The document summarizes key opportunities and challenges for doing business in India over the next decade. It notes that India will require $1.7 trillion in infrastructure investments in the coming years. Major sectors of focus include power, transportation, ports, and telecommunications. India also has a growing middle class of 300 million people and is becoming a manufacturing hub for South Asia due to its skilled workforce and large domestic market. However, doing business in India presents challenges such as corruption, bureaucracy, and cultural differences that require due diligence. The document provides an overview of the legal and tax environment in India and recommendations for structuring foreign investments.
146. With the liberalization of the foreign investment restrictions, the emphasis is now shifting to accelerating investments by reducing bureaucratic hurdles and regulatory uncertainties
166. Project Office: Foreign companies planning specific projects can set up temporary project/site offices. No RBI approval required. Cannot undertake or carry on any activity which is not related to the execution of the project
167. Branch Office: Foreign companies engaged in trading or manufacturing can setup branch offices post obtaining RBI approval. Scope of activities are defined by RBI in its approval
168. Joint Venture or technical/trademark license: Foreign company with an Indian joint venture requires a no objection certificate from such Indian company and FIPB approval
169. Purchase of Shares or Direct Investment in Local Company: Approval required from Foreign Investment Promotion Board excluding sectors permitted to proceed via Automatic Approval Route
175. Credit- Reliance on intercompany for Capex (ECB) and local borrowings for working capital – combination of Short term loans , overdrafts and FX lines.
176. Identify exact requirements before borrowing – export loans and import buyers credit are available in foreign currency with pricing pegged to libor – hence , works out cheaper than local INR borrowing. Overall blended cost can be reduced substantially.
177. Surplus funds : there is no interest on current account, however, banks are permitted to offer short terms deposits starting from 7 days.
178. Other alternatives for parking short term funds- liquid funds/ treasury funds investing in AAA rated securities.
195. Refers to commercial loans in specified forms availed from non-resident lenders, including parent company
196. Forms of ECB: Bank loans, buyers’ credit, suppliers’ credit and securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares)
197. Minimum average maturity of 3 years for amounts upto US$20mm and 5 years for amounts above US$20mm and up to US$500mm
198. Subject to Reserve Bank of India (RBI) guidelines & restrictions on aspects such as end use, amount ($500mm per year) and tenor
200. Investment in certain sectors, overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries and is also permitted for first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public
201. Use of ECB proceeds not permitted for on-lending, investment in capital market or acquisition of a domestic company, working capital, general corporate purpose and repayment of existing Rupee loans. Also cannot be used for real estate sector and issue of guarantees / SBLCs
215. Quantum of FDI permitted varies by sector; Sectors such as technology & power generation allow 100% FDI while real estate & agriculture prohibit FDI – Net FDI in 2009-10 was US$19.7bn (US$17.5bn in 08-09)
216. Over 55,000 bank branches of total 70,000 branches support electronic clearing
244. No specific approval from the Foreign Investment Promotion Board (*“FIPB”) is required provided the foreign investment is within the prescribed limits specified for each sector. Liberal policy except in sectors affecting national security or local population
245. 100% in infrastructure sectors, 74% in banking & telecom, 49% in airlines and 26% for insurance & print media. Prohibited sectors include real estate, retail, agriculture, atomic energy, gambling & betting and lottery business
249. Foreign currency borrowings through the ECB (external commercial borrowings) route is a regulated form of foreign currency borrowing for Indian companies and refers to commercial loans in specified forms availed from non-resident lenders
276. Bank Accounts–Only Onshore INR non interest bearing accounts allowed. Resident Indian Companies having export proceeds can open Onshore Foreign Currency Accounts