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India, and Investment Potential in India

India, and Investment Potential in India. for The Center For American and International Law By : Gautam Mahajan President - Inter-Link Services Pvt. Ltd. June 13, 2006.

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India, and Investment Potential in India

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  1. India, and Investment Potential in India for The Center For American and International Law By : Gautam Mahajan President - Inter-Link Services Pvt. Ltd. June 13, 2006 Inter-Link Services Pvt. Ltd. Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: inter_link@vsnl.com / mahajan@interlinkindia.netWebsite: www.interlinkindia.net

  2. DISCUSSION POINTS 1. General Business Tips 2. India, and Investment Potential in India 3. Foreign Lawyers and Legal Services in India: Frequently Asked Questions

  3. DISCUSSION POINTS • General Business Tips • General Business Tips • American Companies in India • Legal Opportunities 2. India, and Investment Potential in India 3. Foreign Lawyers and Legal Services in India: Frequently Asked Questions

  4. General Business Tips • From the American Business Experience in India: Lessons from successful American companies: • Know the rules and the law and follow them • Conduct rigid due diligence • Do not get guided by “quick methods” or “short-cuts” • Avoid un-ethical practices • Hire a good knowledgeable consultant on India

  5. American Companies in India Top 5 American employers in India 2 years ago: General Electric: : 17,800 employeesHewlett-Packard : 11,000 employeesIBM : 6,000 employeesAmerican Express : 4,000 employeesDell: 3,800 employees (today 10,000, growing to 20,000) • General Electric (GE) with $80 Million invested in India employs 16,000 staff, 1,600 R&D staff who are qualified with PhD’s and Master’s degrees. • The number of patents filed in USA by the Indian entities of some of the MNCs (upto September, 2002) are as follows: Texas Instruments - 225, Intel - 125, Cisco Systems - 120, IBM - 120, Phillips - 102, GE - 95. • Staff at the offices of Intel (India) has gone up from 10 to 1,000 in 4 years, and will reach 2000 staff by 2006. • GE's R&D centre in Bangalore is the company's largest research outfit outside the United States. The centre also devotes 20% of its resources on 5 to 10 year fundamental research in areas such as nanotechnology, hydrogen energy, photonics, and advanced propulsion. • It is estimated that there are 150,000 IT professionals in Bangalore as against 120,000 in Silicon Valley.

  6. Legal Opportunities • Help Indian companies wishing to enter USA, China etc. • Help Indian companies and lawyers in collaborative projects with American companies outside India • Buy legal and paralegal services from India at low rates.. Example is GE • Send lawyers to India acceptable to the Indian bar rules or willing to pass the Indian bar exam

  7. "There are lots of opportunities to use [foreign] lawyers in place of outside counsel or other lawyers at a lower cost structure," says Suzanne Hawkins, senior counsel at General Electric Co. For two GE businesses -- GE Plastics and GE Consumer Finance -- savings from those lower rates are adding up. GE began adding lawyers and paralegals to its office in Gurgaon, India, in late 2001. It now has eight lawyers and nine paralegals there and has saved more than $2 million in legal fees that would otherwise have been spent on outside counsel, according to Hawkins. Jennifer FriedThe RecorderAugust 25, 2004

  8. DISCUSSION POINTS 1. General Business Tips 2. India, and Investment Potential in India • Foreign Direct Investment in India • An overview of Indian Economy • Investing in India – Entry Routes • Foreign Direct Investment: Policy • India’s Competitive Advantage • Investment Opportunities 3. Foreign Lawyers and Legal Services in India: Frequently Asked Questions

  9. Foreign Direct Investment in India Fourth largest Economy (PPP) - A safe place to do business Largest democracy – political stability & consensus on reforms Liberal & transparent investment policies Largest reservoir of skilled manpower Long-term sustainable Competitive advantage - High growth rate economy

  10. An overview of Indian Economy • Economic Performance • Foreign Trade • Investment • Mature Capital Markets • A well developed banking system

  11. An overview of Indian Economy Economic Performance • Sustained economic growth • Average last 10 years 6.5% • 2004-05 6.9% • Forecast up to 2006-07 >7.0% • Forecast till 2050 – Goldman Sachs 5 % p.a. • Services share in GDP over 50% (52.4% share in GDP in 2004-05) • Manufacturing sector grew at 8.8% in 2004-05 (17.4% share in GDP in 2004-05)

  12. An overview of Indian Economy Foreign Trade • Merchandise exports grew by 25% in 2004-05, now US$80 billion • Imports grew by 36%, now US$106 billion Investment • Foreign Investment – over US$14 billion in 2004-05 (FDI US$5.5 billion, FII US$8.9 billion) Mature Capital Markets • NSE third largest, BSE fifth largest in terms of number of trades

  13. Goldman Sachs Report of 1 October, 2003 – "Dreaming with BRICs: The path to 2050" India's GDP will reach $ 1 trillion by 2011, $ 2 trillion by 2020, $ 3 trillion by 2025, $ 6 trillion by 2032, $ 10 trillion by 2038, and $ 27 trillion by 2050, becoming the 3rd largest economy after USA and China. In terms of GDP, India will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023, and Japan by 2032.

  14. Economic Reforms - Fiscal • Rationalization of tax structure – both direct and indirect • Progressive reduction in peak rates • Peak Customs duty reduced to 15% • Corporate Tax reduced to 30% • Customs duties to be aligned with ASEAN levels • Value Added Tax introduced from 1st April 2005- • only 6 states left • Fiscal Responsibility & Budget Management Act, 2003 • Revenue deficit to be brought to zero by 2008

  15. Economic Reforms - Liberalisation of Investment & Trade Policies • Industrial Licensing • Progressive movement towards delicensing and deregulation • Licensing limited to only 5 sectors (security, public health & safety considerations) • Foreign Investment • Progressive opening of economy to FDI • Portfolio investment regime liberalised • Liberal policy on technology collaboration • Trade Policy • Most items on Open General License, Quantitative Restrictions lifted • Foreign Trade Policy seeks to double India’s share in global merchandise trade in 5 years

  16. Economic Reforms - Exchange Control & Taxation Exchange Control • All investments are on repatriation basis • Original investment, profits and dividend can be freely repatriated • Foreign investor can acquire immovable property incidental to or required for their activity • Rupee made fully convertible on current account Taxation • Companies incorporated in India treated as Indian companies for taxation • Convention on Avoidance of Double Taxation with 65 countries

  17. Manufacturing Competitiveness ‘Made in India’ • Second most attractive destination for manufacturing • AT Kearney’s FDI Confidence Index 2004 • Indian industry globally competitive in a wide range of manufacturing skill-intensive products: • Apparels, electrical and electronics components; speciality chemicals; pharmaceuticals; etc. • Automotive components: Major MNC’s & their OEMs sourcing high-quality components from India • Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever, Cliariant, Cummins, Delphi • Indian companies now having manufacturing presence in many countries • Over 55% of approved outward investment by India companies in manufacturing activities

  18. Evolution of FDI Policy More sectors opened ; Equity caps raised in many other sectors Procedures simplified 2000-05 Up to 100% under Automatic Route in all sectors except a small negative list 2000 Up to 74/51/50% in 112 sectors under the Automatic Route 100% in some sectors 1997 FDI up to 51% allowed under the Automatic route in 35 Priority sectors 1991 Pre 1991 Allowed selectively up to 40% FDI Policy Liberalization

  19. Investing in India – Entry Routes Investing in India Automatic Route Prior Permission (FIPB) General Rule No prior permission required Inform Reserve Bank within 30 days of inflow/issue of shares By Exception Prior Government Approval needed. Decision generally within 4-6 weeks

  20. FDI Policy Initiatives : 2000-2004 • New sectors opened to FDI • to 26% divestment in 5 years Defence production, Insurance, print media - up to 26% • Development of integrated townships up to 100% • e-commerce, ISP with out gateway, voice mail, electronic mail, tea plantation -100% subject • FDI equity limits raised • Private sector banks raised from 49% to 74% • Drugs and pharmaceuticals from 74% to 100% • Advertising from 74% to 100% • Private sector refineries, Petroleum product marketing, exploration , petroleum product pipelines – 74% to 100% • Procedural simplification • Issue of shares against royalty payable allowed

  21. Recent Initiatives : June 2004 onward • FDI in domestic airlines increased from 40% to 49%. Automatic route allowed • FDI up to 100% allowed under the automatic route in development of townships, housing, built up infrastructure and construction development projects • Foreign investment limit in Telecom services increased to 74% • FDI and portfolio investment up to 20% allowed in FM Broadcasting. Hitherto only Portfolio investment was allowed. • Transfer of shares allowed on automatic route in most cases • Fresh guidelines for investment with previous joint ventures • A WTO (TRIPs) IPR regime compliant in position since 2005 – Patents Act amended to provide for product patent in pharma and agro-chemicals also.

  22. Policy on FDI • FDI up to 100% allowed under the ‘Automatic Route’ in all activities except for • Sectors attracting compulsory licensing • Transfer of shares to non-residents (foreign investors) • In Financial Services, or • Where the SEBI Takeovers Regulation is attracted • Investor having existing venture in same field • Sector specific equity/route limit prescribed under sectoral policy • Investments made by foreign investors are given treatment similar to domestic investors

  23. Main Sectors with FDI Equity/Route Limit FDI equity limit-Automatic route • Insurance – 26% • Domestic airlines – 49% • Telecom services- Foreign equity 74% • Private sector banks- 74% • Mining of diamonds and precious stones- 74% • Exploration and mining of coal and lignite for captive consumption- 74% FDI requiring prior approval • Defence production – 26% • FM Broadcasting - foreign equity 20% • News and current affairs- 26% • Broadcasting- cable, DTH, up-linking – foreign equity 49% • Trading- wholesale cash and carry, export trading, etc., 100% • Tea plantation – 100% • Development of airports- 100% • Courier services- 100% Corrected as of December ‘05

  24. Foreign Technology Collaboration Policy • Foreign technology agreements also allowed under Automatic route: • Lump-sum fees not exceeding US$2 Million • Royalty @ 5% on domestic sales and 8% on exports, net of taxes • Royalty up to 2% on exports and 1% also permitted for use of Trade Marks and Brand name, without any technology transfer • Wholly owned subsidiaries can also pay royalty to their parent company • Payment of royalty without any restriction on the duration allowed.

  25. India: FDI Outlook • 2nd most attractive investment destination among the Transnational Corporations (TNCs) - UNCTAD’s World Investment Report, 2005 • 3rd most attractive investment destination – AT Kearney Business Confidence Index, 2004 • Up from 6th most attractive destination in 2003 and 15th in 2002 • 2nd Most attractive destination for manufacturing • Among the top 3 investment ‘hot spots’ for the next 4 years • UNCTAD & Corporate Location – April 2004 • Most preferred destination for services - AT Kearney’s 2005 Global Services Location Index (previously Offshore Location Attractiveness Index)

  26. India’s Competitive AdvantageHuman Capital • India’s competitive edge - its highly-skilled manpower and entrepreneurial expertise • Over 380 universities (11,200 colleges) • 1500 research institutions • Over 200,000 engineering graduates • Over 300,000 post graduates from non-engineering colleges • 2,100,000 other graduates • Around 9,000 PhDs • Knowledge workers in software industry increased from 56,000 in 1990-91 to over 1 million by 2004-05; • 54% of India’s population under 25 years of age • India would continue to be surplus in working population for a long-time • Would contribute 25% to the additional working population globally over the next 5 years.

  27. India’s Competitive StrengthsHRD Contd. Rank out of 102 countries • Availability of scientist and engineers 3 • Quality of management schools 8 • Quality of scientific research institutions 20 • Quality of educational system 36

  28. IT Advantages • IT –ITES Industry • Exports US$17.2 billion in 2004-05, growth of 34% over previous year • 2008 exports target : US$60 billion, to be 35% of India’s total exports • High quality standards • 76 SEI/CMM level 5 companies, two third of world’s total, are Indian • Over 250 of the Fortune 500 companies are clients of Indian firms • R&D base of over 100 FORTUNE 500 companies • Investment Opportunities • Collaborative ICT research • Joint Software development in a variety of applications

  29. Recent Infrastructure Initiatives • National Highway Development Programme to develop over 24,000 km of highways • Golden Quadrilateral • NSEW Corridor • Links to ports and State capitals • Modernisation of airports • Metro and other airports • Development of ports with private sector • The Electricity Act, 2003 provides the framework for development of power sector • ‘Bharat Nirman’ Programme to develop rural infrastructure at an estimated cost of Rs. 1,74,000 crore (~US$40 billion) • Jawhar Lal Nehru Urban Renewal Mission –Rs. 100,000 crore (US$22 billion) • Country wide rural connectivity programme to link all unconnected village having population of 500 with fair weather road undertaken

  30. Telecommunications • Among the fastest growing telecom markets • 550,000 km of optical fibre cable laid • 2 million Cellular phones added every month • Among the lowest mobile tariff in the world • Share of private sector 50% • Tele-density of 10.66, expected to be 20 in next three years • New Broad Band Policy announced: • 690,000 connections since April 2005 • Internet subscribers 6 million (March 05) • Investment Opportunities • Setting up manufacturing facilities; • Supply of hand sets and equipments • Telecom & Value added service.

  31. Roads • Policy • FDI up to 100% is permitted for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels • Ten year tax holiday for road and highway projects • Recent Initiatives • Existing road network of 3.3 million kilometers • 24,000 km of Highways being developed under National Highway Development Programme • billion envisaged Golden Quadrilateral : 5846 kms- 5000 kms completed • NSEW Corridor: 7300 kms – 784 kms completed, 3691 kms under implementation • Investment US$20 billion • Investment Opportunities • Projects for 12,000 km would be on offer • Many more opportunities in the States

  32. Power • Policy & Incentive • FDI up to 100% is permitted on the automatic route in all segments except atomic power • Ten-year tax holiday for generation and distribution or transmission and distribution of power • Institutional Reforms • The Electricity Act 2003 allows trading in power and provides for further deregulation; • Independent Regulator in most states • Investment Opportunities • Additional capacity required 100,000 MW till 2012 • Investment US$120 billion needed • Financial closure of over 6000 MW capacity achieved in last one year

  33. Ports • Policy & Incentives • FDI up to 100% permitted for construction and maintenance of ports and harbors. • Ten year tax holiday • Public-private partnership • 12 major ports, 185 minor ports • 14 private/ captive projects with investment of US$ 600 million completed • 24 projects with investment of US$1.6 billion under implementation/award • Investment requirement of US$22 billion to develop maritime sector • Ports & Shipping • Inland waterways

  34. Special Economic Zones New Law on SEZ enacted • Policy • Duty free zones, deemed foreign territories • FDI up to 100% permitted in almost all manufacturing activities • Transfer of goods from DTA to SEZ treated as exports, • Units to be net foreign exchange earner within 5 years. No export commitments • No limits on DTA sales • Can be set up in the public, private or joint sector • Single Window Clearance • Incentives • For developer: Income tax exemption for a block of 10 years in 15 years • For units: 100% Income Tax exemption for first 5 years, 50% for next 5 years and 50% of the ploughed back export profits for next 5 years • Exemption from indirect taxes; excise, sales, services tax, etc. • Freedom to raise ECB with out any maturity restrictions Cont………

  35. Special Economic Zones • 11 Special Economic Zones are functional • SEEPZ Mumbai, Kandla, Cochin, Chennai, Visakhapatnam, Falta, NOIDA, Surat, Salt Lake, Indore and Jaipur • Over 800 functional units employing over 100,000 persons • Exports of US$4 billion in 2004-05 • 42 new Special Economic Zones have been approved and are under establishment • Many have participation with State Governments and Private Sector • Major Industries in Special Economic Zones • Gems & Jewellery, Electronics & Hardware, Software, Textile & Garment, Engineering Goods, Sports Goods, Leather Products, Chemicals & Allied Products

  36. Public Private Partnership • Infrastructure projects might not be financially viable on their own; • Public Private Partnership to bring in private sector resources and techno-managerial capabilities; • ‘Viability Gap Funding’ for • Roads, railways, seaports, airports; • Power • Water supply, sewerage, solid waste disposal in urban areas; • International convention centres. • Funding in the form of capital grant, Operation & Management support, interest subsidy, etc. • Support linked with predefined milestones.

  37. Food Processing • Third largest producer of food items • Largest milk producer • Largest livestock population; • 2nd largest in fruits & vegetables • Opportunities in food processing sector • 50% of household income spent on food items • With increasing income levels and urbanisation fast growth in demand of processed food expected; over 250 million strong middle class • Low levels of value addition in food sector: only 7% • New Integrated Food Law being enacted • Investment of US$ 28 billion required to raise food processing from 2% to 8-10%. • Investment opportunities in • Processing of fruit & vegetable, meat, fish & poultry, milk products, packaged food & drinks. • Establishing infrastructure, cold chain, etc.

  38. Incentives for the Development of Industrially Backward Areas • A special package of incentives to promote industrialization of industrially backward regions • North Eastern states, Skim, Jammu & Kashmir, Uttaranchal and Himachal Pradesh • Incentives • 100% Income Tax Exemptions for 10 years • Excise Duty Exemptions for 10 years • Transport Subsidy for transportation of raw material and finished products, • Investment Subsidy (50-90%)

  39. Governance and Regulatory System • Central, State and Local levels of Government with their specified powers and responsibilities seen as complicated in regulatory administration by investors • 11.9% of Senior Management’s time spent in dealing with Government agencies (Source: World Bank’s Report - India Investment Climate Assessment, 2004) • World Bank’s Report ‘Doing Business in 2006’ • 71 days required to set up a Company and start business – Incorporation of Company and PAN/TAN allotment taking most time • Paying taxes: 59 transactions taking 264 hours in a year • Closing a business: time taken 10 years

  40. Governance - Initiatives • Major e-governance initiatives undertaken at Central and State level • National e-Governance Action Plan • Projects being taken up in Mission mode at Central and State level. • Integrated services projects for services across Departments. • MCA-21 - Ministry of Company Affairs, to cover all Registrar of Companies by June 2006 • e-Biz project being taken up by the Department of IPP • To set up a web enabled portal to provide for the services at the Central, State and Local level during the entire life cycle of business • To begin with a pilot project covering 25 services in four states • Project capable of rapid upscaling to cover other services and extend to other areas • Right to Information Act for greater transparency in public administration

  41. Investment Opportunities • Development and management of infrastructure • Food processing, including logistic and support services, development of cold chain • Manufacturing – relocation into India • R&D – leveraging on abundant skilled manpower • IT & ITES, Software as well as hardware

  42. DISCUSSION POINTS 1. General Business Tips • India, and Investment Potential in India • Foreign Lawyers and Legal Services in India: • Frequently Asked Questions • Judgment of Bombay High Court

  43. Foreign Lawyers and Legal Services in India: Frequently Asked Questions 1.Can I give advice on USA legal issues to Indian companies?No. (see below) 2.Can I give advice to Indian companies in India on Indian issues?No. Please refer to the attached extract of a Bombay High Court Judgment attached 3.If I have an associate law firm in India, what can my partners do or not do when they come to India? They can only provide inputs to the Indian firm. They can be employed by an Indian firm. They can (if qualified) enroll but that is a difficult process requiring eligibility, qualifications and reciprocity. Cont………

  44. Foreign Lawyers and Legal Services in India: Frequently Asked Questions 4. Can I set up a rep. office in India? If yes, What am I allowed to do and not do? Yes, but not much at all. Liaison and no commercial business (same judgment). 5. Is my legal degree recognised in India? No. In most cases of US degrees. Some may be recognised (like Oxford degree) but you’ll need to check with the Bar Council of Delhi which ones are covered (if any) from the U.S. 6. What do I have to do be a solicitor in India? This is a complex question. Probably not allowed. Cont………

  45. Foreign Lawyers and Legal Services in India: Frequently Asked Questions • What do I have to do if I wish to appear in an Indian court? Enroll as an advocate. • How is the law on the above likely to change and when? Some change and a minor easing is likely in this year or over the next years but it is likely to be cosmetic.

  46. Extract of a Bombay High Court Judgment IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORIGINAL SIDE WRIT PETITION NO. 1526 OF 1995 Lawyers Collective …Petitioner Versus Bar Council of India & Ors. OCTOBER 4 & 9, 1995 "In our view, considering the aforesaid quotations from the New York Judiciary Law and Halsbury’s Laws of England, it is apparent that the phrase “to practicethe profession of law” would be wide enough which would include not only appearance before the Court but also to carry on such activities which are specifically provided in the aforesaid paragraphs which provide for restrictions on unqualified persons against drawing or preparing any instrument, agreement, power of attorney or such other things. If that was not so, there was no necessity of restricting it by specific regulations." Cont………

  47. Extract of a Bombay High Court Judgment The Court quoted with approval: "As there is no direct decision on the question involved, the learned Counsel appearing for the Petitioner has brought to our notice a decision rendered by the Court of Appeals of New York. In the Matter of New York County Lawyers Association v. Lorenzo J. Roel, (165 N. Y. S. 2d 31, page 14,) wherein the Court has interpreted Section 270 of the Penal Law which, inter alia, provides as under:- “It shall be unlawful for any natural person to practice … as an attorney-at-law … or to hold himself out to the public as being entitled to practice law as aforesaid, or in any other manner, … or advertise the title of lawyer … in such manner … or advertise the title of lawyer … in such manner as to convey the impression that he … conducts or maintains a law office … without having first been duly and regularly licensed and admitted to practice law in the courts of record of this state, and without having taken the constitutional oath.” Cont………

  48. Extract of a Bombay High Court Judgment In that case it was contended by the appellant that his practice is restricted to Mexican law and he does not practice law in New York since he only gives advice and prepares instruments based on Mexican law and Mexican law is not “law” in New York. Therefore he is not covered by Section 270 of the Penal Law. The Court negatived the said contention by holding that whether a person gives advice as to New York law. Federal law, the law of a sister State, or the law of a foreign country, he is giving legal advice. It was further held that when legal documents are prepared for a layman by a person in the business of preparing such documents, that person is practicing law whether the documents be prepared in conformity with the law of New York or any other law. The Court further observed that to hold otherwise would be to state that a member of the New York Bar only practices law when he deals with local law. It was further observed: “A foreign lawyer who is familiar with the law of the country in which he is a lawyer is in a similar position. He is a specialist in a particular field of the law, but is nevertheless a layman in this state when he is not a member of the Bar here”. The Court held that protection of the members of the lay public of State, when they seek legal advice – and that was what defendant purported to furnish – was the basis of the requirements of licensing of attorneys by the State. Cont………

  49. Extract of a Bombay High Court Judgment From the aforesaid discussion, the submissions made before this Court and the affidavit in reply filed on behalf of Respondent Nos. 12, 13 and 14, prima facie, it appears that the activities mentioned above carried on by Respondent Nos. 12 to 14 would amount to practising the profession of law. As stated above, Respondent Nos. 12 to 14 have established liaison offices in this country; they are carrying on work of drafting documents, reviewing and providing comments on documents, conducting negotiations and advising clients on international standards and customary practice relating to clients transactions; gathering information from prospective clients in India and conducting market research to assess the feasibility of providing legal services in India. If, therefore, the said activities are held to be not covered by the phrase “to practice the profession of law”, then the whole objects of the Advocates Act would be frustrated, in the sense that there would not be any disciplinary control nor these activities can be controlled by any method. " [End of quote]

  50. We gratefully acknowledge the help given by the Department of Industrial Policy and Promotion - Ministry of Commerce, Government of India, New Delhi

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