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Investing in India

Foreign Direct Investment - Introduction

Foreign Direct Investment (FDI) is permitted as under the following

forms of investments.

Through financial collaborations.

Through joint ventures and technical collaborations.
Through capital markets via Euro issues.
Through private placements or preferential allotments.

Forbidden Territories:

FDI is not permitted in the following industrial sectors:

Arms and ammunition.

Atomic Energy.
Railway Transport.
Coal and lignite.
Mining of iron, manganese, chrome, gypsum, sulphur, gold,
diamonds, copper, zinc.

Foreign Investment through GDRs (Euro Issues)

Foreign Investment through GDRs is treated as Foreign Direct

Investment.
Indian companies are allowed to raise equity capital in the
international market through the issue of Global Depository Receipt
(GDRs). GDRs are designated in dollars and are not subject to any
ceilings on investment. An applicant company seeking Government's
approval in this regard should have consistent track record for good
performance (financial or otherwise) for a minimum period of 3 years.
This condition would be relaxed for infrastructure projects such as
power generation, telecommunication, petroleum exploration and
refining, ports, airports and roads.

Clearance from FIPB

There is no restriction on the number of Euro-issue to be floated by a
company or a group of companies in the financial year . A company
engaged in the manufacture of items covered under Annex-III of the
New Industrial Policy whose direct foreign investment after a
proposed Euro issue is likely to exceed 51% or which is implementing
a project not contained in Annex-III, would need to obtain prior FIPB
clearance before seeking final approval from Ministry of Finance.

Use of GDRs
The proceeds of the GDRs can be used for financing capital goods
imports, capital expenditure including domestic purchase/installation
of plant, equipment and building and investment in software
development, prepayment or scheduled repayment of earlier external
borrowings, and equity investment in JV/WOSs in India.

Restrictions
However, investment in stock markets and real estate will not be
permitted. Companies may retain the proceeds abroad or may remit
funds into India in anticiption of the use of funds for approved end
uses. Any investment from a foreign firm into India requires the prior
approval of the Government of India.

Foreign Investment Policy:

The Ministry of Industry has expanded the list of industries eligible
for automatic approval of foreign investments and, in certain cases,
raised the upper level of foreign ownership from 51 percent to 74
percent and further in certain cases to 100 percent. In January 1998,
the RBI announced simplified procedures for automatic FDI
approvals. The announcement further provided that Indian companies
will no longer require prior clearances from the RBI for inward
remittances of foreign exchange or for the issuance of shares to
foreign investors.

Facilitating foreign investment

In the recent budget, the finance minister announced the government's
commitment to a 90-day period for approving all foreign investments.
Government officers will be assigned to larger foreign investment
proposals and will facilitate Central and State clearances in a time-
bound manner. Unlisted companies with a good 3 year track record,
have been permitted to raise funds in international markets through
the issue of Global Depository Receipts (GDRs) and American
Depository Receipts (ADRs).

A number of recent policy changes have reduced the discriminatory

bias against foreign firms.

The government has amended exchange control regulations

previously applicable to companies with significant foreign
participation.
The ban against using foreign brand names/trademarks has been
lifted.
The FY 1994/95 budget reduced the corporate tax rate for foreign
companies from 65 percent to 55 percent. The tax rate for domestic
companies was lowered to 40 percent.
The long-term capital gains rate for foreign companies was lowered to
20 percent; a 30 percent rate applies to domestic companies.
The Indian Income Tax Act exempts export earnings from corporate
income tax for both Indian and foreign firms.
Other policy changes have been introduced to encourage foreign
direct and foreign institutional investment.

For instance, the Securities and Exchange Board of India (SEBI)

recently formulated guidelines to facilitate the operations of foreign
brokers in India on behalf of registered Foreign Institutional Investors
(FII's). These brokers can now open foreign currency-denominated or
rupee accounts for crediting inward remittances, commissions and
brokerage fees.
Relaxation
The condition of dividend balancing (offsetting the outflow of foreign
exchange for dividend payments against export earnings) has been
eliminated for all but 22 consumer goods industries. A 5-year tax
holiday is extended to enterprises engaged in development of
infrastructural facilities. Even without a registered office in India,
foreign companies are allowed to start multimodal transport services
in India.

The Reserve Bank of India (RBI) now permits 100 percent foreign
investment in the construction of roads/bridges. The peak custom duty
rate was reduced to 50 percent from 65 percent in the March 1995
budget. Import regime changes included enhancement of the scope of
Special Import License (SIL) programs, and the expansion of freely
importable items on the Open General License (OGL) list to include
some consumer goods.

Dispute Settlement
Currently, there are no investment disputes over expropriation or
nationalization. Government demands for penalty payments for
alleged overcharging by pharmaceutical companies during the 1980's
could lead to de-facto expropriation of some foreign drug companies'
assets in India.

In pharmaceutical sector
A committee has been named to study these longstanding disputes,
but the failure of successive governments to produce a swift and
transparent resolution has led to a virtual standstill in foreign
investment in India's pharmaceutical sector. Indian courts provide
adequate safeguards for the enforcement of property and contractual
rights.

Case backlogs
However, case backlogs frequently lead to long procedural delays.
India is not a member of the International Center for the Settlement of
Investment Disputes, nor of the New York Convention of 1958.
Commercial arbitration or other alternative dispute resolution (ADR)
methods are not yet popular ways of commercial dispute settlement in
India. The recent introduction in Parliament of a new Arbitration Bill
signals the importance now accorded to this matter by the GOI.

Investment in India - Foreign Direct Investment - Approval

Foreign direct investments in India are approved through two routes:

Automatic approval by RBI:
The Reserve Bank of India accords automatic approval within a
period of two weeks (provided certain parameters are met) to all
proposals involving:
foreign equity up to 50% in 3 categories relating to mining activities
(List 2).
foreign equity up to 51% in 48 specified industries (List 3).
foreign equity up to 74% in 9 categories (List 4).
where List 4 includes items also listed in List 3, 74% participation
shall apply.
The lists are comprehensive and cover most industries of interest to
foreign companies. Investments in high-priority industries or for
trading companies primarily engaged in exporting are given almost
automatic approval by the RBI.

Opening an office in India

Opening an office in India for the aforesaid incorporates assessing the
commercial opportunity for self, planning business, obtaining legal,
financial, official, environmental, and tax advice as needed, choosing
legal and capital structure, selecting a location, obtaining personnel,
developing a product marketing strategy and more.

The FIPB Route:

Processing of non-automatic approval cases
FIPB stands for Foreign Investment Promotion Board which approves
all other cases where the parameters of automatic approval are not
met. Normal processing time is 4 to 6 weeks. Its approach is liberal
for all sectors and all types of proposals, and rejections are few. It is
not necessary for foreign investors to have a local partner, even when
the foreign investor wishes to hold less than the entire equity of the
company. The portion of the equity not proposed to be held by the
foreign investor can be offered to the public.

Total foreign investment and FDI

Total foreign investment in IFY 1997-98 was estimated at USD 4.8
billion in 1997-98, compared to USD 6 billion in 1996-97. Foreign
Direct Investment (FDI) in 1997-98 was an estimated USD3.1 billion,
up from USD 2.7 billion in1996-97. The government is likely to
double FDI inflows within two years. Foreign portfolio investment by
foreign institutional investors was significantly lower at USD 752
million for fiscal 1997-98, down compared to USD 1.9 billion
in1996-97, partly reflecting the effect of the recent crisis in Asia.

Foreign institutional investors

Foreign institutional investors (FIIs) were net sellers from November
1997 through January 1998. The outflow, prompted by the economic
and currency crisis in Asia and some volatility in the Indian rupee,
was modest compared to the roughly USD 9 billion which has been
invested in India by FIIs since 1992.

FII investments
FII net investment declined to USD 1.5 billion for IFY 1997-98,
compared to USD 2.2 billion in 1996-97. The trend reversed itself in
February and March 1998, reflecting the renewed stability of the
rupee and relatively attractive valuations on Indian stock markets.

Large outflows of capital

Large outflows began again in May 1998, following India's nuclear
tests and volatility in the rupee/dollar exchange rate. In an effort to
avoid further heavy outflows, the RBI announced in June that FIIs
would be allowed to hedge their incremental investments in Indian
markets after June11, 1998.
Investment Opportunities in India.

1. Biofuels.
(Project Cost – GBP 275000/-)
Consultancy fee – GBP 19250/-

The potential of Jatropha oil ( when converted to Biodiesel )as a diesel

substitute has already been recognized by Indian scientists, and several
landowners in India have even started plantations of this tree. The oil
content is 35 – 40% in the seeds and 50 – 60% in the kernel. The oil
contains 21% saturated fatty acids and 79% unsaturated fatty acids.
There are some chemical elements in the seed which are poisonous and
render the oil not appropriate for human consumption.

Raw material
Oil has a very high saponification value and is being extensively used for
making soap in some countries. Also, the oil is used as an illuminant as it
burns without emitting smoke.

Medicinal plant
The latex of Jatropha contains an alkaloid known as "jatrophine" which is
believed to have anti-cancerous properties. It is also used as an external
application for skin diseases and rheumatism and for sores on domestic
livestock. In additon, the tender twigs of the plant are used for cleaning
teeth, while the juice of the leaf is used as an external application for
piles. Finally, the roots are reported to be used as an antidote for snake-
bites.

Raw material for dye

The bark of Jatropha curcas yields a dark blue dye which is used for
colouring cloth, fishing nets and lines.

2. Medical and Cosmetic Tourism.

(Project Cost – GBP 250000/- )
Consultancy fee – GBP 18750/-

Medical Tourism India is a developing concept whereby people from world

over visit India for their medical and relaxation needs.

Most common treatments are heart surgery, knee transplant, cosmetic

surgery and dental care. The reason India is a favorable destination is
because of it's infrastructure and technology in which is in par with those
in USA, UK and Europe.

India has some of the best hospitals and treatment centers in the world
with the best facilities. Since it is also one of the most favorable tourist
destinations in the world, Medication combines with tourism has come
into effect, from which the concept of Medical Tourism is derived.

As health care costs skyrocket, patients in the developed world are

looking overseas for medical treatment. India is capitalizing on its low
costs and highly trained doctors to appeal to these "medical tourists."
Even with airfare, the cost of going to India for surgery can be markedly
cheaper, and the quality of services is often better than that found in the
United States and UK. Indeed, many patients are pleased at the prospect
of combining their tummy tucks with a trip to the Taj Mahal. - YaleGlobal
Many countries have developed links for speedy treatments in India for
their nationals on account of the fact that in these countries one has to
wait for extended periods of time to undergo operations.

In India, medical treatment is not only fast but also costs a fraction of
what it costs in USA or Europe. Even tele-consultancy is available for
expert opinion and transmission facilities. Some of the states have
already established themselves as destinations for health care and
medical tourism. The growing need is for high level specialised treatments
like transplantation of vital organs, cancer treatment, neuro-surgery,
cardiac surgery and many more.

3. Beach Resort.
(Project Cost – GBP 200000/- )
Consultancy fee – GBP 15250/-

135-room boutique hotel with health club, Spa and F&B facilities.

4. Antibody Production ( Monoclonal and Polyclonal )

(Project Cost GBP 1250000/-)
Consultancy fee – GBP 62500/-

The worldwide market for therapeutic and diagnostic monoclonal

antibodies is expected to reach $26 million by 2010, buoyed on by
technological advances that allow antibodies to exhibit a specified
targeted attack on disease-causing cells or compounds.

The remarkable variety in which these antibodies may be used has had
some analysts hailing this technology as the medicine of the future.
Monoclonal antibodies are effective in a broad range of diseases including
autoimmune, cardiovascular and infectious diseases, cancer and
inflammation.

Market drivers for this sector are seen as more important than other
sectors of the pharmaceutical industry partly because they are seen as
one of the main indicators of the direction drug treatments are shaping
towards.

Currently the limited efficacy of conventional therapies combined with

serious side effects, has increased demand for monoclonal (mAbs). One of
the great advantages of this therapy is its low or negligible toxicity.
Indeed, another one is that the antibody itself may be used as a weapon
or the antibody may serve as the vehicle to deliver a drug.

Indeed, beyond fully human antibodies, conjugated antibodies (linked to

small molecule drugs, toxins, or radioactive payloads) have shown strong
theoretical potential, particularly in the treatment of cancers.

According to a soon-to-be-released updated report: "RC-088Z Dynamic

Antibody Industry," from Business Communications Company, the
worldwide market for therapeutic and diagnostic antibodies is estimated
at $15 billion in 2005.

With the rollout of more than a dozen new therapeutic monoclonal

antibody products and expanded indications for existing products
expected during the forecast period, the market is expected to rise at an
average annual growth rate (AAGR) of 11.5 per cent to nearly $26 billion
in 2010.

As of May 2005, there were 18 therapeutic monoclonal antibody products

on the US market. Worldwide, there were an estimated 500 monoclonal
antibody products in development by more than 200 companies for the
treatment of virtually every debilitating disease. Approximately 80 of
these monoclonal antibody products are in clinical trials.

The report stated that therapeutic antibodies currently dominate the

market and are projected to have an AAGR of 11.4 per cent, reaching
$25.7 billion in 2010. The therapeutic monoclonal antibody market is
projected to have an AAGR of approximately 12.4 per cent through the
forecast period. The therapeutic polyclonal antibody market, which is
driven more by volume and demand than innovation, is projected to see
an AAGR of approximately 4 per cent.

The report also predicted the diagnostic imaging market, though small,
would do well, with average annual growth approaching 17 per cent
reaching $147 million in 2010.
5. Egg Powder.
(Project Cost GBP 625000/-)
Consultancy fee – GBP 31250/-

The egg is the most nutritious natural product. Eggs are rich in protein,
vitamins and minerals. During last three decades, the poultry industry in
the country has made remarkable progress and grown into an organized
and highly productive industry. Dried egg powder can be stored and
transported at room temperatures. It is quite stable and has long shelf
life. The manufacture of egg powder is an important segment of egg
consumption. There is enough scope of an egg powder manufacturing
plant, with a suitable capacity.

Egg powder is one of the most common products in poultry industry in the
country. Attempts have been made to prepare egg pudding also but this
product has not yet been accepted by the consumers, whereas demand
for egg powder is increasing year after year. This project can
be set up in UP, WB, Maharashtra and AP. The preferred location is
Maharashtra in view of vast market.

Eggs are full of nutrients and minerals and are consumed in different
forms since centuries. There was misconception that they are from non-
vegetarian food category but now people at large have accepted them as
a vegetarian item and their consumption is increasing year after year.
Transportation of eggs is difficult as chances of breakage during
transportation are higher and it is costly also. Egg powder is
comparatively easier to transport and there is no question of any
breakage during the transit.

Both poultry egg processing units have come in a very big way in the
country. Karnataka’s egg production accounts for 2.5 million eggs / day to
7.5 million eggs, that in Punjab expanded from 5.0 million 15.0 million
eggs per day in the past two years. Tamil Nadu was producing 8.0 million
eggs / day while Maharashtra 6.0m, Rajasthan 1.5m, Gujarat 2.5m,
Madhya Pradesh 4.5m and Orissa 1.5m eggs per day. Egg output in the
northeastern states is estimated at 1.5m.

Both public and private sector organizations have their contribution in the
poultry industry that has made India among the top players. There are
about 15 pure line and grand parent franchise projects in India. There are
115 layer and 280 broiler hatcheries producing 1.3 million layer parents
and 280 million broiler parents. They in turn supply 95 million hybrid
layer and 275 million broilers, day- old chick.
Presently there are only five egg powder plants in India which is
considered insufficient in view of growing export demand for different kind
of powder - whole egg, yolk and albumen. The scope of foreign
investment and state-of-the-art technology in this field is therefore
tremendous.

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