INDIA ranks second in the world in terms of financial attractiveness, people and skills availability and business environment.

This is revealed in AT Kearney's 2007 Global Services Location Index. Country's financial stability in the current environment of financial turbulence and a possible unwinding of macro imbalances sends clear message to the prospective foreign investors about India's position as an expanding investment destination. "India's external sector has displayed considerable strength and resilience since the reforms in 1991- despite several domestic as well as global political events and supply shocks in food and fuel........we partner with the global economy fully on the trade and current account while there is progressive liberalisation of the capital account, consistent with the progress in reforms in the real, fiscal and financial sectors", observed Dr Y.V.Reddy, Governor of India's central banking authorities, Reserve Bank of India (RBI) at the World Leaders Forum in New York in April this year. "The strong macro economic fundamentals, growing size of the economy and improving investment climate has attracted global corporation to invest in India. A major outcome of the economic reforms process aimed at opening up the economy and embracing globalization has led to to tremendous increase in Foreign Direct Investment inflows into India", says country's powerful industry lobby CII.
CUMULATIVE FDI EQUITY INFLOWS
In Rs Crore Cumulative amount of FDI inflows (From April 2000 to March 2009) Amount of FDI inflows during 2008-9 (From April 2008 to January 2009) Cumulative amount of FDI Inflows (Up to April 2009) In US$ Million 89,819

3,93,020

105,673 4,04,728

23, 885 92,158

SOURCE: DIPP, Federal Ministry of Commerce & Industry, Government of India

Branding India as a "safe and stable" investment destination amid global financial turmoil, country's Commerce and Industry minister Kamal Nath expects despite the global financial meltdown, FDI inflows into India during the current fiscal year (2008-09) will close at $ 35 billion signifying over $ 11 billion invested in the previous financial year (India's fiscal year is April to March). In 2007-08, reinvested earnings of foreign firms in India stood at $ 5.5 billion. Global firms have routed most of the investment through tax havens like Mauritius and Singapore during 2007-08, while Japanese firms have poured more money into India. Lot of investment is expected to flow into petroleum, manufacturing and electronic hardware sectors, Nath said.

Year Wise FDI inflows into Infrastructure sector during April 2000 to December 2007
(In US$ million)

YEAR 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 (Up to December 2007) TOTAL SOURCE: Federal Ministry of Commerce and Industry, Government of India

AMOUNT 292.37 1902.26 347.33 388.37 456.00 914.04 2179.39 4095.80 10575.56

Policymakers estimate that to sustain high growth rate India will need massive investment in the five year period to March 2012, including $500 billion in infrastructure, to sustain high growth rates. In January, India raised FDI limits in petroleum refinery, aviation, commodity exchanges, credit information companies and mining of some precious metals to attract more capital and boost growth in those sectors. The Congress(I)-led UPA government has plan to raise FDI limits in insurance to 49 cent. in fact the Cabinet has okayed it, now it will go to Parliament. However, the retail trade is yet to be opened further. The government is in the process of fine tuning FDI rules in order to make India more attractive as FDI destination.
FDI Equity Inflows (2008-09)
MONTHS April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 Year 2008-09 (Up to January 2009) In Rs crore 15005 16563 10244 9627 9995 11676 7284 5305 6626 13347 105673 In US$ Million 3749 3932 2392 2247 2328 2562 1497 1083 1362 2733 23885

Year 2007-08 (Up to January 2008)

58203

14466

YOY Growth (%)

(+) 81

(+) 65

SOURCE: DIPP, Federal Ministry of Commerce & Industry, Government of India

In FDI equity investments Mauritius tops the list of first ten investing countries followed by US, UK, Singapore, Netherlands, Japan, Germany, France, Cyprus and Switzerland. Between April 2000 and July 2008 FDI inflows from Mauritius stood at $ 30.18 billion followed by $5.80 billion from Singapore; $ 5.47 billion from the US; $ 4.83 billion from the UK; $ 3.12 billion from the Netherlands; $ 2.26 billion from Japan; $1.83 billion from Germany; $ 1.41 billion from Cyprus; and $1.02 billion from France.

Top ten investing (FDI Equity) countries (In Rs. crore)

COUNTRY 2005-06 2006-07 2007-08 2008-09 (from AprilMarch, 2009) 50794 (11208) 8002 (1802) 3840 (864) 15727 (3454) 3922 (883) 1889 (405) 2750 (629) 2098 (467) 5983 (1287) 1133 (257) 122919 (27309) Cumulative (From April 2000 to April 2009) 168485 (38305) 28303 (6404) 23002 (5246) 34467 (7934) 15957 (3611) 12041(2694) 9580 (2191) 5489 (1229) 11140 (2491) 4146 (948) 404728 (92158) % with total (inflows in terms of rupees) 44%

Mauritius

11441 (2570) 2210 (502) 1164 (266) 1218 (275) 340 (76) 925 (208) 1345 (303) 82 (18) 310 (70) 219 (49) 24613 (5546)

28759 (6363) 3861 (856) 8389 (1878) 2662 (578) 2905 (644) 382 (85) 540 (120) 528 (117) 266 (58) 1174 (260) 70630 (15726)

44483 (11096) 4377 (1089) 4690 (1176) 12319 (3073) 2780 (695) 3336 (815) 2075 (514) 583 (145) 3385 (834) 1039 (258) 98664 (24579)

USA

7%

UK

6%

Singapore

9%

Netherlands

4%

Japan

3%

Germany

3%

France

1%

Cyprus

3%

UAE Total FDI inflows*

1%

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India Figures in bracket are in US$ million

The average FDI inflows per year during the 9th Plan was $ 3.2 billion and during the 10th Plan it increased manifold to stand at $ 16.33 billion the annual average being $ 6.16 billion. The top five sectors attracting FDI in fiscal 2007-08 included Services sector; Housing and Real Estate; Construction activities; Computer Software & hardware; and Telecommunications. The infrastructure sector that offers massive potential to attract FDI witnessed marked increase in FDI inflows during this five-year period. The extant policy for most of the infrastructure sectors permits FDI up to 100 percent on the automatic route. From $ 1902 million in fiscal 2001-02 the foreign investment in India's infrastructure sector increased to $ 2179 million in 2006-07. But fiscal 2007-08 witnessed significant increase in the FDI inflows in the infrastructure. In first nine months till December 2007 of fiscal 2007-08 stood at $ 4095 million. From 2000-01 to December 2007, total FDI in India's infrastructure sector stood at $ 10575 million. .

Sectors attracting highest FDI Equity Inflows (In Rs crore)

SECTOR

2005-06

2006-07

2007-08

2008-09 (April-Jan '09)

Cumulative (Apr.2000- Jan 2009)

% of total inflows*

Services (Financial & nonfinancial)

2399 (543)

21047 (4664)

26589 (6615)

23045 (5061)

78742 (181189)

22%

Computer Software & Hardware

6172 (1375)

11786 (2614)

5623 (1410)

6944 (1599)

39111 (8876)

11%

Telecommunications

2776 (624)

2155 (478)

5103 (1261)

10797 (2374)

27544 (6216)

8%

Construction

667 (151)

4424 (985)

6989 (1743)

6224 (1483)

19606 (4646)

6%

Automobile

630 (143)

1254 (276)

2697 (675)

1792 (441)

11648 (2678)

4%

Housing and Real estate

171 (38)

2121 (467)

8749 (2179)

10632 (2408)

21794 (5119)

6%

Power

386 (87)

713 (157)

3875 (967)

4079 (924)

13709 (3130)

4%

Metallurgical

6540 (147)

7866 (173)

4686 (1177)

3608 (850)

10956 (2613)

3%

Chemicals (Other than fertilizers)

1731 (390)

930 (205)

920 (229)

2561 (579)

9442 (2244)

2%

Petroleum & Natural Gas

64 (14)

401 (89)

5729 (1427)

1196 (263)

8509 (2043)

3%

Figures in bracket are in US$ million * In terms of Rs. SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India

Of the total FDI amounting to $ 56450 million in first 11 months of fiscal 2007-08, direct investment stood at $ 25455 million. of this, equity investment accounts for the major share with $ 20636 million. Portfolio investments totaled $ 30995 million.

FDI Inflows (as per international best practices)

EQUITY

Reinvested earnings+

Other capital+

Total FDI inflows

YOY growth (%)

FISCAL YEAR (APRIL-MARCH) FIPB Route/ RBI's Automatic Route/ Acquisition Route Equity capital of unincorporated bodies#

1991(August)-2000 (March)

15483

15483

2000-01 2001-02 2002-03 2003-04 2004-05

2339 3904 2574 2197 3250

61 191 190 32 528

1350 1645 1833 1460 1904

279 390 438 633 369

4029 6130 5035 4322 6051

(+) 52 (-) 18 (-) 14 (+) 40

2005-06 2006-07 (P)* 2007-08 (P)*

5540 15585 24575

435 896 2292

2760 5828 7168

226 517 327

8961 22826 34362

(+) 48 (+) 146 (+) 51

2008-09 (April-Dec)

23885

334

3004

203

27426

Cumulative Total (From August 1991-January 2009)

99332

4959

26952

3382

134625

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India

India: Foreign Investment Inflows (Fiscal 2007-08) (In US$ Million)

SEGMENT 199596 199697 199798 199899 19992000 YEAR 200001 200102 200203 200304 200405 200506 200607

A. Direct Investment (I+II+III) 1. Equity (a+b+c+d+e) a. Govt. (SIA/FIPB) b. RBI c. NRI d. Acquisition of shares. e. Equity capital of unincorporated bodies# Reinvested earnings+ Other capital ++ B. Portfolio Investment (a+b+c) a. GDRs/ADRs## b. FIIs** c. Offshore funds & others Total (A+B)

2144

2821

3557

2462

2155

4029

6130

5035

4322

6051

8961

22079

2144 1249 169 715 11

2821 1922 135 639 125

3557 2754 202 241 360

2462 1821 179 62 400

2155 1410 171 84 490

2400 1456 454 67 362

4095 2221 767 35 881

2764 919 739 916

2229 928 534 735

3778 1062 1258 930

5975 1126 2233 2181

16482 2156 7151 6278

61

191

190

32

528

435

897

1350 279

1645 390

1833 438

1460 633

1904 369

2760 226

5091 506

2748

3312

1828

-61

3026

2760

2021

979

11377

9315

12492

7003

683 2009 56 4892

1366 1926 20 6133

645 979 204 5385

270 -390 59 2401

768 2135 123 5181

831 1847 82 6789

477 1505 39 8151

600 377 2 6014

459 10918 15699

613 8686 16 15366

2552 9926 14 21453

3776 3225 2 29082

* : Relates to acquisition of shares of Indian companies by non-residents under Section 6 of FEMA, 1999. Data on such acquisitions have been included as part of FDI since January 1996. ** : Represents inflow of funds (net) by Foreign Institutional Investors (FIIs). # : Figures for equity capital of unincorporated bodies for 2006-07 and 2007-08 (April-December) are estimates. # # : Represents the amount raised by Indian Corporates through Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). + : Data for 2006-07 and 2007-08 are estimated as average of previous two years. ++: Data pertain to inter company debt transactions of FDI entities. : Include swap of shares of US $ 3.1 billion. Notes : 1. Data on FDI have been revised since 2000-01 with expanded coverage to approach international best practices. 2. These data, therefore, are not comparable with FDI data for previous years. Also see Notes on Tables of Table No 42&43. 3. Monthly data on components of FDI as per expanded coverage are not available.

SOURCE: Reserve Bank of India

In recent times transational corporations from many developing and transition ecionomies have become very important investors in developed as well as less developeed countries either through M&A route or through greenfield investments. According to a reserve Bank of India report, TNCs from economies like China, Brazil, India, Russia and South Africa have emerged as global leaders in manufacturing and services sectors. The UNCTAD's World Investment Report 2007 revealed that global outward FDI amopunted to $ 1216 billion in 2006 registering significant growth in last 17 years from $ 230 billion in 1990.

India's Outward Foreign Direct Investment

As an outcome of liberalization policies, India's outward foreign direct investment witnessed an unprecedented rise in recent period. India's overseas investments that began with Information Technology and related services sectotrs has over the years spread to wider areas like manufacturing and financial and non-financial areas. According to a Reserve Bank of India report, number of proposals approved for outward FDI from India in joint ventures and WOSs increased from 1214 in 2003-04 to 1817 in 2006-07. The amount fo approved proposals increased from $ 1466 million in 2003-04 to $ 15060 million in 2006-07. The amount of outward FDI from India on account of JVs/WOSs, according to the RBI report, increased from $ 1495 million in 2003-04 to $ 12880 million in 2006-07. Equity accounted for 90 percent of the total investments and the remaining 10 percent by way of loans in 2006-07. Inflows from India's outward FDI are in the form of dividend, royalty, license fee, brand fee, technical knowhow fee, repayment of loans etc. During 2006-07 total inflows from outward FDI amounted to $ 295 million. The sectoral pattern of outward FDI is led by manufacturing during first nine months of fiscal 2007-08 with $ 7634 million

followed by non-finacial services' $ 1677.71 million and $ 620.48 milliion. Of the total investmemnts 96 percent were of large investments (4 5 million and above). Sectorwise 43 percent were bin manufacturing folowed by nonfimnancfinancial services ( 10 percent) and ytrading ( 4 percent).

SECTORAL PATTERN OF OUTWARD FDI DURING APRIL-DECEMBER 2007

(In US$ Million)

Month Sector April Trading Manufacturing Non Financial Services Others Financial Total Note SOURCE : Reserve Bank of India 54.22 149.10 66.79 52.47 322.60 May 28.25 549.00 234.20 396.90 1208.00 June 46.74 4122.00 61.20 883.30 5113.00 July 40.57 495.40 23.63 172.60 732.20 Aug. 219.52 364.91 67.20 651.63 Sept. 24.17 1339.11 420.61 77.67 1861.56 Oct. 114.98 256.93 139.50 4554.26 7.00 5072.67 Nov. 311.55 345.09 248.07 596.99 25.46 1527.16 Dec 157.78 118.78 879.84 1156.40

Total Approvals

620.48 7634.00 1677.71 7681.09 32.46 17645.74

INDIA: SECTOR SPECIFIC POLICY FOR FOREIGN DIRECT INVESTMENT

Sector/Activity Airports (a) Greenfield projects (b) Existing projects 100% 100% Automatic FIPB beyond 74% Subject to sectoral regulations notified by Ministry of Civil Aviation Subject to sectoral regulations notified by Ministry of Civil Avation Subject to conditions notified vide Press Note 2 (2005 Series) including a minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 millionfor joint venture. The funds would have to be brought within six months of commencement of FDI Cap/Equity Entry Route Other Conditions

Construction Development projects including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships

100%

Automatic

business of the Company Petroleum & Natural Gas Subject to sectoral regulations issued by Ministry of Petroleum and Natural Gas; and in the case of actual trading and marketing of petroleum products, divestment of 26% equity in favour of India partner/public within 5 years.

(a) Other than Refining and including market study and formulation; investment/financing; setting up infrastructure for marketing in Petroleum & Natural Gas sector)

100%

Automatic

26% in case of PSUs (b) Refining 100% in case of Private companies

FIPB Subject to sectoral policy Automatic

Telecommunication 74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares, and proportionate foreign equity in Indian promoters/investing Company Automatic upto 49% FIPB beyond 49%

(a) Basic and cellular; Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services

Subject to guidelines notified in the PN 5/2005 Series

(b) ISP with gateways, radio-paging, endto-end bandwidth

Automatic up to 49% 74% FIPB beyond 49%

Subject to licencing and security requirements notified by the Department of Telecommunication

(c) ISP without gateway, infrastructure provider providing dark fibre, electronic mail and voice mail

100%

Automatic up to 49% FIPB beyond 49%

Subject to the condition that such companies shall divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Also subject to licensing and security requirements, where required.

(d) Manufacture of telecom equipment

100%

Automatic

Subject to sectoral requirements

Power including generation ( Except Atomic energy); regulations transmission, distribution and Power Trading Ports Roads & Highways Shipping 100% 100% 100% Automatic Automatic Automatic

Subject to provisions of the Electricity Act 2003 Subject to sectoral regulations Subject to sectoral regulations Subject to sectoral regulations

Sector-wise FDI Inflows

Sector-wise FDI Inflows ( From April 2000 to January 2009)
AMOUNT OF FDI INFLOWS SECTOR In Rs Million In US$ Million

PERCENT OF TOTAL FDI INFLOWS (In terms of Rs)

Services Sector Computer Software & hardware Telecommunications Construction Activities Automobile Housing & Real estate Power Chemicals (Other than Fertilizers) Ports Metallurgical industries Electrical Equipments Cement & Gypsum Products Petroleum & Natural Gas Trading Consultancy Services Hotel and Tourism Food Processing Industries Electronics Misc. Mechanical & Engineering industries Information & Broadcasting (Incl. Print media)

787420.81 391109.74 275441.38 213595.12 146799.41 217936.02 137089.37 87008.07 63290.50 109563.20 57379.63 70781.19 94417.17 62416.85 48647.43 52500.05 34362.49 33914.75 28310.13 52115.90

18118.40 8876.43 6215.55 5029.01 3310.23 5118.85 3129.66 1964.06 1551.88 2612.85 1324.92 1621.03 2244.17 1480.94 1112.92 1217.50 760.32 748.57 648.86 1194.20

22.39 11.12 7.83 6.07 4.17 6.20 3.90 2.47 1.80 3.11 1.63 2.01 2.68 1.77 1.38 1.49 0.98 0.96 0.80 1.48

Mining Textiles (Incl. Dyed, Printed) Sea Transport Hospital & Diagnostic Centres Fermentation Industries Machine Tools Air Transport ( Incl. air freight) Ceramics Rubber Goods Agriculture Services Industrial Machinery Paper & Pulp Diamond & Gold Ornaments Agricultural Machinery Earth Moving Machinery Commercial, Office & Household Equipments Glass Printing of Books (Incl. Litho printing industry) Soaps, Cosmetics and Toilet Preparations Medical & Surgical Appliances Education Fertilizers Photographic raw Film & Paper Railway related components Vegetable oils and Vanaspati

21204.94 26736.94 17653.81 27241.42 27743.46 10955.32 10552.19 17462.43 11392.76 7937.13 13748.27 18612.76 11014.62 6649.12 5749.34 5798.71 5683.60 6066.23 4984.88 8087.87 14374.11 4282.17 2580.20 3281.85 3769.18

522.86 611.03 402.59 644.73 658.04 247.88 240.71 409.92 247.60 188.39 316.97 429.06 248.15 148.37 134.22 132.74 126.51 135.80 114.54 177.42 309.09 96.59 63.90 75.11 83.69

0.60 0.76 0.50 0.77 0.79 0.31 0.30 0.50 0.32 0.23 0.39 0.53 0.31 0.19 0.16 0.16 0.16 0.17 0.14 0.23 0.41 0.12 0.07 0.09 0.11

Sugar Tea & Coffee (Processing & warehousing coffee & rubber) Leather, Leathergoods & Piackers Non-conventional energy Industrial instruments Scientific instruments Glue and Gelatine Boilers & steam generating plants Dye-Stuffs Retail Trading (Single brand) Coal Production Coir Timber products Prime Mover (Other than electrical generators Defence Industries Mathematical, Surveying & drawing instruments Misc. industries Sub Total Stock Swapped (from 2002 to 2008) Advance of Inflows (from 2000 to 2004) RBI's NRI Schemes Grand Total

1836.64 3774.81 1621.56 3640.58 1368.36 511.44 385.80 238.67 406.48 1074.67 614.10 50.17 139.59 178.30 6.87 50.35 180561.54 3517310.79 145466.35 89622.22 5330.60 3757729.96

41.58 84.28 36.74 86.84 29.47 11.64 8.44 5.40 9.52 25.18 15.42 1.12 3.10 3.72 0.15 1.27 4162.55 81010.63 3391.07 1962.82 121.33 86395.85

0.05 0.11 0.05 0.10 0.04 0.01 0.01 0.01 0.01 0.03 0.02 0.00 0.00 0.01 0.00 0.00 5.19 100.00 -

Sector wise FDI inflows data reclassified, as per segregations of data from April 2000 onwards

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India