Doing Business in Maharashtra

Transcription

1 Government of Maharashtra Doing Business in Maharashtra Knowledge Partner Destination Maharashtra Opportunities Unlimited

2 Preface This book has been complied by Ernst & Young India Private Limited, the Knowledge Partner to Maharashtra Industrial Development Corporation to assist in identification of investors, prepare the investment promotion strategy and action plan, as well as provide hand holding assistance to investors. The intention is to provide executives a quick overview of the investment climate, taxation, forms of business organizations, and business and accounting practices in India. The book provides a detailed insight into the ease of doing business in Maharashtra. The complex decision-making process involved in undertaking foreign operations requires an intimate knowledge of a country s commercial climate as well as recognition of the fact that this climate is continuously evolving. Companies doing business in India, or planning to do so, would be well-advised to obtain current and detailed information from experienced professionals. The information presented in this book has been validated w.e.f April 2011.

3 Table of Contents Preface... 1 Table of Contents... 2 A. Introduction... 8 A.1 Geographic Profile... 8 A.2 Transportation... 9 A.3 Demographic Profile... 9 A.4 Political Profile A.5 Economic Profile A.6 About Maharashtra A.7 MIDC An Overview A.8 MIDC Present status B. Investment Climate & Foreign Trade B.1 Foreign Investment Framework B.2 Regional & International Trade Agreements & Associations B.3 Major Trading Partners & Leading Imports & Exports B.4 Maharashtra Investment Climate C. Entry Options in India C.1 Liaison office C.2 Branch office C.3 Local Indian Subsidiary Companies C.4 Comparative Summary for Entry Options in India D. Funding of Indian Businesses D.1 Equity Share Capital D.2 Preference Share Capital D.3 Debentures and Borrowings D.4 ADRs/GDRs/FCCBs E. Repatriation of Funds E.1 Repatriation of Capital E.2 Dividends E.3 Other Remittances F. Forms of Enterprise

4 F.1 Sole Proprietorship F.2 Partnerships F.3 Limited Liability Partnership (LLP) G. Companies G.1 Types of Companies G.2 Financial Reporting and Auditing H. Economic Laws and Regulations H.1 Indian Contract Act, 1872 (ICA) H.2 Protection of intellectual property rights H.3 Labor laws H.4 Anti-Trust Regulations H.5 Negotiable Instruments Act, H.6 Sale of Goods Act, H.7 Arbitration and Conciliation Act, I. Mergers & Acquisitions I.1 Reorganization and Mergers I.2 Acquisitions I.3 Demergers I.4 Slump sale I.5 Buy-back of Shares I.6 Capital Reduction I.7 A Comparative Study of Mergers, Demergers, Slump Sale and Acquisitions J. Individuals J.1 Visa and Registration Requirements J.2 Foreign Exchange Regulations J.3 Residential Permit J.4 Other matters K. Direct Taxes K.1 Administration K.2 Corporate Income Tax K.3 Other Direct Taxes (Corporate) K.4 Industry-specific Tax Schemes K.5 Foreign Tax Relief K.6 Appeal Mechanism

5 K.7 Income Tax (Individuals) K.8 Income Tax Filing & Payment Process K.9 Other Direct Taxes (Individuals) K.10 Direct Tax Code L. Transfer Pricing L.1 Safe harbour rules M. Indirect Taxes M.1 Excise Duty M.2 Service tax M.3 VAT/ CST M.4 Octroi/Entry tax M.5 Research and Development Cess M.6 Other significant indirect taxes M.7 Introduction of Goods & Services Tax legislation (GST) N. Incentive N.1 Direct Tax Incentives N.2 SEZs N.3 State-level Incentives N.4 Maharashtra Specific Policies O. Roadmap for Setting-Up Industry in Maharashtra O.1 Company Setting O.2 Unit Registration O.3 Tax Related Approval O.4 Environmental Clearance O.5 Land Procurement O.6 Construction Related Permits & NOCs O.7 Pollution Control Board Clearance O.8 Water Connection O.9 Permission of Chief Electrical Inspector O.10 Power Connection O.11 Industrial Safety Permits O.12 Labor Related Approvals O.13 Food & Drug Administrator Approvals O.14 Quality Certificates

6 P. Annexures P.1 List of Frequently used Abbreviations P.2 Useful Addresses and Telephone Numbers

7 List of Tables Table 1: India Fact File... 8 Table 2: Geological Characteristics of India... 9 Table 3: Transportation Infrastructure in India... 9 Table 4: Demographic Profile of India... 9 Table 5: Classification of Industrial areas Table 6: Industrial Area revenue division-wise Table 7: FDI Caps in Various Sectors Table 8: FDI Project Status in Maharashtra Table 9: IEM/LOIs Approved in India & Share of Maharashtra Table 10: IEM Project Status Table 11: Comparative Summary of Entry Options in India Table 12: A Comparative Study of Mergers, Demergers, Slump Sale and Acquisitions Table 13: Area-wise Industrial Promotion Subsidy Ceilings Table 14: Area-wise qualifying criteria for Mega Project Policy Table 15: Zone Wise Break-up of Mega Projects in Maharashtra Table 16: Fee for Principal Employer Table 17: Renewal Fee Structure

8 List of Figures Figure 1: Land Use in India... 8 Figure 2: Trend of Distribution of GDP of India (1970 to 2009) Figure 3: Private Consumption in India Figure 4: GDP Growth Rate of India Figure 5: Total FDI Inflows in India Figure 6: Country Wise FDI Inflows in India Figure 7: Sector wise FDI in India Figure 8: Foreign Exchange Reserves in India Figure 9: Financial Market Structure Figure 11: Location wise branches in India Figure 10: Market share of Banks in India Figure 12: Maharashtra and Its Administrative Regions Figure 13: Distribution of Population by age group Figure 14: Distribution of Population by Religion Figure 15: Distribution of Population by Language Figure 16: Sectoral shift from an agrarian to a services-driven economy Figure 17: MIDC Key Objectives and Activities Figure 18: Location of Industrial areas Figure 20: Single Window Clearance Figure 21: Foreign Investment Routes Figure 22: Export Scenario of India Figure 23: Import Scenario of India Figure 24: State-wise FDI in India Figure 25: Sector wise FDI in Maharashtra Figure 26: Country wise FDI in Maharashtra Figure 27: State wise IEM/LOI approved in India Figure 28: Sector wise IEM/LOI in Maharashtra Figure 29: Procedural flow chart Figure 31: Approval Process for Category B Projects

9 A. Introduction India is the seventh-largest country in the world by area and the second-largest by population. Located in South Asia, the country supports over 16% of the world s population and more than 2.4% of the world s land. Table 1: India Fact File India fact file Land area Capital Population Languages Major international airports Major seaports Major cities Time zone Currency unit Source: GoI, Census million sq km New Delhi billion Hindi (official language of the Union), English (business language) Ahmedabad, Amritsar, Bangalore, Chennai, Goa, Guwahati, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram Mumbai, New Mangalore, Kolkata, Kandla, Kochi, Chennai, Ennore, Haldia, Mormugao, Paradip, Tuticorin, Vishakapatnam New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Lucknow, Kanpur 5 hours 30 minutes ahead of Greenwich Mean Time (GMT) Indian rupee (INR) A.1 Geographic Profile Distribution of total area occupied by India Distribution of total land occupied by India 10% 90% 49% 51% Land Water Arable Non-arable Figure 1: Land Use in India Source: CIA The World Factbook Total Area: 3.29 million sq km Capital: New Delhi Geographically, India consists of 29 states and six union territories. Introduction 8

10 Bordering Countries: China, Nepal and Bhutan to the north, Afghanistan and Pakistan to the North-West, Myanmar and Bangladesh to the east and Sri Lanka to the south A.1.1 Geological Characteristics Table 2: Geological Characteristics of India Climate Broadly, India s climate can be is classified as tropical monsoon. The country has four seasons summer (March June), monsoon (June September), post-monsoon (October November) and winter (December February) Natural resources Flora and fauna Major rivers Coastline Coal (fourth-largest reserves in the world), manganese, bauxite, iron ore, mica, chromites, diamond, limestone, titanium ore, natural gas, petroleum, arable land Over 47,000 species (flora), more than 89,000 species (fauna) Ganga, Yamuna, Brahmaputra, Godavari, Krishna, Cauvery, Narmada, Tapti 7,517 Km encircling the mainland; the Andaman, Nicobar and Lakshadweep islands Source: GOI, Census, 2001 A.2 Transportation Table 3: Transportation Infrastructure in India Railways 64,755 km Roadways Waterways 4,236,400 km 14,500 km Number of Airports 136 Source: GoI, Economic Survey of India ; GoI, Ministry of Civil Aviation annual report; GoI, Ministry of Shipping, Inland Waterways Authority of India, 2011 A.3 Demographic Profile Table 4: Demographic Profile of India Population billion (Urban: 27.8%, Rural: 72.2%) Population growth rate 1.5% Birth rate Death rate Life expectancy Sex ratio 24.8 (Births / 1,000 Population) 8 (Deaths / 1,000 Population) 70 Years 1.07Males Per Female Introduction 9

11 Households 193 million Source: GOI, Census, 2001 A.3.1 Age Structure India has a young population with approximately 64% of its population in the age group of 15 to 64 years. The median age in the country is around 25.3 years, which is lower than many countries in the world. Figure 2: Age wise Distribution of Population Distribution of population by agegroup India's median age vis-à-vis other countries (in years) 5% India World % 31% Brazil China Source: GOI, Census years years >65 years Russia US Japan A.3.2 Cultural Diversity Table 5: Cultural Diversity of India Religions Hinduism, Islam, Christianity and Sikhism are the four main religions followed in India. Other religions include Buddhism, Jainism, Judaism and Zoroastrianism. Languages Hindi is the official language of India. Apart from Hindi, there are 21 official languages including Bengali, Telugu, Marathi, Tamil, Urdu, and Gujarati. English has the status of an associate language and is widely used in national, political and commercial communication. Festivals Deepawali, Holi, Guru Nanak Jayanti, Rakshabandhan, Christmas, Janamashtami, Id ul Zoha Figure 3: Religion & Language wise Population in India Distribution of population by language 8% 7% 7% 6% 5% 5% 4% 3% 14% Introduction 10 41% Hindi Bengali Telugu Marathi Tamil Urdu Source: GOI, Census 2001

12 Distribution of population by religion A.3.3 Education and Labor Force 81% 13% 2% 2% 2% Hindu Muslim Christian Sikh Others Literacy Rate: 64.8% (male: 75.3%, female: 53.7%) Education: India has the largest school-age population in the world. It has a well established education system with more than one million schools enrolling over 130 million students. Source: GOI, Census 2001 For higher education, India has more than 400 universities, over 20,000 colleges and 7,000 technical institutions with approximately 13 million students. Labor force: India s labor force stood at approximately million in It is estimated that over 13 million people enter India s urban labor force every year. Figure 4: Distribution of Population by Education Distribution of population by education 4% 23% 10% 2% Figure 5: Distribution of Labor Force by Occupation Distribution of labour force by occupation 2% 36% 18% 34% School till standard four Senior/higher secondary Graduate Source: CLSA Research 19% 2% 6% School till standard nine College (but not graduate) Postgraduate 8% 12% 1% 10% 13% Skilled worker Businessman Petty trader Executive Student Retired Not working Unskilled worker Source: CLSA Research Introduction 11

13 A.4 Political Profile India is a secular state and the largest democracy in the world with a parliamentary form of government. The Government of India, officially known as the Union Government, was established by the Constitution of India in The Government of India is divided into three distinct but interrelated branches the legislative, executive and judiciary. Figure 6: Governance Structure of India Legislative branch: At the central level, India has a bicameral parliament comprising the Rajya-Sabha (Council of States) and the Lok-Sabha (House of Commons). The primary function of the Parliament is to pass laws on matters specified under its jurisdiction. At the state level, some states operate through a single Legislative Assembly while others have a bicameral structure and operate through a Legislative Assembly and a Legislative Council. Executive branch: The Executive arm comprises the President, the Vice President and the Council of Ministers headed by the Prime Minister. The President: The President of India is the Head of the State and the Commander-in-Chief of the armed forces. The role of the President is primarily ceremonial in nature and he/she acts in accordance with the advice of the Council of Ministers. Introduction 12

14 The Vice President: The Vice President is the ex-officio Chairman of the Rajya-Sabha and acts as the President when the latter is unable to discharge his duties. The Prime Minister: The real executive power for running the central government lies in the hands of the Council of Ministers led by the Prime Minister of India (collectively known as the Union Cabinet). The Prime Minister is appointed by the President after the Lok Sabha elections, which take place after every five years. Judiciary branch: The Indian judiciary is independent of the Executive. The Supreme Court is the apex body in the judiciary branch and comprises the Chief Justice of India and 25 associate judges. Apart from the Supreme Court, the judiciary consists of high courts at the state level and district courts at the district level. Political parties of India: Major political parties in India include the Indian National Congress, the Bhartiya Janata Party, Bahujan Samaj Party, Samajwadi Party, the Communist Party of India and the Nationalist Congress Party. The Indian National Congress is the most prominent party and has been in power in the country for more than 45 years since Independence. A.5 Economic Profile India has seen a systematic transition from being a closed to an open economy since the beginning of economic reforms in the country in These reforms have had a farreaching impact and have unleashed its enormous growth potential. Today, the Indian economy is characterized by a liberalized foreign investment and trade policy, the larger role played by the private sector and deregulation. India has grown to become a trillion dollar economy with a largely self sufficient agricultural sector, a diversified industrial base and a stable financial and services sector Structural shift from an agrarian to a services-driven economy Figure 2: Trend of Distribution of GDP of India (1970 to 2009) 22% 44% Source:CMIE Distribution of GDP ( ) 34% Agriculture and allied activities Industry Services Distribution of GDP ( ) 57.30% 14.60% 28.10% Agriculture and allied activities Industry Services Source: Economic Survey of Maharashtra, Introduction 13

15 GDP: Among the growing economies of the world, India is second only to China. The country s GDP has been growing at an average rate of 8.5% for the last five years and is expected to growth by 8.6% in Domestic consumption fuelling economic growth: As compared to other countries, India is relatively insulated to external shocks due to strong domestic consumption. Consequently, although the global recession affected the whole world in FY09, India recorded a GDP growth rate of 6.7% during this period. Increasing urbanization and modern technology have brought about a remarkable change in the lifestyles and consumption pattern of Indians. Private domestic consumption accounts for more than 50% of the country s GDP and is one of the key factors driving overseas investments in the country. Figure 3: GDP Growth Rate of India GDP Growth Rate Figure 4: Private Consumption in India FY05 FY06 FY07 FY08 FY09 FY10FFY11F Source:CMIE India s competitive position in the world 1 India s economy has strong fundamentals and is host to several eminent global corporate giants that are leaders in their respective fields according to the Global Competitiveness Report , India occupies the 51 st place among 139 countries. The country ranks higher than many advanced countries in key parameters such as National Saving Rate (9 th ), Foreign Market size (4 th ) Domestic Market (4 th ) and Innovation (39 th ). It also has a sound Financial Market (17 th ) and a strong Banking Sector (25 th ). FDIs in India: India ranks third among the most attractive destinations for FDI in the world. Indian markets have significant potential and offer prospects of high profitability and a 1 The Global Competitiveness Report , World Economic Forum website, accessed 15 May 2010 Introduction 14

16 favorable regulatory regime to pursue investors. Mauritius has been the largest source of FDI inflows into India for many years. Figure 4: Country Wise FDI Inflows in India Figure 3: Total FDI Inflows in India FDI Inflows in India (INR billion) * FY05 FY06 FY07 FY08 FY09 FY10 * Asof Feb 2011 Source: GoI, Department of Industrial Policy and Promotion Sectors attracting highest FDI equity inflow: The services sector attracts the highest foreign capital in India. Figure 5: Sector wise FDI in India Top sectors attracting FDI equity inflows into India 21% 49% 8% 8% Services Telecommunications Construction 7% 7% Computer software & hardware Housing & real estate Others Source: GoI, Department of Industrial Policy and Promotion, Foreign exchange reserves and industrial production: India s corporate sector has been resilient to the global slowdown and is has post a profit growth of 25% in FY10. The country s foreign exchange reserves stood at USD 302 billion in FY10. Figure 6: Foreign Exchange Reserves in India Foreign exchange reserves in India (USD billion) FY05 FY06 FY07 FY08 FY09 FY10 Source RBI, April Introduction 15

17 A.5.1 India s Financial Market India has a robust, transparent and stable financial market, which has gradually transformed from being a highly controlled system to a liberalized one. Figure 7: Financial Market Structure Credit market India has a robust credit market with a wide range of financial institutions including commercial banks, regional rural banks, cooperative banks and NBFCs. The country has approximately 167 Scheduled Commercial Banks 2 (SCBs), which operate through a network of 79,735 branches. 2 State Bank of India, a PSB, is the largest bank in the country. Figure 9: Market share of Banks in India Figure 8: Location wise branches in India Market share of banks in India 71% 22% 8% Public sector Private sector Foreign Source: EY Analysis Money Market 2 Reserve Bank Of India, Branch Banking Statistic 2009 Introduction 16

18 The money market is a marketplace for short-term funds. It includes financial instruments with maturities ranging from overnight to a year. India has an efficient, stable and liquid money market. The country s call money market recorded an average daily turnover of INR crore in Foreign Exchange Market India s foreign exchange and derivatives market ranks 17th in the world. The average daily turnover of its foreign exchange market is approximately USD30 billion FY Reserve Bank of India (RBI) RBI, established in 1935, is the central bank of India. It regulates the country s credit, money and foreign exchange markets. RBI formulates its monetary policies and issues currency, prescribes exchange control norms and acts as a banker to other banks. Capital markets India has 23 stock exchanges that constitute the market for securities issued by the government and the country s corporate entities. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the premier exchanges in the country. Both of these stock exchanges are situated in Mumbai, financial capital of India. NSE, India s largest stock exchange, is also the third-largest in the world in terms of its quantum of trading in the equity market. The two exchanges together record an average daily turnover exceeding INR100 billion. However, the country s debt market is still relatively underdeveloped. Securities and Exchange Board of India (SEBI): SEBI, established in 1992, is the regulatory authority for India s capital markets. A.6 About Maharashtra Maharashtra is a state located in the western part of peninsular India. The state is bordered by the Arabian Sea to the west, Gujarat and the Union territory of Dadra and Nagar Haveli to the northwest, Madhya Pradesh to the northeast, Chhattisgarh to the east, Karnataka to the south, Andhra Pradesh to the southeast, and Goa to the southwest. Introduction 17

19 Figure 10: Maharashtra and Its Administrative Regions Mumbai Maharashtra is the second largest state in India both in terms of population and geographical area, spread over 3.08 lakh sq. km, which is greater than Italy, New Zealand and United Kingdom. Mumbai, the capital city of the state, is India's largest city and the financial capital of the nation. The State has a long coastline stretching nearly 720 kilometers along the Arabian Sea. The State has a population of around 10 Mn (2001 Census) which is 9.4% of the total population of India. Estimated population by 2011 is 115 Mn, which is one third of entire USA population and more than population of Mexico. Only eleven countries of the world have a population greater than Maharashtra The State is highly urbanized with 42% people residing in urban areas as compared to 28% at national level. A.6.1 Geographic Profile Nasik Region Aurangabad Region Amravati Region Nagpur Region PuneRegion Konkan Region The State has 35 districts which are divided into six revenue divisions, Konkan, Pune, Nashik, Aurangabad, Amravati and Nagpur for administrative purposes. These 35 districts are further divided into 109 sub-divisions of the districts and 355 talukas. The State has a long tradition of having very powerful bodies for planning at the district / local level. For local self-governance in rural areas, there are 33 Zilla Parishads, 355 panchayat samities and 27,993 Gram Panchayat. The urban areas are governed through 23 Municipal Corporations, 222 Municipal Councils, 4 Nagar Panchayat and 7 Cantonment Boards. Introduction 18

20 A.6.2 Geological Profile Table 6: Geological Features Climate Natural resources Geographic features Major Rivers Flora & Fauna Maharashtra has typical monsoon climate, with hot, rainy and cold weather seasons. Summer (March to May), Monsoon (June-September), Post Monsoon (October-November), Winter (January- March) The various mineral resources found in the state include manganese, coal, iron ore, limestone, copper, bauxite, silica sand, and common salt. Districts like Yavatmal, Nagpur, and Chandrapur are rich in coal deposits. The undersea oil deposits were discovered near Bombay High oil field in Maharashtra is divided into Deccan plateau, which is separated from the Konkan coastline by 'Ghats'. The Ghats are a succession of steep hills, periodically bisected by narrow roads. Most of the famous hill stations of the state are at the Ghats. Sahyadri range with an elevation of 1000 meters is known for its crowning plateaus. Konkan is narrow coastal lowland, just 50 km wide and with an elevation below 200 meters. The third important region is the Satpura hills along the northern border, and the Bhamragad-Chiroli-Gaikhuri ranges on the eastern border form physical barriers preventing easy movement. These ranges also serve as natural limits to the state. Godavari River, Krishna River, Tapi River are the three major rivers in the state. The forests are mainly evergreen deciduous type. Majority of the forests are in the eastern and Sahyadri regions of the state. Maharashtra has five national parks, three game reserves, and 24 wildlife/bird sanctuaries. Different kinds of animals found are tigers, panthers, bison, deer and antelopes, wild boars, bears and blue bull. A.6.3 Connectivity Table 7: Connectivity Linkages National Highway State Highways Major District Roads Other Roads and Village Roads Railway Length / Number 4,376 km 34,102 km 49,901 km 1,51,661 km 5,983 km Introduction 19

21 International Airports Domestic Airports 3 (Mumbai, Pune, Nagpur) 5 (Mumbai, Pune, Nagpur, Aurangabad & Kolhapur) Upcoming Airports 15 Major Ports 2 (JNPT, MbPT) Minor Ports 48 Source: GoI, Economic Survey of Maharashtra Maharashtra has the largest road network (7% of total Indian road network) in the country and 97.5 % of the villages are well connected with all weather roads in the state and 2% are connected with fair weather roads. The state encompasses 2 major railway zone headquarters; the Central and Western Railway Zone headquarters. State has 9.2 % of total railway network of the country. Maharashtra is also well connected to major cities in the USA, EU, Asia and other Indian metropolitan cities by air route. The state has the highest number of airports in the country (6%). A.6.4 Demographic profile Maharashtra is the second largest State in India after Uttar Pradesh as far as population is concerned. According to the Population Census 2001, population of Maharashtra was 9.69 crore (2001 Census) and 11.5 Cr (2011 estimate) contributing to 9.4% of the total country s population. State has 10.2% Scheduled caste and 8.8% scheduled tribe population. Similar proportion at All-India level was 16.2% and 8.2% respectively. The growth of urban population in the State is rapid as compared to other States. Since the State is highly urbanized as compared to other major States, it is worthwhile to note the density of the population (i.e. number of persons per sq. km.) which is 315. The level of urbanization is continuously increasing in Maharashtra from the year 1961 to 2001 and rapid growth is still expected in the current decade in view of the increasing trend since The State has given importance to primary education, which has resulted in consistent improvement in literacy rate. The literacy rate of the State is 76.9% as against 64.8% at national level as per Census The State has excellent higher educational institutions in the fields of engineering, medical and management. Table 8: Demographic Profile Population 9.69 Cr; (India: Cr) Geographical Area (Sq Km) 308,000; (India: 3,287,240) Population Density (People/Sq Km) 315; (India: 325) Main Languages English, Hindi, Marathi Urbanization 42%; (India: 27.8%) Introduction 20

22 Literacy Rate 76.9%; (India: 64.8%, second after Kerala) Sex Ratio (Females/1000 Males) 922; (India: 933) Source: GoI, Economic Survey of Maharashtra A Age Structure Age-group wise distribution of the population shows that 63% of the population belonged to the age group 15 to 64 which may be considered as the major potential workforce. 32% of population is in the age group 0-15 which also signifies future workforce of the state. A Table 9: Cultural Diversity Cultural Diversity Figure 11: Distribution of Population by age group Distribution of population by age group 63% 5% >65 Source: GOI, Census % Religion The state has a Hindu majority of 80.2% with minorities of Muslims 10.6%, Buddhists 6%, Jains 1.3% and Christians 1%. Maharashtra has the biggest Jain, Zoroastrian and Jewish populations in India. Language Marathi is the official state language with 69% people speaking Marathi Hindi is spoken by 11% population Urdu is popular language among 7% population Gujarati speaking population makes 3% of total population Kannada/Tulu is language of 2% of population. 8% of people speak many other languages like Ahirani, Malvani, Konkani, Varhadi and Deshi Festivals Ganesh Chaturthi, Maha Shivaratri, Gokul Ashtami, Dahi-Handi, Dushehra, Navaratri, Holi, Diwali, Eid-ul-Adaha and Eid-ul-Fitr Introduction 21

23 Figure 13: Distribution of Population by Language Figure 12: Distribution of Population by Religion Distribution of Population by Language 3% 2% 8% 7% Distribution of Population by Religion 11% 1% 1% 6% 11% 69% 81% Marathi Hindi Urdu Gujarati Kannada / Tulu Other languages Hindu Muslims Buddist Jains Cristians Source: GOI Census, 2001 Source: GOI Census, 2001 A.6.5 Education and labor force Maharashtra has excellent human resource infrastructure in terms of educational institutions. The state has, Maximum number of universities (19) in the country Around primary & secondary schools Highest number of student enrollments in higher education The state offers education in all fields of studies ranging from social sciences, entertainment, fashion & design to advance nuclear physics. Table 10: No. of Higher Education Institutes in Maharashtra Sector Institutions Capacity Engineering 696 2,61,625 Management Sciences ,995 Architecture College Hotel Management & Catering Pharmaceuticals Sciences ,347 Industrial Training Institutes 726 1,49,156 Total ,73,520 Source: GoI, Economic Survey of Maharashtra The state has total capacity of churning out over 4.73 lakh students every year from its educational institutes. Right from 1961, the literacy rate has been increasing consistently for both males and females, with a greater increase in female literacy rate in the last few years, showcasing the increased focus towards educating the women. Introduction 22

24 A.6.6 Political Profile Maharashtra follows a bi-cameral legislature. It has a legislative assembly (directly elected by people) as well as a legislative council. Lower house (Assembly) is elected with 5 years term, while upper house (Council) if exists 1/3 of the members elected every 2 years with 6 year term. The head of the state is the Governor, appointed by the president of the country. The state also has a cabinet headed by the chief minister responsible to the elected State Legislature. The chief minister and his council of ministers is responsible for the overall administration of the state. A Executive Executive branch is headed by governor appointed by central govt. Chief minister and cabinet are also members. Cabinet size can be maximum of 15% the number of legislators in lower house. Police hierarchy and various other ministries come under executive. District collector and Tahshildar are District and Tehsil heads respectively. A Judiciary Judiciary has Mumbai High court which has jurisdiction of the whole state. A.6.7 Economic Profile Table 11: Economic Profile GSDP ( ) (at constant prices) Gross State Domestic Product (GSDP) growth rate ( ) at current prices INR 701,550 Cr (15.6% of India) 16.6%; (India: 17.3%) Per Capita Income (at current prices) INR 74,027 (National Average INR 46,492) Exports Industrial output 27% of India 18.4% of India Industry growth rate 8.5% p.a. ( ) Per Capita Electricy Consumption (Total) kwh; (India: kwh)) Source: Economic Survey of Maharashtra , GoI, Central Statistics Office, National Statistical Organization, Ministry of Statistics and Programme Implementation, 2011 The gross state domestic product (GSDP) at current prices for is INR 901,330 crore and contributes about 14.7% of the GDP. The GSDP has been growing at a rapid pace over the last few years. The State boasts of a very vibrant industrial sector and a rapidly growing services sector. Both these sectors presently contribute about 89.8% of the State s domestic product. The agriculture & allied activities sector contributes 10.2% to the State s income. Introduction 23

25 Figure 14: Sectoral shift from an agrarian to a services-driven economy Share (%) Sectoral Composition of State Income( ) Primary Secondary Tertiary Source: GoI, Economic Survey of Maharashtra Table 12: Sectoral Growth in Sectoral Growth in Agriculture & Allied Activities 3.1% Industry 8.5% Service sector 9.6% Source: GoI, Economic Survey of Maharashtra The State has lakh hectares of land under cultivation where cereals, pulses and other major food grains are grown. The State has made rapid strides in the production of cash crops like sugarcane, soybean, cotton, oilseeds and onions. The last few years have seen a healthy shift towards horticulture crops. The State is well known for its Alphonso mangoes, grapes, bananas, pomegranates and oranges. Animal husbandry is an important agriculture related activity and has 7.8% share in agriculture & allied activities sector. The State s share of livestock and poultry population in India is 6.8% and 9.9% respectively. A.6.8 Industry Maharashtra is one of the leading states in adopting policies for promoting industrialization and encouraging development of industrially backward areas. The economic policies of the 1970 s steered the State to gain a prime position in industrialization. Since then, several changes in terms of policies have come into effect and structure of industries has changed substantially. The growth momentum was further pushed ahead by the liberalization policy adopted in August, Major industries in the State include chemical & allied products, electrical & non-electrical machinery, textiles, petroleum & allied products and information technology, Agro & food processing and Biotech sectors. Other important industries include metal products, wine, jewelry, pharmaceutical, engineering goods, machine tools, steel & iron castings and plastic wares. The State is pioneer in MSME sector. The State continues to attract industrial investments from both, domestic as well as foreign institutions. Introduction 24

26 A.7 MIDC An Overview After the formation of Maharashtra State on May 1, 1960, the Government created "Board of Industrial Development" (BID) on October 1, 1960 which passed the "Maharashtra Industrial Act", under which Maharashtra Industrial Development Corporation (MIDC) was formed as a separate corporation on August 1, A.7.1 Objective To achieve balanced industrial development of Maharashtra with an emphasis on developing the underdeveloped parts of the State Infrastructural development of each and every district of Maharashtra and Facilitate entrepreneurs in setting up industries at various locations A.7.2 Mandate To promote and assist in the rapid and orderly establishment, growth and development of industries in the State of Maharashtra A.7.3 Activities The MIDC has been declared as an agent of the State Government for carrying out the activities within the framework of the MID Act and the MID Rules. These activities can be divided under following 3 broad categories. Acquisition and disposal of land Provision of infrastructure facilities Providing of services A Acquisition & Disposal of Land The land for industrial areas is acquired by the Government of Maharashtra under Chapter VI of the MID Act 1961 and handed over to the Corporation for further disposal. Likewise, wherever available, the Government land is also handed over to the Corporation as an industrial area. The Government pays for the compensation for the private land from its own fund. The Corporation in turn plans the area and disposes the land in suitable plots by leasing out for 95 years. For this purpose the Corporation recovers the premium lease money at different rates for different industrial areas. Also the Corporation constructs built-up accommodations like Sheds and Flatted units and sells them out to the prospective industrialists together with the land there on lease basis. A Provision of Infrastructure Facilities The Corporation is required to provide infrastructure facilities like Roads, Streetlight, Drainage, Water Supply schemes and Buildings for Common facilities like Post & Telegraphs, Canteen, Bank, and Telephone etc. The Corporation meets the expenditure on such works (facilities) generally from the premium lease money received by it from the allottees. Introduction 25

27 A Providing of Services The Corporation provides the following services to the units in its industrial areas: - i. Assured Water Supply ii. Maintenance of Industrial Areas iii. Drainage (effluent disposal) and CETP Schemes iv. Fire Services v. Other Services i. Assured Water Supply From among the various services provided by the Corporation, an assured pure water supply can be regarded as a unique specialty of the MIDC. The investment on the water supply scheme (Head works) made by MIDC as on 31st March, 2002 is over INR crore with installed capacity of water supply of 2045 MLD. The annual revenue from water is over Rs crore. ii. Maintenance of Industrial Areas This is a municipal function requiring the Corporation to maintain the Roads, Street lights, Fire stations (in few areas) during the transitory period up to handing over of the industrial area either to Government or other agency as the Government may decide. The MID Act, vide Section 56, provides for the exit policy after the purpose of industrial development as contemplated in the Act is fulfilled. iii. Drainage (effluent disposal) and CETP Schemes The Corporation has Effluent Disposal (Drainage) schemes only in selected Industrial areas having chemical industries. Such schemes are designed to collect and discharge the treated effluent only. In such areas the Corporation recovers drainage cess to defray the expenditure on maintenance and to partially recover the capital cost. Also with a view to arrest pollution, the Corporation has started the operations like Hazardous waste Management and Common Effluent Plants on Joint venture basis with the help of local industries associations. iv. Fire Services The fire services are called as the fourth line of National defense. The Govt. of India has nomenclature for the fire services as Fire & Emergency Services and designated as the first responders in case of any emergency. As per the National Disaster Management Act 2005, which is adopted by various states, the strengthening of fire services is under taken by many states so that they can respond to any Manmade or Natural Disaster. The main role of fire service is divided into two parts one is Fire Prevention and another is Fire Protection. The Fire Prevention is achieved by implementing fire prevention engineering at the planning stage of any building. MIDC has taken a policy decision to provide full fledge fire stations in all its major industrial areas, areas having moderate or high potential fire risk and in special areas, and SEZ s where foreign direct investment is parked. It is a part of basic infrastructure provided to that area and as per Section 21 of the Maharashtra Fire Prevention and Life Safety Measures Act 2006 it is mandatory requirement on all Municipal Corporation, Municipal Councils & Special Planning Authorities. Introduction 26

28 MIDC is perhaps the only industrial development corporation that provides fire services to its industrial estates. These stations are well equipped with the modern technology based equipments. At present about 15 fire stations are operational, which are as follows: Tarapur, Thane, Konkan region Trans Thane Creek, Thane, Konkan region Additional Ambernath, Thane, Konkan region Roha, Raigad, Konkan region Mahad, Raigad, Konkan region Lote Parshuram, Ratnagiri, Konkan region Taloja, Raigad, Konkan region Sangli Miraj Kupwad, Sangali, Nasik region Chincholi, Sholapur, Nasik region Hinjewadi, Pune, Pune region Kurkumbah, Pune, Pune region Ranjagaon, Pune, Pune region Waluj, Aurangabad, Pune region Butibori, Nagpur, Hingna, Nagpur, Nanded, Shendra, Chakan, Murbad and Sinnar five other fire station which shall be operational soon. The construction work for fire stations at Kagal-Hatkanangale near Kolahpur, Baramati and Ahmednagar has been intiated. MIDC s fire department well equipped with 1 Airfield crash tender, 13 water tenders, 19 foam tenders, 9 ambulances, 13 jeeps, & 8 cars. The corporation has also purchased breathing apparatus sets & rescue tools for almost all fire stations. In addition to this MIDC has also purchased an air field crash tender for the Nanded airport for aircraft related emergency calls. MIDC Fire Service aims to achieve fire safety by way of implementation of its Development Control Rules (DC Rules) and National Building Code of India-2005 (NBC-2005) & Maharashtra Fire Prevention & Life safety Measure Act-2006 & Rules and other relevant Acts, Codes and Standards. This helps MIDC to monitor that there is no compromise towards life safety and fire safety in its industrial areas which helps to ensure minimize the loss to precious human life and loss to the National property. The Fire department has also started online single window service through its portal which is helpful to plot holders to submit online applications for fire approvals. v. Other Services These include providing and maintaining Common Facility Centers (CFC) like P&T, Banks etc. Though the Corporation does not levy any specific cess for the purpose, the CFC buildings are subject to rentals. Such rental together with other miscellaneous income from the area covers the maintenance cost of such CFCs. Introduction 27

29 A.7.4 Summary Figure 15: MIDC Key Objectives and Activities A.8 MIDC Present status A.8.1 MIDC Industrial Areas At present MIDC possesses land of area hectares which is well facilitated with industrial infrastructure facilities. This land bank is well distributed across the six revenue division of Maharashtra i.e. Konkan, Nasik, Pune, Aurangabad, Amravati and Nagpur. There are 233 developed Industrial estates in the state. These industrial estates/areas are classified into major, mini, state growth center and central growth centers. Nagpur Amravati Nashik Aurangabad Mahape Thane Ahmadnagar Mahad Ratnagiri Pune Latur Sangli Kolhapur Major Industrial Regions in State MIDC Industrial Areas Figure 16: Location of Industrial areas Introduction 28

30 Table 5: Classification of Industrial areas MIDC Industrial Area Classification Category Notified Functioning Major Mini Growth center (State ) Growth center (Central) 4 4 Total Source: MIDC Table 6: Industrial Area revenue division-wise MIDC Industrial Areas as on May 2011 Region Land notified Land in possession Konkan Nashik Pune Aurangabad Amravati Nagpur Total Source: MIDC A.8.2 MIDC The Developer and Facilitator The MIDC has an enviable track record of building high quality infrastructure; the corporation has developed 233 Industrial Parks on hectares of land. The Water Supply Schemes built by MIDC has a total capacity of 2045 MLD out of which 1355 MLD is utilized currently. Fire stations are operational at 15 locations. MIDC has commissioned 25 common effluent treatment plants. The corporation possesses 4 solid wastes disposal units for MIDC areas. MIDC is declared as the Nodal Agency of Government of Maharashtra for Delhi Mumbai Industrial Corridor (DMIC). Introduction 29

31 Figure 17: MIDC The Developer and Facilitator A.8.3 Single Window Clearance (SWC) Maharashtra is perhaps the only state in the country to launch a service that permits both - online submission and approval system through a dynamic interactive portal. The online Single Window Clearance portal - MahaeBiz is part of a larger initiative i.e. Digital MIDC to make MIDC more investor friendly organization. Under this initiative, MIDC is implementing ERP to enhance the efficiency and transparency of the organization. Ernst & Young India Private Limited (EY) was responsible for identifying 205+ approvals in all central and state government departments, which are required for setting up business in Maharashtra. The portal also allows new customers to make online application for land. Once the plot is allotted, the customer becomes eligible to avail of the full gamut of services. The site launched on MIDC's website can be accessed by clicking the 'Single Window Service link. Introduction 30

32 Figure 18: Single Window Clearance A.8.4 Investor Facilitation Cell To align and have more focused and dedicated approach to assist domestic and foreign investors worldwide, MIDC has conceptualized an investor facilitation cell. EY will assist MIDC in the implementation, monitoring and capacity building of the cell. The cell will focus on the following activities: - Building effective partnership between the corporation and the investors - Assisting investors in liaising with government departments, agencies, regulatory bodies, etc - Invite industry suggestions / representations on on policies issues - Manage grievance redressal & investor satisfaction levels - Preparation and updation of Investor Information For a more effective implementation of the Investor Cell, MIDC in assistance with EY has divided the cell into five major segments: 1. Investor Facilitation and Escort Cell: To improve the efficiency and effectiveness of investment procedures MIDC shall be providing a one-stop service facility for investment information and support to local and foreign direct investors. The cell shall assist investors in identification of prospective locations based on project requirements. It will provide data on Industrial areas alongwith availability of infrastructure facilities and facilitate site visits. Upon location finalization, the cell will assist the investor in procuring approvals and clearances from Government departments and agencies. Introduction 31

33 2. Investor After Care Cell: The investor aftercare cell shall focus on identifying and assessing the project implementation issues and assist in strengthening government processes to reduce bottlenecks. 3. Foreign Direct Investment (FDI )/ Export Cell: The cell will focus on building relationship with leading institutes, associations and trade councils of those countries, to establish bilateral trade relationship by exchange of business and cultural delegations and business missions. The cell shall act as a single point contact for any interactions with the countries fostering for partnership between investors and concerned government agencies with Maharashtra. MIDC aims to create a Regional/ Country Desk to have more focused and dedicated approach in exploring business opportunity with identified countries as a part of this initiative. 4. Non Resident Marashtrians (NRM) Cell: The cell will focus on developing a robust communication channel with Non Resident Marashtrians. The cell shall provide guidance and information on Government of Maharashtra investment policies, procedures, availability of infrastructural facilities, incentives, investment opportunities and extends related advisory services. Further the cell would assist in joint seminars / workshops / exhibition / delegation visits / web space for networking NRM investors with their Indian counterparts. 5. Policy and Planning Cell: To enhance predictability and consistency in investment-related policies, the Policy and Planning Cell has been conceptualized. The cell shall focus on monitoring and review mechanisms for investment policies enhancing investor experience while setting up business in the state. The cell would also be responsible for evaluating Investor representations on various issues. Introduction 32

34 B. Investment Climate & Foreign Trade B.1 Foreign Investment Framework The FDI regime has been progressively liberalized during the course of the 1990s (particularly after 2000), with most restrictions on foreign investment being removed and procedures simplified. With limited exceptions, foreigners can invest directly in India, either on their own or as a joint venture. Today, there are very few industries where foreign investment is prohibited. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed/ phased out. Features of the government s foreign investment policies and incentives offered by it: No government approval is required for FDI in virtually all the sectors/activities, except for a small negative list formulated by the government. The government has formulated Sector Specific Guidelines for FDI, wherein investments up to specified sectoral caps are covered under the automatic route, with a few exceptions. Foreign Investment Promotion Board (FIPB) considers proposals for foreign participation that do not qualify for automatic approval. Decisions on all foreign investment proposals are usually taken within 30 days of submitting an application. Free repatriation of capital investment is permitted, provided the original investment (on a repatriable basis) was made in convertible foreign exchange. Further, free repatriation of profits on capital investment is permitted, subject to payment of taxes and other specified conditions Use of foreign brand names/trademarks is permitted for the sale of goods in India. Indian capital markets are open to FIIs. Indian companies are permitted to raise funds from international capital markets. Special investment and tax incentives are given for exports and sectors, including power, electronics, software and food processing. Single window clearance facilities and investor escort services are available in various states to simplify the approval process for new ventures. B.1.1 FDI Policy of India It is the policy of the Government of India to attract and promote productive FDI from nonresidents in activities which significantly contribute to industrialization and socio-economic development. FDI supplements the domestic capital and technology. The following diagram depicts the FDI policy in India Investment Climate & Foreign Trade 33

35 Figure 19: Foreign Investment Routes B Eligibility and Conditions for Foreign Investments FVCI investment in DVCF FII limits for investments under FDI route FVCI Investment under the FDI route Conversion price for specified convertible instruments ECB Guidelines to apply to nonconvertible/optionally convertible / partially convertible instruments Foreign investment by Foreign Venture Capital Investors (FVCI) in Domestic Venture Capital Fund (DVCF), set up as a trust, would now require specific FIPB (Government) approval. Such investments were earlier allowed under the Automatic Route. The limits for investment by Foreign Institutional Investors (FIIs) under the FDI Scheme / Policy now stand at 10% for an individual FII, and 24% in aggregate. Accordingly, an individual FII s investment in an Indian company appears to be restricted at 10%. It is now clarified that FVCI can make investments under the FDI route subject to compliance with the FDI Policy The pricing of the capital instruments (including conversion price for convertible instruments) issued by Indian Company is now required to be decided upfront at the time of issue of the instruments. Non-convertible, optionally convertible or partially convertible preference shares / debentures to be treated as debt and any issue thereof will need to comply with the External Commercial Borrowings ( ECB ) guidelines. B Ownership tests Calculation, Caps and Entry conditions for foreign investments Earlier, the ownership test for foreign investments referred to beneficial ownership of more than 50% of the equity interest of the Indian company. However, under the Circular, reference to equity has been replaced with capital, where capital has been defined to include: Equity shares; Fully, compulsorily & mandatorily convertible preference shares; and Fully, compulsorily & mandatorily convertible debentures. Investment Climate & Foreign Trade 34

36 Warrants / partly paid shares Downstream investments Government/ FIPB approval Guidelines for consideration of proposals by FIPB Warrants and partly paid shares can be issued to person/ (s) resident outside India only after approval through the Government route The indirect foreign investment in a wholly owned subsidiary of an operating-cum-investing / investing company is taken as the percentage of the foreign investment in the operating-cuminvesting/ investing company. Based on this Circular, it appears that this provision would not apply in case of near 100% subsidiaries (say in case of 99% holding). In such cases, the entire downstream investment would be treated as the indirect foreign investment. The restriction on investing companies to leverage funds from the domestic market for the purpose of downstream investment now also made applicable to operating-cum-investing companies as well. In case where sectoral caps are specified in certain industries / sectors, the transfer of ownership / control in the Indian company to the nonresident entity through amalgamation, merger or acquisition warrants Government / FIPB approval. These provisions would now apply to restructuring through demerger as well. All applications to the FIPB would now be placed before the Secretariat within 15 days. The FIPB will endeavor to communicate their decision within 30 days. The FIPB has also been empowered to prioritize the applications based on the sector, the export or employment potential, etc. It has been expressly clarified that once the letter of approval is issued no individual changes therein would be permitted. B Sectoral policies and conditions Table 7: FDI Caps in Various Sectors Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI Agriculture & Animal Husbandry [Only in Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables & Mushrooms under controlled conditions and services related to agro and allied sectors.] 100% Tea Plantation 100% Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but 100% Mining and mineral separation of titanium bearing minerals and ores, its value addition 100% Investment Climate & Foreign Trade 35

37 Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI excluding titanium bearing minerals and its ores and integrated activities Coal and Lignite 100% Manufacture of items reserved for production in Micro and Small Enterprises (MSEs) Alcohol Distillation & Brewing 100% 24% Coffee & Rubber processing and warehousing 100% Defense Industry 26%, Drugs & Pharmaceuticals including those involving use of recombinant technology Hazardous chemicals viz. hydrocyanic acid and its derivatives; phosgene and its derivatives; and isocyanates and di-isocyanates of hydrocarbon 100% Asset Reconstruction Companies 100% Airport - Existing projects investment beyond 74% 49% 100% Industrial Explosives 100% Banking Private sector 49% - 74% Electric Generation, Transmission, Distribution and Trading 100% Banking- Public Sector 20% Advertising and Films 100% Broadcasting - Terrestrial 20% Broadcasting FM (FM Radio) Airport - Greenfield projects 100% Cable Network 49% Airport - Existing projects investment Scheduled Air Transport Service/Domestic Scheduled Passenger Airline 74% Direct to-home - Foreign investment, including FDI, NRI and PIO investments and portfolio investment. 49% (100% for NRI) Headend-In-The-Sky (HITS) Broadcasting Service Beyond 49% and upto 74% 20% FDI (Total 49% of FDI, NRI, PIO) Non-Scheduled Air Transport 74% Setting up hardware facilities up to 74% Investment Climate & Foreign Trade 36

38 Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI Service/ Non-Scheduled airlines, Chartered airlines, and Cargo airlines (100% for NRI) such as up-linking, HUB etc - Up-linking HUB/ Teleports 49% Air Transport Services - Helicopter services/seaplane services Other services under Civil Aviation sector - Ground Handling Services. Other services under Civil Aviation sector - Maintenance and Repair organizations; flying training institutes; and technical training institutions 100% Setting up hardware facilities such as up-linking, HUB etc - Up linking a Non-News & Current Affairs TV Channel 74% (100% for NRI) Up-linking a News & Current Affairs TV Channel. 100% Commodity Exchanges [a) Investment upto 26% as Foreign Direct Investment (FDI) (b) Investment upto 23% by registered FII 100% 26% 49% Banking Private sector 49% Courier services for carrying 100% packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 Hotels and Tourism related Industry 100% Credit Information Companies 49% Headend-In-The-Sky (HITS) Broadcasting Service Construction and maintenance - roads, rail-beds, bridges, tunnels, pipelines, ropeways, runways, waterways & water reservoirs, hydroelectric projects, power plants and industrial plants upto 49% Credit Information Companies Listed with stock exchange 100% Infrastructure Company in the Securities Market Total 49% with 24% limit for FII 49% (FDI limit of 26 per cent and an FII limit of 23 per cent of Investment Climate & Foreign Trade 37

39 Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI Construction and maintenance - Roads and highways offered on BOT basis including collection of toll Construction and maintenance - Rural Drinking Water Supply Projects, Package Water Treatment Plants, Rain and Rain Water Harvesting Structures, Waste-Water Recycling And Re-Use Techniques And Facilities, Rain-Water Re- Charging And Re-Use Techniques Of Ground Water Construction and maintenance - Ports and Harbours Construction and maintenance - Mass Rapid Transport Systems Development of Townships, Housing, Built-up infrastructure and Construction development projects - townships, housing, built-up infrastructure and constructiondevelopment projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) 100 % Petroleum & Natural Gas Sector - petroleum refining by the Public Sector Undertakings (PSU) 100 % Print Media - Publishing of Newspaper and periodicals dealing with news and current affairs: Foreign investment, including FDI and investment by NRIs/PIOs/FII 100 % Print Media - Publication of Indian editions of foreign magazines dealing with news and current affairs 100% Print Media - Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals 100% Print Media - Publication of facsimile edition of foreign newspapers the paid-up capital) 49% 26% 26%, 100% up to 100% Investment Climate & Foreign Trade 38

40 Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI Special Economic Zones (SEZ) 100% Security Agencies in Private sector Health and Medical Services 100% Satellites Establishment and operation maxim um of 49% Up to 74% Industrial Parks 100% Telecommunication - Telecom services Industrial Parks - Construction development projects 100% Trading - E-commerce activities Insurance 26% Trading Item sourced from small scale sector Non-Banking Finance Companies 100% Trading Single Brand product (NBFC) trading Beyond 49 % up to 74 % 100% 100% up to 51% Petroleum & Natural Gas Sector - exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, natural gas/lng pipelines, market study and formulation and Petroleum refining in the private sector Research and Development Services excluding basic Research and setting of R&D/ academic institutions which would award degrees/diplomas/certificates 100% 100% Storage and Warehouse Services 100% Telecommunication - Telecom services 49 % Investment Climate & Foreign Trade 39

41 Automatic route specified activities subject to sectoral cap and conditions (if any) Prior approval from FIPB where investment is above sectoral cap (Government route) Sector FDI Sector FDI Trading - Cash & Carry trading Wholesale Trading/ Wholesale Trading Transport and Transport Support Services 100% 100% B Prohibited list FDI is prohibited in the following activities/sectors: Retail Trading (except single brand product retailing) Lottery Business including Government /private lottery, online lotteries,etc. Gambling and Betting including casinos etc. Business of chit fund Nidhi company Trading in Transferable Development Rights (TDRs) Real Estate Business or Construction of Farm Houses Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes Activities / sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems). B.1.2 Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities. The FIPB is specially empowered and chaired by the Secretary of the MoF. It has been specifically set up to expedite the approval process for foreign investment proposals. Proposals for FDI may be sent to the FIPB, the Department of Economic Affairs, the MoF or through any of India s diplomatic missions abroad. The FIPB has the flexibility to examine all the proposals in their totality, free from predetermined parameters or procedures. The recommendations of the FIPB with respect to proposals under the ambit of the nonautomatic route, involving an investment of USD150 million (equivalent to INR6 billion) or less, are considered and approved by the Finance Minister. Projects with an investment that is greater than this value are submitted by the FIPB to the Cabinet Committee on Economic Investment Climate & Foreign Trade 40

42 Affairs for further approval. Foreign technology agreements foreign technology collaborations include the following: Technical know-how fees Payment for designs and drawings Payment for engineering services Other royalty payments Foreign portfolio investment FIIs must register themselves with SEBI and comply with RBI s exchange control regulations. Foreign pension funds, mutual funds, investment trusts, asset management companies, insurance or reinsurance companies, nominee companies and incorporated/institutional portfolio managers (or their power of attorney holders) are allowed to register as FIIs. FIIs can invest in securities traded in primary and secondary capital markets in India under the portfolio investment scheme. These securities include shares, debentures, warrants, units of mutual funds, government securities, treasury bills and derivative instruments. Certain investment limits are prescribed in FII guidelines and RBI s regulations to regulate investments made by FIIs. However, these restrictions do not apply to the investments made by an FII through offshore funds, GDRs or Euro-convertible bonds. B Registration eligibility FII guidelines require FIIs to meet certain qualifying conditions for registration. SEBI also examines whether the grant of registration is in the interest of the development of the Indian securities market. B.1.3 Registration of sub-accounts Apart from entities that are entitled to be FIIs, other foreign investors are also eligible for registration as sub-accounts. The sub-accounts can be categorized as (i) collective investment funds and institutions, (ii) proprietary funds or (iii) foreign corporations and nationals. B Foreign venture capital investment route A SEBI-registered FVCI with specific approval from RBI under FEMA regulations can invest in Indian Venture Capital Undertaking (IVCU) or Indian Venture Capital Fund (IVCF) or in a scheme floated by such IVCFs, subject to the condition that the VCF should also be registered with SEBI. FVCIs can purchase equity/equity-linked instruments/debt/debt instruments, the debentures of an IVCU, or of a VCF, through an IPO or private placement in units of schemes/funds set up by a VCF. Investment Climate & Foreign Trade 41

43 B Investment by NRIs NRIs can invest in the shares or convertible debentures of an Indian company on a nonrepatriable basis. These investments do not require FIPB approval and are not construed as FDI. NRIs cannot invest in companies that are engaged in certain financial service or agricultural/plantation activities. While the capital is non-repatriable, the dividends and interest income can be remitted as current account transactions. B.1.4 Foreign exchange controls B Foreign exchange policy Since 1991, the country s foreign exchange reserves have surged from USD2 billion to approximately USD302 billion in April Prior to 1999, India had stringent exchange control regulations under the Foreign Exchange Regulation Act, 1973 (FERA). In 1999, the government replaced controls under FERA with regulations under the FEMA. With the introduction of FEMA in 1999, the objective of the government shifted from the conservation of foreign exchange to promoting orderly development and management of the foreign exchange market in India. B Current account transactions The rupee is fully convertible for trade and current account purposes. Except for certain specified restrictions where RBI approval is required, foreign currency may be freely purchased for trade and current account purposes. B Capital account transactions These transactions are not permitted unless they are specifically allowed and prescribed conditions satisfied. Transactions specifically allowed include the following: Investment in India by a person resident outside India Acquisition and transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside the country Guarantee by a person resident outside India in favor of or on behalf of a person resident in India Import and export of currency/currency notes into/from India by a person resident outside India Deposits made by a person resident in India and a person resident outside India Foreign currency accounts in India of a person resident outside the country Remittance outside India of the capital assets (in the country) of a person resident outside India Remittances abroad that require prior approval arrangements, including joint ventures and technical collaboration agreements Investment Climate & Foreign Trade 42

44 Remittance of interest, dividends, service fees, royalties, repayment of overseas loans, and so forth B.2 Regional & International Trade Agreements & Associations Over the years, India has entered various bilateral and regional trading agreements with other countries. Apart from offering preferential tariff rates on the trade of goods among member countries, these agreements also enable wider economic cooperation in the fields of trade in services as well as investment and intellectual property, resulting in greater trade liberalization. B.2.1 Existing Trade Agreements & Regulatory Scenario Some of the existing key trade agreements entered by India under which a preferential tariff rate is provided for specified goods traded between the countries: Comprehensive Economic Co-operation Agreement (CECA) with Singapore Framework Agreement with Thailand Asia Pacific Trade Agreement with Bangladesh, Republic of Korea, China and Sri Lanka SAARC Preferential Trade Agreement South Asian Free Trade Agreement executed by India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka India Sri Lanka Free Trade Treaty Preferential Trade Agreement with Afghanistan Global System of Trade Preference with 48 countries Preferential Trade Agreements with MERCOSUR countries Preferential Trade Agreement with Chile The trade agreements are monitored and regulated by the Central Government through the Directorate General of Foreign Trade. B.2.2 Recent Developments & Outlook A joint study group/task force has been constituted for the purpose of trade agreements with the following countries: Asian countries: Indonesia, China, Thailand, Malaysia, Japan, Sri Lanka, South Korea, India Gulf Cooperation Council, BIMSTEC, Mauritius and SACU Other countries: Australia, New Zealand, European Union, European Free Trade Association and Chile In the coming year, India and Sri Lanka expect to expand their existing Free Trade Agreement to include trade in services under a Comprehensive Economic Partnership Agreement (CEPA). Negotiations with South Korea on CEPA are also expected to be completed shortly. Further, India proposes to enter CEPAs with Nepal and Mauritius. India Investment Climate & Foreign Trade 43

45 has also entered framework agreements with ASEAN, Chile, GCC states and Thailand. Apart from free trade agreements, it has also entered trade arrangements with Pakistan, Mongolia, Maldives, Korea, the EU, Sri Lanka, Bangladesh and the US. B.3 Major Trading Partners & Leading Imports & Exports India accounts for 1.64% 29 of the global trade in goods and services worldwide. Foreign trade in the country is regulated by the Foreign Trade (Development and Regulation) Act, The Ministry of Commerce and Industry is the foremost body responsible for promoting and regulating foreign trade in India. B.3.1 FTP India s FTP covers policies related to fiscal incentives, rationalized procedures, institutional changes, increased access to global markets and diversification of its export market. To generate employment opportunities and increase India s share in global trade, the FTP lays special emphasis on key sectors including agriculture, handicrafts, leather, gems and jewelry, marine products, handlooms, electronics, IT hardware, sports goods and toys. The policy focuses on market expansion and diversification to new markets in Africa, Oceania, Latin America and some parts of Asia. B.3.2 Exports: Cumulative value of exports for the period April-March was USD million (INR crore) Most goods can be freely exported from India, except for a small number of prohibited items. Its key exports include gems and jewelry, petroleum, transport equipment, machinery, and drugs and pharmaceuticals. The country also accounts for approximately 3% of the global export of commercial services. B Principal destinations of exports The UAE has surpassed the US in FY09 to become the topmost export destination for India s products. Other countries include the US, China, Singapore, Germany and Hong Kong. B.3.3 Imports: Cumulative value of imports for the period April-March, was US $ million (INR crore) Import of all commodities is free in India, except for items regulated by any law or policy in force. Some items in the prohibited list, such as the fat or oils of any animal as well as ivory, cannot be imported into India. The country s key imports include petroleum, electronic goods, machinery, gold, pearls and semi-precious stones. Principal countries from which India imports: China has the largest share in India s imports. Other countries include the UAE, Saudi Arabia, the US and Iran. Investment Climate & Foreign Trade 44

46 Figure 20: Export Scenario of India Source: Ministry Commerce and Industry, Department of Commerce B.3.4 Balance of Trade India s trade deficit stood at USD117 billion in FY09. Due to rapid industrialization, imports to the country are increasing rapidly and recorded a CAGR of 26% during the period FY Exports from the country are also rising and recorded a CAGR of 19% during the period FY India s export-to-gdp ratio stood at 14% in FY09. Investment Climate & Foreign Trade 45

47 Figure 21: Import Scenario of India Source: Ministry of Commerce and Industry, Department of Commerce B.3.5 Tariff Liberalization India s tariff regime has seen a considerable decline in rates over a period of time. Tariffs have fallen from the peak rate of 350% in 1991 to 10% in Non-oil imports to the country are levied an average import tariff of 7.5%. All machinery and parts imported for industrial/mining/power/irrigation purposes attract tariff duty of % per kg. This section covers structures typically used by foreign investors in India. Investment Climate & Foreign Trade 46