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DOING BUSINESS IN INDIA

DOING BUSINESS IN INDIA. AUSTRALIAN CHAPTER OF ICAI, Sydney T N MANOHARAN Chairman MCA Group. CONTENTS…. 1. Macro Economic Indicators. 2. Advantage India. 3. Foray into India – Setting up your enterprise in India. 4. Investments & Funding. 5 . Tax impacts. 6. Key sectors in India.

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DOING BUSINESS IN INDIA

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  1. DOING BUSINESS IN INDIA

    AUSTRALIAN CHAPTER OF ICAI, Sydney T N MANOHARAN Chairman MCA Group
  2. CONTENTS… 1. Macro Economic Indicators 2. Advantage India 3. Foray into India – Setting up your enterprise in India 4. Investments & Funding 5. Tax impacts 6. Key sectors in India 7. Indo – Australia Trade Doing Business in India
  3. Macro Economic Indicators… Population – 1.2 Billion Literacy – 74% Gross Domestic Product – India - US$ 1.84 Trillion - China - US$ 7.31 Trillion - US - US$ 15.09 Trillion Top 3 Investing Countries - Mauritius (37 per cent), Singapore (10 per cent),U.K (10% ) Shift from Agrarian to a Service driven Economy Distribution of GDP Source : RBI Doing Business in India
  4. Advantage India Second Fastest growing Economy in World. India's growth will start to outpace China's within five years to become the fastest economy with 9-10 per cent growth over the next 20-25 years (Morgan Stanley). India's economy will grow Fivefoldin the next 20 years (McKinsey). Cost competitiveness; low labour costs. Young country with a median age of 30 years by 2025: India's economy will benefit from this "demographic dividend". Progressive simplification and rationalization of direct and indirect tax structures. The "2012 A.T. Kearney Foreign Direct Investment Confidence Index" has ranked India Second most attractive destination for FDI, an improvement from its third rank in the year 2010. Doing Business in India
  5. Foray into India – Entry options… Project Office Branch Office Liaison Office Subsidiary Company Temporary office for executing projects in India General permission to set up Project office from RBI Cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. RBI approval essential to open a BO Can carry out only specific activities as approved by RBI Permitted to undertake income generating activities in India. RBI approval essential to open a LO Cannot carry out any commercial activity within India. Permitted only to act as a representative of the overseas organization Principal – Pure agent relationship No Specific approval required from RBI; Has to comply with FDI guidelines Can undertake all commercial activities as permitted under the FDI guidelines Joint Ventures with Indian companies / Wholly owned subsidiaries Doing Business in India
  6. Foray into India… www.business.gov.in Guidance in… Starting a new business Creating a Business Plan Making a Product Choice Setting up Infrastructure Naming and Registering a Business Choosing a form of Business Organisation Choosing the Location of the Industry Pricing your Product Regulatory Requirements Financing a start up Business Sourcing Process, Raw Materials, Machineries and Equipments Hiring Human Resource A Government of India Initiative to assist International organizations to set up Business in India. Doing Business in India
  7. Foreign Direct Investments… Automatic Route No specific approval required from Government of India Compliance with FDI Regulations / investment Sectoral Caps under FEMA Intimation to RBI post investment Investments through Authorised Banks JV’s / Subsidiaries / independent companies permissible Prior Approval from Ministry of Finance Specific application to be made Approval required for investments beyond sectoral caps in companies Specific approval required under FEMA Guidelines Approval Route Prohibited Sectors Agriculture (Forticulture, horticulture are allowed) Atomic energy Real estate(Does not include construction of housing / commercial premises/ townships etc) Nidhi / Chit companies, Lottery, Gambling, Railways (excluding MRTS) Trading in TDR’s Mode of FDI investments Equity Shares (including ESOPS) Convertible Debentures Convertible preference shares Non convertible preference shares Issue of ADR’s / GDR’s Doing Business in India
  8. FDI – Sectoral Caps… Doing Business in India
  9. Debt Instruments… Eligible Lenders End use Not permitted Automatic Route No specific approval required from Government of India Loan Registration number(LRN) required for all ECB’s Convertible Debentures / FCCB’s etc.,falls under ECB Upto USD 750mn per annum is permissible Upto USD 200mn per annum for Hotel / IT / Hospitals 3 years (for ECB’s upto USD 20mn) to 5 years (more than 20mn) minimum maturity period International Banks Onward Lending Intl Capital Markets Acquisition of companies Financial Institutions IFC, ADB, CDC etc., Real Estate investments Export Credit Agencies Approval Route Working capital purposes Foreign Collaborators Prior Approval of RBI Mandatory approval for Loans exceeding USD 200mn or USD 750mn in respective categories Repayment of Rupee Loans Foreign Equity holders India is a high cost of capital country – Indian Debt costs on an average about 11 – 15% pa as compared to 3 – 4% globally Foreign investors prefer to bring in International loans for their operations in India to save on interest costs Hedging of Forex is another major determinant of total cost Doing Business in India
  10. Tax Impacts… Project Office Branch Office Liaison Office Subsidiary Company Project offices are treated at par with foreign companies in India Tax rate of 42.02%would apply to the PO of a foreign company that forms a PE in India BO would be taxed at 42.02% Minimum Alternative Tax applicable to BO After the payment of the income tax, the entire profits can be repatriated by the BO without any further tax to its Parent company. No Commercial Activity therefore, NO TAX But its required to withhold tax for certain payments. Business income of the Indian subsidiary is taxed at the normal rate of 32.45%or at the Minimum Alternate Tax (MAT) rate of 20.01% Dividend Distribution tax of 16.22% Doing Business in India
  11. Tax Impacts – Indo - Australia DTAA… Doing Business in India
  12. Key FDI sectors in India… Doing Business in India
  13. Key FDI Sectors… Aviation Banking India opened up the banking sector during the 90’s Indian Banking stocks grew at 31% CAGR over past decade FDI Private Banks – 74% - Approval Public Sector Banks – 20% - Approval NBFC’s – upto 100% - Automatic Standard Chartered Bank is the first bank in India to issue IDR’s and was rated one of the most successful listings in India. India is the 9th Largest Aviation market in the world Domestic Aviation sector posted a 25.6% growth. Expected Growth – Stabilize at 17-18% Passenger carried from Jan to Sept 2012 – 4.38 Cr passengers. Airports infrastructure development, Scheduled aircraft services, MRO activities drive the growth in the Aviation segment FDI of $438mn over last decade in this sector FDI Greenfield airports – 100% – Automatic Existing airports – 74% - Approval Scheduled Services – 49% - Automatic Non Scheduled Services – 74% - Approval MRO – 100% - Automatic Doing Business in India
  14. Key FDI Sectors… Education Infrastructure Ports – plan to increase India’s share of ship building from present 1% to 5%; To create a total port cargo handling capacity of 3200MT by 2020 FDI – 100% - Automatic Housing / Townships FDI of USD21.1bn over last decade; Investment in infrastructure development to touch USD 1.2tn by 2030 – McKinsey FDI in Housing / Township development / Technology parks / Commercial premises – 100% - Automatic Railways – Public sector; Growing at an average 11% CAGR; FDI upto 100% permitted in MRTS; Railway components Private education sector is estimated to reach US$ 70 billion by 2013 and US$ 115 billion by 2018, according to consulting firm Technopak K-12 sector is expected to grow at 14% CAGR to touch USD 50bn in the year 2015 – Grant Thornton Higher Education is expected to grow at 18% CAGR to touch USD 52.5bn in year 2020 – E&Y India is expecting appx USD 100bn investment in next 5 years towards educational infrastructure developments - KPMG FDI International Schools – 100% - Automatic Other infrastructure – 100% - Automatic Indian Colleges can partner with Foreign Colleges / Universities to offer International Courses subject to Government Approval Doing Business in India
  15. Key FDI Sectors… Healthcare Information Technology National Policy for IT aims to achieve USD 300bn revenue by the year 2020; FDI investment in the last decade is USD 11.3bn To promote innovation and R&D in cutting edge technologies and development of applications and solutions in areas like localization, location based services, mobile value added services, Cloud Computing, Social Media and Utility models FDI IT infrastructure - 100% - Automatic ITES – 100% - Automatic Ecommerce (B2B) – 100% - Automatic Indian healthcare sector is expected to reach US$ 100 billion by 2015 from the current US$ 65 billion, CAGR of 20% - Fitch Medical Tourism growing at 26% CAGR Pharma segment to grow at 15% - Barclays Health Insurance segment to grow at 25% CAGR – RNCOS Health care IT to grow at 13.5% - Frost & Sullivan FDI 100% FDI permitted for Health & Medical services under Automatic route Insurance – 26% - Automatic Pharma – 100% - Automatic Doing Business in India
  16. Key FDI Sectors… Energy FDI Oil and natural gas exploration, infrastructure for marketing of petroleum products, petroleum product pipelines and natural gas LNG pipelines – 100% - Automatic Petroleum refining in the private sector – 49% - Approval Thermal Energy Plants – 100% - Automatic Renewable energy – 100% - Automatic India is home to about 350 million people who lack access to electricity, more than 25% of the worldwide total of 1.4 billion people without electricity. The per capita electricity consumption (KWh per capita) is only around 566 compared to world average of 2,782. Step Taken by Ministry of Power: Increasing Access: Aim to achieve universal access and annual minimum level of consumption to 1000 kWh by 2012. Climate Change: “National Solar Mission” which aims to establish India as a global leader in solar energy Expanding Generation: Adding generation capacity of about 80 GW over next five year period (four times of historical five year average), including 16 GW of hydropower. Improving Energy Efficiency: Rehabilitating and modernizing about 27,000 MW of old coal-fired power plants. Doing Business in India
  17. Key FDI Sectors… Telecommunication The sector is expected to witness up to US$ 56.3 billion investments and the market will cross the US$ 101 billion mark in five years- Boston Consulting Group (BCG) 12 – 13% annual growth expected in the sector Subscriber base – set to increase upto 72% by 2016 from 51% Mobile Value added services(MVAS) – estimated to reach USD 10.8bn by 2015 Mobile handsets sales – growing at 11.8% annually FDI Maximum ceiling of 74% Upto 49% - Automatic Beyond 49% upto 74% - Approval route Licensing and infrastructure developments – subject to Government approval Doing Business in India
  18. Indo – Australia Trade Bilateral Investment Promotion and Protection agreement (BIPPA) entered on 4th May, 2000 Bilateral Free Trade Agreement (FTA) discussions commenced on 2008 – presently in final stages of discussions FTA will address the Tariff and Non Tariff Barriers Broadens the Merchandise trade & removes restrictions on trade goods Results in increase in Services trade Enhanced investment protection & encourages more investments According to a feasibility study conducted by both the countries jointly, the comprehensive FTA is likely to result in India gaining between 0.15 and 1.14 per cent of its gross domestic product (GDP), while Australia would end up with the gains between 0.23 and 1.17 per cent of its GDP. Doing Business in India
  19. THANK YOU Doing Business in India
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