PRESENTED BY:

Mr. Som MandalManaging Partner, Fox Mandal

SEMINAR ON“GUIDANCE FOR

DOING BUSINESS WITH INDIA”

FOX MANDALOUR OFFICES

In India:

New Delhi, Noida, Bangalore, Bhubaneswar, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and Pune with associate offices at Cochi, Trivandrum

In Other Countries:

United Kingdom (London), France (Paris), Guinea (Conakry) and Bangladesh (Dhaka)

India is like Lord Shiva’s third eye, removing all the obstacles to the growth of an investor, world-wide

INVESTIN

INDIA

LORD SHIVA’S THIRD EYE

INDIA AT A GLANCE

• 3.29 million square kilometersTotal Area

• New DelhiCapital

• Over 1 BillionPopulation

• The Indian Constitution provides for a parliamentary democracy with a bicameral parliament and three

Political System and Government

• President Head of State

• Prime MinisterHead of Government

• There are 28 states and 7 Union territoriesTerritories

• 74.04 percentLiteracy rate

• Indian Rupee (INR/Rs.)Currency Unit

INDIA AND ITS STATES

THE THREE LISTSThe Constitution of India divides the areas of governance between the Central Government and the State Governments. Some of the specified areas fall within the jurisdiction of both the Central Government and the State Governments. These areas are mentioned in the three lists specified in Schedule VII of the Constitution of India. Set forth are inter-alia the areas, as specified in the three lists.LIST I - UNION LIST

LIST II – STATE LIST

LIST III – CONCURRENT LIST

Defence Agriculture Transfer of property

Banking Police Economic and Social Planning

Railways Fisheries EducationAirways Public health and

sanitationFactories

Foreign Affairs Hospitals and Dispensaries

Electricity

INDIAN POLITICAL SYSTEM

India has adopted a written Constitution which is the Supreme Authority governing relationship between Legislature, Judiciary and Executive and their respective roles.

Federal State Rule of Democracy and Rule of Law Right to Equality before Law is one of the Fundamental

Rights enshrined in Constitution Fair and independent Judiciary

KEY INVESTMENTS India has received total foreign investment of US$ 306.88 billion since

2000 with 94 % of the amount coming in during the last nine years.

During FY 2012–13, India attracted FDI worth US$ 22.42 billion.

India received cumulative FDI for April-October 2012-13 stood at US$ 14.78 billion, -Department of Industrial Policy and Promotion (DIPP).

Korean South-East Power Company (KOSEP), part of South Korean state-owned power generator Korea Electric Power Corporation, has signed an initial agreement with Jinbhuvish Group, Mumbai, for technical support for its Rs 3,450-crore (US$ 549.31 million) project in Maharashtra. The 600 megawatt (mw) power plant, which will be set up in Yavatmal district, is expected to be commissioned in 2016.

India and UAE have agreed to promote collaboration in renewable energy, focusing in the areas of wind power and solar energy. A Memorandum of Understanding (MoU) was signed by Dr Farooq Abdullah, Minister of New and Renewable Energy of India and Dr Sultan Ahmed Al Jaber, Minister of State of UAE in Abu Dhabi on January 18, 2014.

KEY INVESTMENTS Cont… Luxury watch brand Jaeger-LeCoultre from Switzerland has filed for a

100 per cent single brand application to enter the Indian retail market. It thus became the first luxury company to apply for FDI through this route. Geneva-based Richemont SA that owns the luxury brand filed the application with the Department of Industrial Policy and Promotion (DIPP).

France’s Lactalis, the biggest dairy products group in the world, will most likely buy out Hyderabad-based Tirumala Milk Products for US $275–300 million, according to sources. Lactalis has a yearly turnover of about US $21 billion. Tirumala had a turnover of Rs 1,424 crore (US$ 226.71 million) for FY 2012–13. The Hyderabad-based company, which was founded in 1998, makes dairy products such as sweets, flavoured milk, curd, ice-cream, etc.

Based on the recommendations of Foreign Investment Promotion Board (FIPB) made on December 30, 2013, the Indian government has agreed to five FDI proposals amounting to Rs 1133.41 crore (US$ 180.16 million) approximately. On November 13, 2013, it had approved 12 proposals of FDI amounting to Rs 821.63 crore (US$ 130.73 million) approximately. The FIPB has also approved Swedish clothing major Hennes & Mauritz (H&M) AB’s proposal to open 50 stores across India. The investment will be around Rs 720 crore (US$ 114.61 million).

FDI Policy Framework

Foreign Direct Investment

LIBERAL POLICY FRAMEWORK Cont…

India has been consistently opening up its markets for foreign investments. Irrespective of whichever government has come into power, economic reforms have continuously been undertaken. The aim of all governments has been the economic growth of India and one of the means thereof is by welcoming foreign investors to contribute to India’s growth.

Accordingly, foreign direct investment upto 100% under the automatic route is permitted in all sectors except defense, retail, tea plantation, insurance, telecom, banking, asset reconstruction companies, commodity exchanges, credit information companies, infrastructure companies in the securities market, power exchanges, brownfield investment in pharmaceutical sector, information services, air transport services, satellite, private security agencies.

INVESTING IN INDIA ENTRY ROUTES

INVESTING IN INDIA

Automatic Route Prior Permission(FIPB)

General ruleNo prior permission required

By exceptionPrior Government Approval needed

MODES OF INVESTMENT UNDER FDI

Mode of Investment

Issuance of fresh shares

Acquisition by way of

transfer of

existing shares by a

person resident

in or outside India

Transfer of shares

by a

Person

resident outside

India

Transfer of shares/conve-rtible debentures from a

Resident to Person

Resident outside

India

Issue of Rights / Bonus shares

Issue of shares under

Employees Stock Option

Scheme (ESOPs)

Issue of shares under

American

Depository

Receipt / Global

Depository

Receipt

RECENT FDI DEVELOPMENTS

Recently, the Central Government has relaxed FDI norms in certain sectors as below with a view to attract more foreign investment: Allowing 49% FDI under the automatic route in single brand retail

and relaxing the conditions thereto; Allowing courier services under 100% automatic route; Allowing FDI upto 51% with conditions in multi-brand retail; Allowing 100% FDI in case of asset construction companies with

49% under the automatic route; Allowing 49% FDI under the automatic route in commodity

exchanges; Allowing 74% FDI under the automatic route in credit information

companies; Allowing FDI upto 49% under the automatic route in infrastructure

companies in the securities markets Allowing 49% FDI under the automatic route in power exchanges.

SOME OTHER INITIATIVES Enacting new legislation, for instance the new Companies Act,

2013 is being notified in stages to replace the existing Companies Act, 1956.

The Reserve Bank of India is about the award licenses to new banks soon. Reinforcing India’s commitment to the growth of the banking sector.

The Indian government announced the national manufacturing policy in 2011 with an aim to provide a boost to the manufacturing sector and generate employment.

The proposed India-Israel free trade agreement (FTA) is likely to increase the volume of trade between the two countries by US$2 billion.

India and Israel have set up a $40 million fund to leverage innovation for economic collaboration through jointly developed technologies or joint collaborations. The fund would help Israeli companies participate in large Indian government-led ventures, foster collaboration of Israeli and Indian companies in R&D projects and seek to adapt products developed in Israel for the Indian market.

NEW COMPANIES ACT, 2013 – Some Highlights

The new Companies Act, 2013 has been recently introduced to replace the existing Companies Act, 1956. The new Companies Act is being notified in stages. Some of its highlights are set-forth below: One Person Company (OPC): One Person Company is a private company

with sole member. Only a person resident in India can form an OPC. (not notified)

Small Company: A small company is a private company with a paid-up capital of not more than Rs. Five lakhs or which has a turnover not exceeding Rs. Two Crores. A small company is subjected to lesser compliance than the other companies. (not notified)

Dormant Company: A company formed and registered under the new Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company  and a company which has not been carrying any business or operation, or has not carried on business or made any significant transaction during the last two (2) financial years is termed as a dormant company and is treated accordingly. (not notified)

Every company is required to have at least one (1) director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. (not notified)

NEW COMPANIES ACT, 2013 – Some Highlights Cont..

Central Government has recently notified the provision relating to Corporate Social Responsibility (CSR) under new Companies Act, 2013 for companies having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more, during any financial year. Such companies are required to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

The companies which fall under the aforesaid limits, are required to spend , in every financial year, at least two per cent (2%) of the average net profits of the company made during the three immediately preceding financial years, in pursuance of the Corporate Social Responsibility Policy formulated by the company.

The companies are required to give preference to the local area and areas around them where they operate, for spending the amount earmarked for the Corporate Social Responsibility activities, as have been categorically stated in the Companies Act, 2013

INFORMATION TECHNOLOGY

100 % FDI under automatic route is allowed in software and electronics except in the aerospace and defense sectors.

Some of the important aspects of the Information Technology (IT) industries

Indian IT industry is likely to add 1.5 lakh jobs during the FY 2013- 14.

The IT industry is expected to grow at 12-14 % as against 10.5 per cent last year.

India is expected to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7 billion will be spent on software-as-a-service (SaaS) - Gartner Inc.

INFORMATION TECHNOLOGY Cont…

Factors leading to growth in the IT/ITes sector are: Technically qualified personnel easily available; Rapid adoption of IT technologies in almost every sectors; Use of new and emerging technologies such as cloud

computing, etc; SEZ, STP, EOU, etc as growth drivers; as more of these are

now being set up in Tier II cities;

Government Initiatives In the twelfth Five Year Plan (2012-17), the Department of

Information Technology is committed to strengthen and extend the existing core infrastructure projects to provide more horizontal connectivity, build redundancy connectivity, etc. The core infrastructure including fibre optic based connectivity is also being leveraged.

ELECTRONICSAs mentioned earlier, 100 % FDI under automatic route is allowed in software and electronics except in the aerospace and defense sectors.

Government Initiatives and Prospect As a result of impressive growth of the economy, steadily increasing

purchasing power of the people and aspirations of the young, India is one of the fastest growing markets for electronic gadget.

The Government has also launched Export Promotion Capital Goods (EPCG) and Electronic Hardware Technology Park (EHTP) schemes to allow import of electronic capital goods without paying any custom duty.

Indian electronics market is currently US$ 69.6 billion and is expected to grow to about US$ 400 billion by 2020.

The sector has attracted strong investments in the form of mergers and acquisitions (M&A) and other foreign direct investment (FDI) inflows.

INFORMATION TECHNOLOGY & ELECTRONICS

Export Promotion Schemes

Special schemes are available for setting up Export Oriented Units for the Electronics/IT Sector. These schemes are:

Export Oriented Unit (EOU) Scheme Electronics Hardware Technology Park (EHTP) Scheme Software Technology Park (STP) Scheme Special Economic Zones (SEZ) Scheme Export promotion Capital Goods (EPCG) Scheme Duty Exemption and Remission Scheme

DEFENCE Sectoral Caps and Conditions Foreign Investment upto 26% is allowed and needs approval

of the Government. Recently, the Government has allowed investment beyond 26% - such investment beyond 26% needs approval of Cabinet Committee on Security (CCS) on case to case basis, which ensure access to modern and ‘state-of-art’ technology in the country. Defence industry is subject to Industrial license under the Industries (Development & Regulation) Act 1951.

Application for FDI up to 26% will follow the existing procedure with proposals involving inflows in excess of Rs 1200 crore being approved by cabinet committee on economic Affairs (CCEA). Applications seeking permission of the Government for FDI beyond 26% will in all cases be examined additionally by the Department of Defence Production (DoDP) from the point of view particularly of access to modern and ‘state-of- art’ technology.

DEFENCE Cont…Sectoral Conditions cont…

Based on the recommendation of the DoDP and FIPB, approval of the Cabinet Committee on Security (CCS) will be sought by the DoDP in respect of cases which are likely to result in access to modern and ‘state-of-art” technology in the country.

Proposals for FDI beyond 26% with proposed inflow in excess of Rs 1200 crores, which are to be approved by CCS will not require further approval of the Cabinet Committee of Economic Affairs (CCEA).

DEFENCE Cont…Detailed Conditions

The applicant should be an Indian company / partnership firm; The management of the applicant company / partnership should be in

Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians;

Full particulars of the Directors and the Chief Executives should be furnished along with the applications;

The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and having an established R & D base;

DEFENCE Cont…Detailed Conditions Cont…

There would be no minimum capitalization for the FDI. A proper assessment, however, needs to be done by the management of the applicant company depending upon the product and the technology. The licensing authority would satisfy itself about the adequacy of the net worth of the non-resident investor taking into account the category of weapons and equipment that are proposed to be manufactured;

There would be a three-year lock-in period for transfer of equity from one non-resident investor to another non-resident investor (including NRIs & erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the Government;

The Ministry of Defence is not in a position to give purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements would be made available to the extent possible;

DEFENCE Cont…Detailed Conditions Cont…

The capacity norms for production will be provided in the licence based on the application as well as the recommendations of the Ministry of Defence, which will look into existing capacities of similar and allied products;

Import of equipment for pre-production activity including development of prototype by the applicant company would be permitted

Adequate safety and security procedures would need to be put in place by the licensee once the licence is granted and production commences. These would be subject to verification by authorized Government agencies

DEFENCE Cont…Detailed Conditions Cont…

The standards and testing procedures for equipment to be produced under licence from foreign collaborators or from indigenous R & D will have to be provided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Self-certification would be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would be for a fixed period and subject to renewals.

Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises.

DEFENCE Cont…Detailed Conditions Cont…

Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories.

DEFENCE Cont…

Government Initiatives The Government has increased the allocation to the defence ministry

by 10 % amounting to INR 2.24 trillion (US$ 36.18 billion);

The Government of India is willing and eager to attract ‘state-of-art’ technology in the country;

India has emerged as the world's largest importer of major conventional weapons worldwide;

India is one of the largest customer of Israeli military equipment and Israel is one of the largest military partners of India. Defence ties between the two countries are set to grow further. Hyderabad-based Electronics Corporation of India and Israeli conglomerate Elbit Systems signed a letter of intent at the Defence Expo-2014 in New Delhi.

RENEWABLE ENERGYFDI up to 100 per cent is permitted under automatic route for projects in respect of renewable energy.

FDI up to 100 per cent is permitted under automatic route for projects for electricity generation (except atomic energy), transmission, distribution and power trading.

Position of India in World Energy Market

India has retained its position in top five world wind energy markets in 2013.

The country remained the third largest market for new turbines with capacity addition of 2,441 megawatt (MW). World’s wind turbine capacity addition grew at 19 per cent to 44,609 MW.

 

RENEWABLE ENERGY Cont… The Ministry of Power has set a target for adding 76,000

MW of electricity capacity in the 12th Plan (2012-17) and 93,000 MW in the 13th Plan (2017-2022).

Under the Union Budget 2013-14, the Government of India has approved a scheme for the financial restructuring of DISCOMS to restore the health of the energy sector in India.

In a boost to power firms with plans to set up units in

Special Economic Zones (SEZ), the Government has exempted them from the positive net foreign exchange (NFE) obligation applicable to regular units in such enclaves.

MAJOR INVESTMENTS IN THE INDIAN ENERGY SECTOR

Power sector to add 50,000 megawatt (MW) of thermal and hydroelectricity.

Rajasthan is set to get the largest single-location solar plant of 4,000 megawatt (MW) in the world with an investment of Rs 30,000 crore (US$ 4.75 billion).

Jakson Power Solutions to install solar rooftop systems in Bengaluru and Pune. The first order is to set up the 80 kilowatt peak (KWp) solar rooftop.

Mytrah Energy Ltd plans to acquire 59.75 MW of existing operational wind power assets in Tamil Nadu (TN) and Maharashtra. The company expects to have a capacity of 370 MW against previously anticipated 334 MW by 2013.

INDIAN TAX REGIME

Union Government

Direct Taxes – Income Tax & Wealth Tax

Indirect Taxes – Customs Duty, Central Excise Duty,

Service Tax

Central Sales Tax – Levied by Union and collected by

States

The power to levy taxes in India vests with Union and State Governments

• The tax regime has already undergone tremendous reforms process and is slated to undergo further reforms in future by way of introduction of direct tax code.

• Unified GST proposed to be introduced soon.

TAX STRUCTURE

TAX RATESIndia has different tax rates for different classes and tax rates are conditional upon specific terms. The basic tax rate for a company incorporated in India is 30%

which, with applicable surcharge and education cess, result in a rate of either 30.90% or 32.445%.

Foreign companies that have a Private Equity or Branch /Project Office in India are taxable at higher basis rate of 40% which, with applicable surcharge and education cess, resulting in a rate of either 41.20% or 42.02%.

Minimum Alternate Tax (MAT) is applicable at a rate of 19.06% or 20.01% in case of Indian companies with applicable surcharge and education cess, their basis rate of 18.5% on Book Profits (to be computed as prescribed) applies if same is higher. Presumptive taxation as stipulated and deemed taxation on gross basis may apply to several income streams, particularly for Non-Residents.

”To succeed, you must have tremendous perseverance, tremendous will.” - Swami

Vivekananda

THANK YOU!