in case of trading companies for the following activities:

à exports;
à bulk imports with ex-port/ex-bonded warehouse sales;
à cash and carry wholesale trading;
à other import of goods or services provided at least 75% is for procurement and sale of goods
and services among the companies of the same group and not for third party use or onward
transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy:

a. Companies for providing after sales services (that is not trading per se)
b. omestic trading of products of JVs is permitted at the wholesale level for such trading
companies who wish to market manufactured products on behalf of their joint ventures in
which they have equity participation in India.
c. =rading of hi-tech items/items requiring specialized after sales service
d. =rading of items for social sector
e. =rading of hi-tech, medical and diagnostic items.
f. =rading of items sourced from the small scale sector under which, based on technology provided
and laid down quality specifications, a company can market that item under its brand name.
g. omestic sourcing of products for exports.
h. =est marketing of such items for which a company has approval for manufacture provided such
test marketing facility will be for a period of two years, and investment in setting up
manufacturing facilities commences simultaneously with test marketing.

_ I up to 100% permitted for e-commerce activities subject to the condition that such companies would
divest 26% of their equity in favor of the Indian public in five years, if these companies are listed in other
parts of the world. Such companies would engage only in business to business (B2B) e-commerce and
not in retail trading.

h$IInhnIn 
Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission
and distribution, other than atomic reactor power plants. There is no limit on the project cost and
quantum of foreign direct investment.



h2  
 

FDI up to 100% is permitted on the automatic route for manufacture of drugs and
pharmaceutical, provided the activity does not attract compulsory licensing or involve use of
recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs
produced by recombinant DNA technology, and specific cell / tissue targeted formulations will
require prior åovernment approval.

 
+'2 
+h
 n' 


FDI up to 100% under automatic route is permitted in projects for construction and maintenance
of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.

h
n(n n% n n
FDI up to 100% in both manufacture of pollution control equipment and consultancy for
integration of pollution control systems is permitted on the automatic route.

( (n
nIn ,( (n
nIn 

FDI up to 100% is allowed subject to certain conditions.

)

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FDI up to 100% is allowed subject to certain conditions.

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NRI's and OCB's are allowed the following special facilities:

1. irect investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the following sectors:

i. 34 High Priority Industry Groups

ii. Export =rading Companies
iii. Hotels and =ourism-related Projects
iv. Hospitals, iagnostic Centers
v. Shipping
vi. eep Sea _ishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate evelopment
x. Highways, Bridges and Ports
xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
xiii. Industries Reserved for Small Scale Sector

3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising Capital through Public
Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership engaged in Industrial,
Commercial or =rading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the equity Capital or
Convertible ebentures of the Company by each NRI. Investment in Government Securities, Units of U=I,
National Plan/Saving Certificates.
6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a General Body
Resolution, up to 24% of the Paid Up Value of the Company.
 7. Other _acilities: Income =ax is at a _lat Rate of 20% on Income arising from Shares or ebentures of an
Indian Company.

Certain terms and conditions do apply.

See also †


  
 
†

      

 




 




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See also 

 
  







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Recently, India has allowed Foreign Direct Investment up to 100% in many manufacturing industries which
were designated as Small Scale Industries.

India further ended in February 2008 the monopoly of small-scale units on 79 items, leaving just 35 on the
reserved list that once had as many as 873 items.

While industrial policy reforms began with the new industrial policy statement of 1991, India remained wary
of intruding on the politically sensitive issue of reservation for small-scale industry till the end of the 1990s.

Thus, while at the turn of the millennium the number of items reserved for SSI units had come down from its
peak of 873 in 1984, well over 800 items remained on the list.

Since 2002, the scenario has changed dramatically. In these last seven years, around 790 items - including
things like farm equipment, toothpaste, ice cream, footwear, detergents and even garments - have been
knocked off the list.

Thus, for the first time in over 40 years, there are today as few as 35 items reserved for SSI units. When the
policy of reservation was first introduced in 1967, there were just 47 items reserved for small-scale
manufacturers.

However, what was till then an administrative decision was given legal backing by an amendment enacted in
1984 to the Industries (Development and Regulation) Act, 1951. That year also saw the number of items
reserved reaching a peak of 873.

Reservation means that units producing the reserved items cannot go beyond a stipulated cap on investment in
plant and machinery. Moreover, FDI was allowed on a limited basis in SSI's.
In the old days, therefore, it was standard practice for mass consumption items covered by the reserved list to
be farmed out by large marketing companies to dozens of small units, thereby negating economies of scale.

What it also meant was that some companies resorted to manufacturing completely new class of products. So,
if ice cream was reserved for small scale units, a large player could always produce, say, 'frozen desserts'.

Apart from the steady trickle of de-reservation over the last decade, one of the measures taken to get over this
problem without confronting the political problems involved was to allow foreign investment even in reserved
items with the caveat that such units would have to fulfill an export obligation.

For players who were already manufacturing items that were suddenly reserved in 1967, the government came
up with what was carry-on-business license which capped their capacity, and fixed the location of the plant
and the goods produced.

The latest de-reservation means that pastries, hard boiled sugar candy and tooth powder can be manufactured
by large units too. Similarly, buckets, paper bags, paper cups, envelopes, letter pads, paper napkins might not
be manufactured only in small units but also in specialized factories.

The same for sesame and rapeseed oil, which are not solvent extracted, a host of chemicals and dyes paints be
it distempers.

Electrical goods, which include geysers, hot air blowers and toasters, too are out of the reserved list, as are
ballpoint and fountain pens.

The remaining 35 items that would be produced by the SSI sector are food and allied items, wood, wood
products, paper, paper products, plastic products, organic chemicals, drugs, drug intermediates, other
chemicals, chemical products, glass, ceramics, mechanical engineering and electrical machines, appliances
and apparatus.

In a nutshell, only 35 items remain reserved for the small scale industries sector. For foreign investors, it
means that in those 35 reserved sectors foreign investment is allowed on a limited basis, except where certain
conditions are met.

Contact us for further information

In $
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India has liberalized foreign investment regulations in key sectors, opening up commodity exchanges, credit
information services and aircraft maintenance operations. The foreign investment limit in Public Sector Units
(PSU) refineries has been raised from 26% to 49%. An additional sweetener is that the mandatory
disinvestment clause within five years has been done away with.

FDI in Civil aviation up to 74% will now be allowed through the automatic route for non-scheduled and cargo
airlines, as also for ground handling activities.

100% FDI in aircraft maintenance and repair operations has also been allowed. But the big one, allowing
foreign airlines to pick up a stake in domestic carriers has been given a miss again.

India has decided to allow 26% FDI and 23% FII investments in commodity exchanges, subject to the proviso
that no single entity will hold more than 5% of the stake.

Sectors like credit information companies, industrial parks and construction and development projects have
also been opened up to more foreign investment.

Also keeping India's civilian nuclear ambitions in mind, India has also allowed 100% FDI in mining of
titanium, a mineral which is abundant in India.

Sources say the government wants to send out a signal that it is not done with reforms yet. At the same time,
critics say contentious issues like FDI and multi-brand retail are out of the policy radar because of political
compulsions. (Jan 2008)

http://www.madaan.com/sectors.html

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