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Foreign Investment in India - An Overview - PowerPoint PPT Presentation


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“The Most Extraordinary Country”* Doing Business in India *Mark Twain Tuesday, February 20, 2007 7:15 - 9:00 a.m. The Houstonian Hotel 111 North Post Oak Lane Houston, Texas 77024 When You Think INTERNATIONAL , Think Fulbright. TM Foreign Investment in India: An Overview

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slide1

“The Most Extraordinary Country”*

Doing Business in India

*Mark Twain

  • Tuesday, February 20, 2007
  • 7:15 - 9:00 a.m.
  • The Houstonian Hotel
  • 111 North Post Oak Lane
  • Houston, Texas 77024

When You Think INTERNATIONAL,Think Fulbright.TM

foreign investment in india an overview

Foreign Investment in India: An Overview

Presented by: Julie B. Hunt

Email: [email protected]

Phone: (214) 855-8046

recent growth opportunities in the indian market
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
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 d5
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
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 regime7
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
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)
foreign investment options9
Foreign Investment - Options

Foreign Direct Investment (FDI)

  • Subscription to new shares
  • Transfer of existing interests
foreign investment options10
Foreign Investment - Options

Foreign Direct Investment (FDI)

  • 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 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.

foreign investment options cont d12
Foreign Investment - Options (cont’d)

Foreign Direct Investment – Approval Route

 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.

foreign investment options cont d13
Foreign Investment - Options (cont’d)

Foreign Direct Investment – Approval Route

  • Approval Route
    • Any investment not qualifying for the Automatic Route
    • Requires prior approval from the Foreign Investment Promotion Board (FIPB)
foreign investment options cont d14
Foreign Investment - Options (cont’d)

Foreign Direct Investment – Approval Route

  • 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
foreign investment options cont d15
Foreign Investment - Options (cont’d)

Foreign Direct Investment (FDI)

  • Pricing 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
foreign investment options cont d16
Foreign Investment - Options (cont’d)

Foreign Direct Investment (FDI)

  • 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 investment options cont d17
Foreign Investment - Options (cont’d)

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 options cont d18
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • 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”
foreign investment options cont d19
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • 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)
foreign investment options cont d20
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • 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
foreign investment options cont d21
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • Qualifying as a Sub-Account
    • Also requires a fit and proper person analysis
foreign investment options cont d22
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • 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
foreign investment options cont d23
Foreign Investment - Options (cont’d)

Foreign Institutional Investors (FII)

  • 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 investment options cont d24
Foreign Investment - Options (cont’d)

Foreign Venture Capital Investors (FVCI)

  • What is an FVCI?
    • An investor established outside of India, who proposes to make venture capital investments in India
foreign investment options cont d25
Foreign Investment - Options (cont’d)

Foreign Venture Capital Investors (FVCI)

  • 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
foreign investment options cont d26
Foreign Investment - Options (cont’d)

Foreign Venture Capital Investors (FVCI)

  • 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 investment options cont d27
Foreign Investment - Options (cont’d)

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 investment options cont d28
Foreign Investment - Options (cont’d)

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
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
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
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
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
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