Outside Direct Investment Overview and late improvements

Presentation Transcript

Outside Direct Investment Overview and late advancements Nabin Ballodia & Sujay Paul 24 April 2010

Agenda Overview Recent Developments Procedural Aspects Sector Specific Guidelines Questions

Overview

India Transformed !! … Yesterday Slow rate of development Bureaucratic Protected and moderate Small shopper markets Weak framework … Today Strong full scale financial essentials Encouraging remote speculation Outsourcing goal Growing consumerism Impetus on foundation advancement India - the biggest Democracy - one of the quickest developing economies in the World!

India is Relatively Stable and Growing … ! "If there is one place on the substance of this Earth where every one of the fantasies of living men have found a home when man started the fantasy of presence, it is India". Romain Rolland, French thinker

Forms of business nearness in India Forms of Business nearness in India Foreign speculator Government endorsement required. Commonly, not inevitable Generally requires endorsement (aside from Project Office ) Generally allowed aside from specific segments where government endorsement is required Unincorporated elements Incorporated elements Partnerships Liaison office Joint wander Unlimited organization Project office Wholly possessed backup LLP Branch office A favored type of business nearness might be picked in light of working adaptability, assess efficiencies, administrative compliances and productivity in capital raising

Foreign Direct Investment Policy… Foreign Direct Investment ('FDI') – cross outskirt venture with a goal to build up 'enduring premium' Objective - to urge FDI to advance mechanical & financial improvement; supplement residential capital/innovation Foreign interest in India is controlled by Government of India's FDI approach. The FDI rules directed by the Ministry of Commerce and Industry. Division of Industrial Policy & Promotion ('DIPP'), Foreign Investment Promotion Board ('FIPB') and Secretariat of Industrial Assistance ('SIA') control the FDI Policy Administrative and consistence parts of FDI observed by RBI Since 1991, arrangement has been changed generously to encourage remote speculation

Foreign Direct Investment Snapshot 56% Figures in Million US$ 184% * April 2009 – January 2010 Mauritius, Singapore and Cyprus are the most loved locales for venture into India Foreign venture ('FI') from Mauritius constituting 43%* of India's aggregate FI *as per data in the Press

The Roadmap in this way… Sectoral tops raised; Conditions loose; Up to 100% under 'Programmed Route' in all segments aside from a little negative rundown Up to 74/51/half in 111 Sectors under 'Programmed Route' 100% in a few segments Up to 51% under 'Programmed Route' for 35 Priority Sectors Allowed specifically up to 40% Post 2000 Pre 1991 1997 2000

… Foreign Direct Investment Policy… FDI Guidelines for Investing in Indian Wholly Owned Subsidiary/Joint Venture Automatic Route Government Route No Prior Regulatory Approval yet just Post Facto Filings to RBI, through AD Foreign Investment Promotion Board (FIPB) Allowed for Most segments Limits : Sectoral tops/stipulated area particular rules Inward settlements through legitimate saving money stations Pricing valuations recommended Post facto recording with 30 days of store receipt Filings inside 30 days of share designation Includes Technical Collaboration/Brand Name/Royalty Only for cases other than Automatic Route and those said in sectoral strategy Applies to cases with existing endeavor/tie up in 'same documented' Applies to speculation more than 24% in SSI saved things  

… Foreign Direct Investment Policy FDI limits – Illustrative rundown Automatic Route (Illustrative) Prior Approval (Illustrative) Negative List (Illustrative) NBFC (least capitalization standards) IT/ITes Financial administrations (a) Telecom Sector (74% top) (an) Insurance (26 % top) (a) Real Estate (a) Special Economic Zones Infrastructure Shipping Manufacturing segment Hotels and tourism Existing Airports 100% Asset Reconstruction Companies 49% Titanium Minerals 100% Broadcasting (a) Cigars & Cigarettes 100% Courier 100% Print Media (a) 26% Single brand retailing 51% Agriculture (b) Atomic vitality Retail exchanging (aside from single brand up to 51%) Lottery, wagering and betting Chit subsidize, Nidhi organization Trading in Transferable Development Rights    Note: (a) Sector particular rules (b) Subject to specific exemptions

Recent Developments

Setting the unique situation… Contribution of FDI in India's monetary advancement is a recognized truth From initiation approach subject to broad alterations now and again through Press Notes, booklets and elucidations Press Note 2,3 and 4 of 2009 issued to give clarity on backhanded FDI and downstream speculation FM focused on the requirement for a solidified FDI approach in Budget 2010-11 Draft merged strategy issued in late 2009 for open remarks Consolidated FDI arrangement issued successful from 1 April, 2010

Consolidated FDI Policy – notable components Consolidated report of all outside venture strategies/controls under FEMA, Press Notes, Press Releases and Clarifications issued by DIPP Underlying justification to advance FDI through a strategy system that is straightforward, unsurprising, basic and clear and which diminishes administrative weight As a speculator cordial measure, another Circular is proposed to be issued at regular intervals Press Notes/Press Releases/Clarifications on FDI in constrain starting 31 March 2010 will stand revoked. Reserve funds for moves made under before squeeze notes Use of parts, headings and definitions Two sorts of remote venture – (i) FDI and (ii) Foreign Portfolio Investment (FPI) FDI – vital long haul relationship and set up an enduring premium FPI – no expectation to impact the administration of the investee element

FDI Policy – Principles Capital characterized as Equity, Compulsorily Fully Convertible Preference Shares and Compulsorily Fully Convertible Debentures Warrants, somewhat paid up shares other cross breed instruments not allowed for FDI Investment in different instruments, for example, Non Convertible Preference Shares/Debenture ('NCP') Optionally Convertible Preference Shares/Debentures ('OCP') Partially Convertible Preference Shares/Debentures ('PCP') treated as External Commercial Borrowings ('ECB') - subject to ECB rules Existing NCP/OCP/PCP on cut off date outside sectoral top till current development

FDI Policy – Principles … contd. FDI allowed in: Indian organizations including miniaturized scale & little undertaking Partnership firm/proprietorship concern – just by NRI/PIOs Trust just as VCFs Not allowed in LLPs or whatever other elements – under thought Investment by FIIs allowed upto 10% for individual FII and 24% in total Pricing of capital instruments (counting change cost for convertible instruments) is currently required to be chosen forthright at the season of issue of instruments Investment by FVCI in DVCF set up as trust would now require particular Government endorsement; FVCI can specifically contribute subject to FDI approach

Existing Venture/Tie-up cases on the off chance that meaning outside financial specialist had existing endeavor/cooperation as on January 12, 2005 in "same" field – FIPB endorsement subject to NoC Same field according to 4 digit National Industrial Classification (NIC) 1987 code Restriction not material under after conditions – Investment by VC Fund enlisted with SEBI existing joint wander has under 3% speculation by either party existing joint wander is ancient/debilitated existing endeavor in determined segments including mining, IT empowered administrations

All installments secured under Automatic course, subject to points of confinement Royalty/Foreign Technology Agreement Earlier Brand name/exchange check sovereignty Foreign Technology Agreements Payment of eminence upto 1% of residential deals and 2% of fares allowed (without innovation exchange) Where sovereignty for brand name/trademark and innovation, then general cutoff points of 5% of household deals and 8% of fares Lumpsum installments not to surpass USD 2 mn (per innovation) Royalty upto 5% of local deals and 8% of fares Now The Government has changed as far as possible by allowing, under the programmed course , and with no limitations : All installments for eminence Lump entirety expense for exchange of innovation Payments for utilization of trademark/brand name

Calculation of Indirect FDI… Direct Foreign Investment Indirect Foreign Investment Foreign Co. Outside Co. Abroad Overseas Direct FI India I Co 1 I Co 1 Indirect FI I Co 2

Calculation of Indirect FDI… Earlier Different strategies for processing Indirect FI endorsed for various areas. E.g. Telecom/Broadcasting: Proportionate strategy Investing organizations in Infrastructure/Services segment: Management + Ownership Test Telecom area Infrastructure division Foreign Co. Remote Co. Abroad Overseas 90% 49% India I Co 1 I Co 1 * 60% 100% *Management of I Co1 with Indians I Co 2 I Co 2 FI in I Co 2 is 54% (90*60%) FI in I Co 2 is NIL

… Calculation of Indirect FDI* RIC signifies: 'Occupant Indian Citizen' as translated/in accordance with the meaning of 'individual inhabitant in India' according to FEMA 1999, read in conjunction with the Indian Citizenship Act; as well as Indian (Companies enlisted/consolidated in India) which are at last claimed and controlled by 'Inhabitant Indian Citizens' Non Resident Entity (NRE) implies: A " individual re