India A Preferred Business Destination Introduction India - with its consistent growth performance and abundant highly skilled

d manpower provides enormous opportunities for investments. India is the largest democracy and tenth largest economy in the world. India is the fourth largest economy in the world in terms of purchasing power parity. India has a federal system of Government with clear demarcation of powers between the Central Government and the State Governments. India provides a liberal, attractive, and investor friendly investment climate. India has the most liberal and transparent policies on foreign direct investment (FDI) among major economies of the world. 100% FDI is allowed under the automatic route in all sectors/activities except in few areas, which require prior approval of the Government. Under automatic route, investors are required to only notify the Reserve Bank of India within 30 days of receipt of inward remittances. India has liberalized and simplified foreign exchange controls. Rupee is freely convertible on current account. Rupee is almost fully convertible on capital account for non-residents. For FDI- Profits earned, dividends and proceeds out of the sale of investments are fully repatriable. Indian economy has been growing at an average growth rate of about 8.6% p.a over the last three years; the growth rate in 2006-07 was 9.4% and the growth rate in the first quarter of 2007-08 was 9.3%. Imports in 2006-07 grew by 21.59% and exports by 20.9%. Manufacturing sector grew by 12% and services by 11%. India has a large middle class and 55% of its population is below the age of 25. High economic growth and rising per capita income has resulted in high growth in the domestic market, which is the prime growth engine for Indian economy. Government of India accords high priority to development of infrastructure in highways, ports, railways, airports, power, telecom, etc. Government is actively seeking domestic and foreign private investment, for infrastructure sector development.

Investment Outlook. A number of studies in the recent past have highlighted the growing attractiveness of India as an investment destination. According to the study by Goldman Sachs, Indian economy is expected to continue growing at the rate of 5% or more till 2050. Indian economy is slated to become the fourth largest economy by 2050.

Today though the world has become a global village, every village has its system and set of laws. Any investor needs to study these guiding principles before making any advancement in the respective country. The Foreign Direct Investment Policies of India are extremely moderate with the coexistence of the Automatic route and the Approval route. Policy for Foreign Direct Investment. India has among the most liberal and transparent policies on FDI among the emerging economies. India allows FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require prior approval of the Government:1. Sectors prohibited for FDI. 2. Activities/items that require an industrial license. 3. Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field. 4. Proposals for acquisitions of shares in an existing Indian company in financial service sector and where Securities and Exchange Board of India (substantial acquisition of shares and takeovers) regulations, 1997 is attracted. 5. All proposals falling outside notified sectoral policy/CAPS under sectors in which FDI is not permitted. Most of the sectors fall under the automatic route for FDI. In these sectors, investment could be made without approval of the central government. The sectors that are not in the automatic route, investment requires prior approval of the Central Government. The approval in granted by Foreign Investment Promotion Board (FIPB). In few sectors, FDI is not allowed.

After the grant of approval for FDI by FIPB or for the sectors falling under automatic route, FDI could take place after taking necessary regulatory approvals form the state governments and local authorities for construction of building, water, environmental clearance, etc. Procedure under automatic route. FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional Office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares of foreign investors. Procedure under Government Approval. FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration are granted on the recommendations of Foreign Investment Promotion Board (FIPB). Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion. Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted. No fee is payable. The guidelines for consideration of FDI proposals by the FIPB are at Annexure-III of the Manual for FDI.

Prohibited Sectors. The extant policy does not permit FDI in the following cases: i. Gambling and betting. ii. Lottery Business. iii. Atomic Energy. iv. Retail Trading. v. Agricultural or plantation activities of Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)