Economic Review:

Even 15 years ago, India was described as a slumbering giant, or the caged tiger, with economists making derogatory references to the "Hindu" rate of growth (of 3 per cent a year). Since India stepped into the 1990s with sweeping market reforms, the average rate of economic growth has doubled. Even the nature of the economy has transformed — from primarily being an exporter of textiles and jewellery, India is now best known as an exporter of high-technology software and pharmaceuticals. There is an intimate link between the knowledge-based economy that is sweeping the global economic scene and India — from software to bio-technology, is now at the cutting edge. Real GDP growth rate in 2000-2001 is estimated at 6 per cent compared with a growth rate of 6.4 per cent achieved in 1999-2000 and 6.6 per cent in 1998-1999.

Despite a global slowdown affecting economic growth in the world, India has the distinction of being one of the fastest growing economies in the world.

In the 50 years since India became a republic, national income has increased 6.6 times from Rs 40,454 crore to Rs 2,67,551 crore, a compounded growth rate of 4.1 per cent per annum. The per capita income has increased 2.9 times from Rs 1,127 to Rs 3,212, (and in purchasing power parity terms now stands at a healthy $2390), while the GDP stands at Rs 3,11,766 crore. Inflation has stayed at remarkably low levels, hovering around 4 per cent in 2001.

Currently the fifth largest economy in the world (in purchasing power parity terms), India's economic growth as well as its economic direction have been in two distinct phases — pre-and post-1991.

Until 1991, when India initiated its wide-ranging economic reforms which altered the direction of the Indian economy, for almost half a century, it followed an improvised version of the mixed-economy model, public and private sectors co-existing, but hinged on an extensive planning process. This saw an overwhelming presence of the state in industrialization, while land reforms and the democratic experiment would simultaneously achieve social and political growth, because according to the early leaders of this country, economic growth could only be achieved along with social and political parity.

This period, therefore saw the "temples" of modern India—steel plants, dams and technological and scientific institutions. The Indian economy has grown by about 4.5 per cent per annum on a long-term basis in the second half of the 20th century, but for the most part, it hovered around the 3.5 per cent mark, which came to be known as the "Hindu" rate of growth. Domestic industries were protected through quotas. Industrial development took place in an environment when industrial licensing prevented domestic competition and trade barriers prevented competition from exports.

Although the New Industrial Policy in 1991 incorporated the emerging trends in global economy, yet India continues with it's planning process, recognizing that government support in developing infrastructure and other areas is vital for a thriving economy. The first plan between 1951-56 focussed on agriculture — by improving transport, electricity production and rural extension, to raise income levels. It wasn't until the second plan that the heavy industries began to be set up. India had missed the industrial revolution of the 19th century, and in many areas had to start from scratch. The third plan followed up on the development of basic industries consolidating the growth of previous years.

But drastic reforms had to be undertaken in 1991 because of a balance of payments crisis which called for immediate stabilization measures. Simultaneously, it was also realized that the development strategy followed till then, also called for large-scale changes. It led to the development of a market-friendly system. Except for a few strategic industries the license system was abolished. International trade was liberalized to promote competition and efficiency - by 2001 quotas and quantitative restrictions on imports had been abolished. Foreign investment is actively solicited in almost all sectors of the Indian economy, including the old shibboleths of nationalization like insurance, etc. The easing of constraints led to a steady increase in industrial growth.

The Indian economy has performed well over the past two decades. Average annual real GDP growth accelerated from 5.4 per cent during the 12 year period ending 1991-92 to 6.4 per cent during 1992-93 through 2000- 2001. During this period, it has gone through significant structural change that has been induced by a continuous process of economic reforms. The pace of reform was intensified in the 1990s and the economy has responded well to the new changes that have been introduced in most of the sectors of Indian economy during this period. As a consequence, the economy has also shown a great degree of resilience even in the presence of adversities, such as the East-Asian financial crisis of 1997-98 and the abnormal increase in oil prices more recently.

India was a founding member of the General Agreement of Tariffs and Trade (GATT), the forerunner to the World Trade Organization (WTO). India has always been a strong supporter of international trade, but has emphasized the special concerns and interests of the developing world.

It is considered one of the key voices of developing countries' concerns at international trade forums. South Asia, particularly India, has been one of the key beneficiaries of the expansion in world trade that has followed in the wake of the creation of the WTO in 1995, showing impressive gains in exports and global integration in economic systems.

Rising oil import remains a concern for economic planners, because India is fast emerging as one of the four largest consumers of energy in the new millennium. This has not only led the government to dismantle the administered price mechanism for petroleum products by making prices more compatible with world prices and focus on new exploration and production strategies but also to search for new sources of energy. The former resulted in the NELP (New Exploration and Licensing Policy) initiatives, including the Oil and Natural Gas Corporation (ONGC) investing in exploration rights overseas, from Algeria to Russia and Vietnam. It has prompted the government to diversify energy sources to natural gas, nuclear power and hydro-power as well as non-conventional energy. India is currently negotiating for a natural gas pipeline from Iran, and there are possibilities of importing gas from India's eastern neighbours like Bangladesh.

Realization of higher growth was important to raise the standard of living of various sections of people, making a substantial impact on the removal of mass poverty. The deregulation process has removed entry barriers for foreign businesses and has increased liberalization. Unlike some other countries India has resisted outright privatization and closure of unviable public sector industrial units, in view of the social upheavals it might cause. Therefore, the Disinvestment Commission was set up to divest the government of its equity in many enterprises by either strategic sales or minority holdings.

It is now believed that government should get out of the business of production and enhance its presence and performance in the provision of public goods. Government, with its elaborate bureaucratic structures, multiple layers of accountability and complex crosschecks, is unsuited to the demands of commercial production in a competitive, fast growing economy. Privatization will allow Government's capital expenditure to be allocated to public goods and basic infrastructure that is not commercially viable. A significant portion of Central capital expenditure could be reallocated this way, if all public sector units producing private goods are sold to the public. The funds received from privatization would also help in reducing the public debt incurred for setting up these units and will put the debt-GDP ratio on a sustainable path. Most importantly, privatization would enable the competitive public enterprises to function effectively once again and would help them in contributing to the national economy.

The tempo of economic reforms has been sustained through the 1990s. Major fiscal reforms were undertaken for broadening the income-tax base and streamlining the excise and customs duty structures. There were reforms in foreign investment and trade policy spheres also. Reforms in public sector enterprises are underway for reducing pressures on public finances, increasing the efficiency of public sector operations and reducing the Incremental Capital Output Ratio (ICOR). Strengthening of legal, institutional and regulatory frameworks in insurance, banking, capital markets, power and telecom are being undertaken for inducing greater private investment in infrastructure. The Union Budget for 2000-01 announced various measures for further deepening of the capital markets and financial sector and allowed private entry in insurance and provident funds.
India's heart lives in its villages. Agriculture and allied activities make the single largest contribution to the GDP i.e., 27 per cent of the total, providing employment to 65 per cent of the workforce and contributes 18.5 per cent to the total export. The agriculture sector has grown at an annual rate of 3.9 per cent. Since the stress has been on food crops (especially grain) rather than cash crops, India in 2000 became the second largest producer of wheat and rice in the world. India is also the second highest producer of fruits and vegetables in the world, producing 65 per cent of the world's mangoes and 11 per cent of the world's bananas.

This is also why rural development is a priority sector for the government aiming to remove poverty and bring in quick socio-economic progress. This is being done through development programmes that cater as much to drought-prone and desert regions as to areas susceptible to floods. The land reform policy adopted since independence aims at restructuring agrarian relations to achieve an egalitarian structure by eliminating exploitation in land relations and enlarging the land base of the rural poor.

Although India's domestic market is one of the largest in the developing world, there is now a greater emphasis on external trade, its exports registering a growth of 13.2 per cent (in dollar terms) in 2000. Exports have also diversified in recent years to include, plantations, marine products, electronic goods, gems and jewellery, chemicals, textiles, handicrafts and carpets.

But the biggest has been the growth of software industry and software exports, which touched over 50 per cent for the past couple of years. Since the new millennium opened with a global economic slowdown, India too has understandably been affected. But growth m software exports promises to cross 30 per cent in 2001 and Indian software industry is on track to achieve a $50 billion exports target by 2008. Some of the high-growth software industry segments are IT-enabled services, which include business process outsourcing and call centre businesses which have clocked impressive growth rates of 70 per cent. This is the new frontier for Indian exports — technology and knowledge-based products and services, which include software, drugs and pharmaceuticals and human-resources based services, for instance in the hospitality, nursing and education sectors. This service sector performed exceptionally well in 1999- 2000. Average growth rate of trade, hotels, transport and communications, improved from 7.1 per cent in 1998-99 to 8 per cent in 1999-2000 and that of financial, real estate and business services accelerated from 8.4 per cent to 10.1 per cent over the same period.

A new breed of skills has come to exist in the areas of technology and management which simply did not exist in 1990. While this is epitomized in the remarkable success of Indian firms in the area of information technology (IT), the extent of change is evident far beyond IT firms: the standards of efficiency among India's firms are unrecognizably different than a decade earlier.

In external trade relations, during 1999- 2000, India's trade with countries m ASEAN and East Asia region at $9,032 million grew at 14 per cent, India's exports to these countries is now growing at 31 per cent. While India's balance of trade with the West Asia region is not in its favour, due to the large amounts of crude oil that India imports, its exports to this region touched $4 billion m 1999. India's trade with the former Soviet Union was considerable, but in the past few years, its bilateral trade with Russia has dwindled, although it still counts for 80 per cent of India's total trade with countries of this region. The US is India's largest single trading partner, its exports in 1999-2000 grew at a clipping 20 per cent, whereas imports have grown at 8 per cent. The European Union is collectively the largest trading partner, accounting for 28 per cent of India's total exports and 29 per cent of her imports m 1999- 2000. In view of the many changes that have taken place, it is now quite possible for the Indian economy to attain an even higher growth path. However, crucial action is required m a number of key areas m order to obtain the full benefits of the reforms carried out so far. If these measures are accomplished in an organized manner in the near future, it is quite likely that, many of the latent energies that are yet to be released in the country would become apparent and a higher level of economic activity would emerge.

Indian Textiles - An Overview:

The Indian textile industry is one the oldest industries in the country and displays a very complex sectoral dispersal matrix with hand-spun and hand-woven sector on one end of the spectrum and the capital intensive sophisticated mill sector at the other, with the decentralised powerloom and knitting sectors coming in between.

Even in the organised sector, Oisland of excellenceO exist, using highly sophisticated information technology based equipment with facilities for ERP\SAP which are second to none in the world.

The fibre specific configuration of the textile industry includes almost all types of textile fibres from natural fibres like cotton, jute, silk and wool to synthetic\man-made fibres like polyester, viscose, nylon, acrylic, polypropylene and the multiple blends of such fibres and filament yarns.

The diverse structure of the industry coupled with its close linkage with our ancient culture and tradition provides it with the unique capacity to produce, with the help of latest technological inputs and design capability, a wide variety of products suitable to the varying consumer tastes and preferences, both within the country and overseas.

It is perhaps the only industry in the Indian industrial arena which is selfreliant and complete in value chain, i.e., from raw material to the highest value added products, i.e., garments\ made-ups.

The Indian textile industry has a significant presence in the Indian economy as well as in the international textile economy. Its contribution to the Indian economy is manifested in terms of its contribution to the industrial production, employment generation and foreign exchange earnings.

As per the data released by International Textile ManufacturersO Federation ( ITMF) for the year 1999, the Indian textile industry also contributes significantly to the world textile production capacity and availability of textile fibres\yarns. This industry contributes about 21 per cent to the world spindlage and 6 per cent to the world rotorage. With ChinaOs dismantling of 10 million spindles, India has emerged as a country with highest spindlage in the world. With almost 5.64 million looms (including 3.89 million handlooms), this industry has also the highest loomage (including handlooms) in the world and contributes about 57 per cent to the world loomage. Even excluding handlooms, the industry contributes 33 per cent to the world loomage.

The industry also contributes significantly to the world production of textile fibres and yarns including jute. In the world textile scenario, it is the largest producer of jute, second largest producer of silk, third largest producer of cotton and cellulosic fibre\yarn and fifth largest producer of synthetic fibre\yarn.

A study of the ITMF has also indicated that the industry enjoys comparative cost advantage in raw material cost and labour cost in the production of various textile items viz-a-viz major textile producing countries.

Growth of the industry.

India has already completed more than 50 years of its independence. The analysis of the growth pattern of different segment of the industry during the last five decades of post independence era reveals that the growth of the industry during the first two decades after the independence had been gradual, though lower and growth had been considerably slower during the third decade. The growth thereafter picked up significantly during the tourth decade in each and every segment of the industry. The peak level of its growth has however been reached during the fifth decade i.e., the last ten years and more particularly in the 90s.

The Textile Policy of 1985 and Economic Policy of 1991 focussing in the direction of liberalisation of economy and trade had in fact accelerated the growth in 1990s. The growth during this period was spearheaded by the spinning and man-made fibre industry in the organised sector and decentralised weaving sector. In the last about ten years from 1990-91 to 2000-01.

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• The annual production of cotton from 117.00 lakh bales has now reached to 140.00 lakh bales.

   

• Silk production increased from 12.56 million kgs to 15.86 million kgs.

   

• Wool production increased from 42.70 million kgs to million kgs.

   

• Man-made fibre production increased from 337.85 million kgs to 904.28 million kgs.

Simultaneously, with the growth in the production of textile fibres, the textile industry also achieved a remarkable growth:

•  

• The number of spinning mills has risen from 777 in 1990-91 to 2561 (inclusive of SSI) in 2001, with increase in spindlage from 26.67 million to 37.91 million (including SSI); and rotorage to 4.54 lakh (inclusive of SSI) during the corresponding period.

   

• As a consequence, the production of spun yarn has increased at the rate of about 5.65 per cent to 3160 million kgs in 2001, of which cotton yarn is about 72 per cent.

   

• The number of looms has increased from 13.13 lakh in 1991 to 18.02 lakh in 2001. During the period, loomage in the organised sector declined from 1.78 lakh to 1.40 lakh. Additionally handloom has grown to a loomage of 38.91 lakh taking the total loomage to 56.93 lakh.

   

• Production of fabrics has grown from 23330 million sq mtrs to 40256 million sq mtrs during the period. With increase in the production of man- made fibres and fabrics, the mix has also been changed. Cotton, earlier was about 66 per cent of the fabric production, has fallen to 49 per cent, the balance coming from blended and synthetic fabric.

   

• Fabric production profile, earlier showing 11 per cent as coming from the organised mills has changed with the growth of powerlooms to show 4 per cent from the mills, 59 per cent from powerlooms, 17 per cent from knitting and 19 per cent from handlooms.

Growth of Exports.

Through export friendly government policies and positive efforts by the exporting community, textile exports increased substantially from US$ 5.07 billion in 1991-92 to US$ 12.10 billion during 2000-01. The readymade garment sector is the biggest segment in the IndiaOs textile export basket contributing over 46 per cent of total textile exports. Exports of cotton based items continue to pre-dominate which is natural in view of IndiaOs competitive advantage in terms of cotton.

Textile trade, over the last decade has contributed substantially in realising IndiaOs overall export trade. Its share in world textile trade has risen to 3.1 per cent in 1999-2000 as against 1.80 per cent in early nineties. Exports have grown at an average of 11 per cent per annum over the last few years, while world textile trade has grown only about 5.4 per cent per annum in the same years.

Perfomance of the Industry during the year 2000-01.

The growth of most segments of the industry during the year 2000-01 has been positive.

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• The production of cotton declined from 156 lakh bales in 1999-2000 to 140 lakh bales during 2000-01.

   

• Production of man-made fibre increased from 835 million kgs in 1999-2000 to 904 million kgs during the year 2000-01 registering a growth of 8.26%. Among the man-made fibres, polyester staple fibre is predominant fibre contributing about 63% of the total man-made

   

• fibre production; VSF, though registered the highest growth i.e., 17 per cent during last year.

   

• The production of spun yarn increased to 3160 million kgs during 2000-01 from 3046 million kgs during 1999-2000 registering a growth of 3.7%.Among the spun yarn, cotton spun yarn is the predominant yarn contributing about 72% of the total spun yarn production in the country.

   

• The production of man-made filament yarn registered a growth of 2.91% during last year, increasing from 894 million kgs to 920 million kgs. Polyester filament yarn is the major filament yarn contributing about 89% of the total filament yarn production in the country.

   

• The production of fabric registered a growth of 2.7% during last year, increasing from 39,208 million sq mtrs to 40,256 million sq mtrs. The production of mill sector declined by 2.6% while production of handloom, powerloom and hosiery sector increased by 2%, 2.7% and 5.1% respectively.

   

• The exports of textiles and garments increased from Rs. 455048 million to Rs. 552424 million, registering a growth of 21%.

The textile industry in our country is one of the few industries in the country which has the potential to emerge as a true global player. The Government has already embarked on a role of industry-friendly, pro-active NfacilitatorO. Recognising the fact that industry needs a concerted strategy and time-bound action plan to convert its core competence in availability of all major raw materials, skilled manpower, managerial competence and entrepreneurial skill to a competitive strength as a producer and supplier of top quality textiles at competitive prices while protecting its domestic turf, the Government has initiated many policy measures. With the growing awareness in the industry of its strengths and weakness and the need for exploiting the opportunities and averting threats, coupled with the GovernmentOs catalytic role, the Indian textile industry has the potential to scale new heights in the globalised economy.

Investments in India:

The economic reform programme that was embarked upon in India in 1991 has made significant progress. Successive governments have given greater scope, content and direction to this process. Today the industrial policy is far more simple, more liberal and transparent, actively promoting private investments including foreign investment.

Particular focus has been given to the infrastructure sector with special incentives to attract greater investments. External trade has been freed of various controls and the tariffs steadily reduced. Import controls on few of the consumer products are also proposed to be freed within a fixed time frame. Exchange rate policies have been significantly liberalised. The Indian rupee is convertible on the current account. Both personal and corporate tax rates have been brought down significantly and the capital market has witnessed fundamental changes.

For a foreign investor, India has many strengths:

• A large market with a population of about 950 million of which over 300 million are estimated among its growing middle class.
• An abundance of natural resources, a rich mineral base and is agriculturally self-sufficient.
• A stable democratic environment in over 50 years of independence.
• A free press and a strong and independent judicial system.
• English is the language of commerce and administration.
• It has experienced stable growth with macro-economic stability. Gross domestic product growth has averaged between 6% and 7% over the last few years.
• It is the fifth largest economy in the world in terms of purchasing power parity, with a diversified manufacturing base.
• A high rate of domestic savings of over 26 per cent of GDP and comfortable foreign exchange reserves of around US$25 billion.
• A strong and mature private sector.
• A sophisticated R&D [Research and Development] infrastructure and world class institutions in education and research in technology, engineering and management.
• High quality managerial and supervisory personnel are easily available.
• India offers competitive wage levels and a harmonious climate of industrial relations.
• There is a sophisticated financial sector with an extensive banking network and a well-developed capital market.
• India is a member of MIGA [the Multilateral Investment Guarantee Agency], and has entered into bilateral investment promotion and protection agreements with many countries. The country has also signed Bilateral Double Taxation Avoidance Conventions with several countries.
• India could be an ideal gateway to the larger SAARC [South Asia Association for Regional Cooperation] market in the context of the South Asian Free Trade Area (SAFTA) to be established by the year 2001.

Vast opportunities exist for investment in the various sectors and in the 26 States and six Union Territories of India. In the area of infrastructure alone investment needs are in the range of US$400 billion in the next ten years which cannot be mobilised from domestic sources alone. An attractive framework for foreign investment has, therefore, been put in place.

QUESTIONS AND ANSWERS FOR THE FOREIGN INVESTOR

To help provide all the information necessary for the foreign investor planning to invest in India here are a selection of the most frequently asked questions: click on any of the following questions to go straight to its answer.

How does a foreign company invest in India?

There are two approaches. Either through automatic approval by the country's central bank - the Reserve Bank of India - in Mumbai or via the Foreign Investment Promotion Board (FIPB) or the Secretariat for Industrial Assistance (SIA).

What is the Secretariat for Industrial Assistance (SIA)?

The SIA is part of the Department of Industrial Policy and Promotion of the Government which provides a single window for entrepreneurial assistance and processes all applications which require Government approval. The SIA acts as the Secretariat for all applications for:

• Foreign direct investment [FDI]
• NRI Investments
• Foreign technology transfer
• Setting up 100% export-oriented units [EOUs]
• Industrial licenses

How does automatic approval from the Reserve Bank of India work?

Automatic approval from the Reserve Bank of India is granted to foreign investors if the FDI equity of the company does not exceed a specified percentage. That figure is 74 per cent in several areas in nine industry groups:

• mining services;
• basic metals and alloys industries;
• manufacturing medical and laboratory equipment and photography;
• electric generation and transmission;
• non-conventional energy generation and distribution;
• construction;
• pipeline transport excluding crude oil, petroleum products and natural gas pipelines;
• water transport;
• storage and warehousing services.

For other industries the figure is 51%, such as metallurgical, boilers and steam generating plants, prime movers, electrical equipment, transportation, industrial machinery and equipment, agricultural machinery, drugs, printing machinery, food products, cotton textile (cotton spinning integrated mills), the manufacture of wool and silk, basic chemical products (except products of petroleum and coal); the manufacture of metal products and parts except machinery and equipment, health and medical services; and land and water transport (support services). In industries such as the mining of iron and other metal ores and non-metallic minerals with the exception of the Uranium group the figure is 50%.

A full list in each of these cases can be viewed at: http://www.nic.in/indmin/annex3.htm.

The Reserve Bank of India also accords automatic approval to foreign technology agreements within the prescribed monetary limits:

• Lump sum payments of up to $2 million
• Royalty payments of up to 5% of domestic sales and 8% of exports.

What is the Foreign Investment Promotion Board (FIPB)?

What is the role of the FIPB compared to the individual state investment boards?

The FIPB is a high-level single window agency to clear all proposals relating to foreign direct investment (with or without technology transfer) which are not eligible for automatic approval. The organisation has the flexibility of purposeful negotiation with investors and considers project proposals in totality and free from parameters. It makes a recommendation on each proposal which is approved by the Government and its decisions are communicated within six weeks by the Secretariat for Industrial Assistance, which functions as its secretariat.

How are applications for foreign direct investment submitted?

1) Applications for automatic approval can be submitted in Form PC to:

The Reserve Bank of India
Exchange Control Department
Shaheed Bhagat Singh Road
Mumbai - 400023

No fee is required and approvals are given by the RBI within 15 days.

A sample of the form may be seen at: http://www.nic.in/indmin/cmbform.htm

2) Foreign Investment Promotion Board approval is required for all other proposals not eligible for automatic approval. Applications must be submitted in Form FC (SIA) or on plain paper to:

The Secretariat for Industrial Assistance
Ministry of Industry
New Delhi
Fax: +91 11 301 1034
email: iisdc@sansad.nic.in

Website: http://www.nic.in/indmin

What are the factors considered by the Foreign Investment Promotion Board when examining proposals?

To impart greater transparency to the approval process, guidelines have been issued which govern the consideration of FDI approvals by the Foreign Investment Promotion Board. The FIPB's clearance is based on the totality of the package including such factors as the industry involved, the type of technology, foreign exchange inflows and outflows and employment generation. A full text of the guidelines may be seen at: http://www.nic.in/indmin/ANNEX4.HTM

Are 100% foreign-owned subsidiaries allowed?

Yes

How are investments in 100% Export Oriented Units [EOUs] allowed?

There are three schemes for such units. they are the 100% EOUs, Electronic Hardware Technology Parks (EHTPs) and Software Technology Parks (STPs). Approvals for these are given through both the automatic and Government routes.

What are the standard conditions for approval of foreign technology agreements?

Approval is granted by two routes:

• Automatic approval by Reserve Bank of India is available for any proposal with lumpsum payment not exceeding US$2 million, and with a royalty of up to five per cent on domestic sales and eight per cent on exports
• Government approval is required in all other cases. For details on this please see Chapter III, paragraph seven of the SIA manual available at: http://www.nic.in/indmin

Are there tax concessions available for foreign investors?

A five-year tax holiday is available to companies developing, maintaining and operating infrastructure facilities such as roads, highways, bridges, airports, ports, railway projects, water supply, sanitation, sewerage projects, telecomms, industrial parks and oil exploration.

There are also several sector-specific incentives. In addition, the State Governments also offer attractive incentive packages including concessions in respect of sales tax and other local taxes for investments in their respective states. More details are available on opportunities available in many infrastructure sectors at: http://www.nic.in/indiainfra/

What are the incentives available for companies engaged in export activities?

Trading companies primarily engaged in export activities are allowed majority foreign equity holding up to 51% by the Reserve Bank of India. Such trading companies will be treated on par with domestic trading and export houses in accordance with the export/import policy, details of

which are available at: http://www.nic.in/eximpol

Are there incentives available for investment by Non-Resident Indians?

A liberalised policy framework is available for investment by Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs). The latter are such bodies in which Non-Resident Indians hold at least 60% equity. Both are allowed to invest up to 100% equity in the real estate

and civil aviation sectors. Automatic approval is given by the Reserve Bank of India to all to all NRI/OCB proposals with their involvement up to 100% equity in high-priority industries. Details regarding the facilities available to Non-Resident Indians can be seen at the Reserve Bank's website: http://www.reservebank.com/

What are the guidelines for foreign direct investment in specific sectors?What areas of the economy is the government prioritising for foreign investment?

Here is a brief summary of the relevant FDI guidelines:

• Banking - Non-Resident Indians 40%. Foreign investment of up to 20% is allowed.
• Domestic Air-Taxi operations/Airlines - Foreign equity - other than by foreign airlines - of up to 40% can be permitted on a case-by-case basis. Non-Resident Indians are allowed 100%.
• Power - Up to 100% foreign investment allowed. Full details are available at: http://www.nic.in/powermin/
• Telecommunications (Basic and Value-added) - In basic, cellular mobile and paging services, foreign investments are limited to 49% subject to a grant of license from the Department of Telecommunications.
• Drugs and pharmaceuticals - foreign investments of up to 51% in the case of bulk drugs, their intermediates and formulations thereof are granted automatic approval by the Reserve Bank of India. The exceptions are those produced by the use of recombinant DNA technology. Other proposals are considered on merit on a case-by-case basis by the Government. Manufacturing activity essential for foreign direct investment above 51% as per Drug Policy.
• Petroleum - 100% FDI is allowed in small fields through competitive bidding, while refinery, product pipeline sector, infrastructure relating to the marketing of petroleum products and trading are all open for foreign investment with different ceilings.
• Roads and Highways - Private sector including foreign equity participation of up to 100% in highways is envisaged on a Build Operate and Transfer (BOT) concept. There is automatic approval of up to 74% FDI by the Reserve Bank of India. Further details including current opportunities are available at: http://www.nic.in/most
• Ports - Up to 100 % FDI is allowed for BOT projects and approval is automatic for up to 74% FDI by the Reserve Bank of India.
• Tourism - This sector has immense possibilities for foreign investment. 100% foreign equity is allowed in the sector and automatic approvals are also granted by the Reserve Bank of India for foreign equity up to 51% and subject to specified parameters.
• Real estate - No FDI is allowed (except from NRIs / OCBs).
• Mining - Automatic approval is available up to 50% foreign direct investment in this sector with the exception of mining of gold, silver and precious stone. They are subject to certain other parameters. Coal and lignite are reserved for the public sector though FDI is allowed for captive power generation.

Is foreign direct investment allowed in small and medium sized enterprises?

Equity participation of up to 24% of total share holding has been allowed in Small Scale Industry (an SSI unit is where plant and machinery investment is up to Rs30 million). For equity participation in excess of this or if a non-SSI unit wishes to manufacture a reserved item, the prescribed export obligation of 50 per cent is to be undertaken by the unit.

Are foreign investors allowed to raise their equity in an existing joint-venture?

Yes. Approval is accorded both on the automatic and Foreign Investment Promotion Board (FIPB) routes subject to specified conditions. Enhancement may be allowed as part of an expansion programme and the money to be remitted should be in foreign exchange. (For details the SIA manual available at the SIA website may be consulted)

Can profits, dividends, royalties or know-how payments be repatriated from India?

Yes. Foreign capital invested in India, profits and dividends earned in India, royalties and know-how payments that have been approved by the Government/Reserve Bank of India, can be repatriated after payment of taxes due on them. Units operating in a limited list of consumer goods industries, however, are subject to the condition of dividend outflow being balanced with the matching inflow of export earnings for seven years from the date of commercial production.

Is it possible to use foreign brand names or trade marks in India?

Yes

What proposals require an Industrial License and how is one obtained?

In the new Industrial Policy, all industrial undertakings are exempt from licensing except for nine industies in areas of strategic and environmental concern and those reserved for the public sector and the small scale sector. For the exemption to apply, the project should not be located within 25km of a city with a population of more than 1 million. At the same time, the Government has also substantially liberalised the procedures for obtaining an industrial licence.

Is labour an issue for the foreign investor?

There is a ready availability of skilled manpower, with a high standard of productivity. Various vocational institutes and industrial training institutes have ensured a steady supply of such trained manpower. Unskilled labour is also available at competitive wages all over India.

How easy is it to find a joint venture partner in India?

How does a foreign investor find a Joint Venture partner?

Indian business enterprises are active in practically every sector of the economy and it is possible to find a suitable joint venture partner for most projects. Apex business organisations and chambers of commerce including the following can also help in identifying suitable joint venture partners:

Confederation of Indian Industries [CII]
Business Development Cell
23 Institutional Area, Lodi Road
New Delhi - 110003
email: Vijaya@soi.cii.ernet.in

Website: http://www.indiaindustry.com

Federation of Indian Chambers of Commerce and Industry [FICCI]
Investor Guidance Services
Federation House, Tansen Marg
New Delhi - 110001
email: ficci.bisnet@gems.vsnl.net.in

Website: http://www.bisnetindia.com

The Associated Chambers of Commerce and Industries of India [ASSOCHAM]
2nd Floor, Allahabad Bank Building
17, Parliament Street
New Delhi - 110001
email: raghuraman@sansad.nic.in

Website: http://www.assocham.org

Whom should the foreign investor contact for further information?

How does a foreign investor find a joint venture partner?

Secretariat for Industrial Assistance
Department of Industrial Policy & Promotion
Ministry of Industry
New Delhi - 110011
Fax: + 91 11 301 1034
email: iisdc@sansad.nic.in

Website: http://www.nic.in/indmin/

Investment Promotion and Publicity Division
Ministry of External Affairs
Government of India
South Block
New Delhi - 110011
Tel: + 91 11 301 8709/3902/4367
Fax: + 91 11 301 0700/0680
email: jsipp@mea.delhi.nic.in

Website: http://www.meadev.gov.in/

Commercial wings in Indian Embassies and Missions abroad will also be ready to assist foreign investors in facilitating their efforts to invest in India.

Sectoral enquiries can also be addressed to the following:

Ministry of Power
Shram Shakti Bhawan
Rafi Marg
New Delhi - 110001
Tel: + 91 11 3310247
Fax: + 91 11 3717519
Website: http://www.nic.in/powermin/

Department of Telecommunications
Sanchar Bhawan
20, AshokaRoad,
New Delhi - 110001.
Tel: + 91 11 3717542
Fax: + 91 11 3718288

Ministry of Surface Transport (Roads and Ports)
Transport Bhawan
New Delhi - 110001
Tel: + 91 11 3715905
Fax: + 91 11 3731270
Website: http://www.nic.in/most/

Ministry of Civil Aviation
Rajiv Gandhi Bhawan
Safdarjang Airport
New Delhi

Tel: + 91 11 4610363
Fax: + 91 11 4697051

Ministry of Food Processing Industries
Panchsheel Bhawan
August Kranti Marg
New Delhi - 110049
Tel: + 91 11 649 3012/469 2476
Fax: + 91 11 649 3228
email: mofpi@hub.nic.in

Website: http://www.nic.in/mofpi/

Other related websites:

Ministry of Finance: http://www.nic.in/finmin

Ministry of Commerce: http://www.nic.in/commin
Reserve Bank of India: http://www.reservebank.com

What are the focal points of the State Governments?

The focal point for each State Government or Union Territory (UT) is normally its Ministry of Industry. Many State Governments have announced attractive incentives in the form of capital subsidies, sales tax concessions, concessional power tariffs and exemption from certain other charges or taxes among others. The State Industrial Development Corporations help foreign investors by providing information and guidance in selecting projects and their location, arrangement of infrastructure facilities through concerned Government agencies and also follow up with the State and Central Government Departments and Corporations.

Sectors - Key sectors for investment

What areas of the economy is the government prioritising for foreign investment?

Following are a series of sector summaries for key parts of the Indian economy. Not only do they provide a concise overview of the size and significance of these sectors but also they give details on the investment opportunities available within them.

How do Indian embassies help foreign investors facilitate investment in India?

Automobile Plant

Overview

The automotive industry in India has undergone a rapid transformation in the last few years. From a small industry sector held by a few traditional monopoly units, it has been able to evolve into one of the most dynamic sectors of the Indian economy, driven by market forces. This has been brought about through the liberalisation of the Indian economy. Brimming with change and challenges, the automotive sector is not only encouraging domestic manufacturers to compete in a market which is already flooded with major global players but is also attracting many more global majors to enter the fray.

Until the end of the 1940's, motor vehicles were all imported into India. Some 20,000 vehicles were imported by General Motors and Ford at the time. The seeds for local manufacture were sown by the establishment of two vehicle manufacturing plants, Hindustan Motors in 1942 and Premier Automobiles in 1944. However a major revolution was brought about in 1953, when the Indian Government prohibited the import of cars and assembly activities by foreign car manufacturers. This was to jump start the local production of vehicles via the establishment of a component manufacturing base.

The 1960's and 70's saw the entry of new manufacturers of commercial vehicles. These were: Bajaj Tempo, Tata Engineering Locomotive Company and Mahindra & Mahindra. This markedly improved the output of commercial vehicles.

There was a major influx of Japanese investments in the 80's. The most notable was the joint-venture between the Suzuki Motor Corporation and the Indian Government - called Maruti Udyog Ltd. A number of other Indo-Japanese joint-ventures were also set up in the private sector. Honda, Yamaha, Toyota and Mitsubishi all made an entry during this period to manufacture two-wheelers and light commercial vehicles.

In 1996 - 97 the sector achieved an overall growth rate of 14 per cent; in 1997 - 98 there has been a slight slow down, seeing marginal negative growth. With the predicted economic revival being backed by significant projected private and public infrastructure investment along with a reduction in interest rates and new credit policies creating new investment opportunities, demand for automobiles is expected to increase. Capacity and production is forecast to double in the next five years.

FDI policy in the automotive sector

Commercial vehicles as well as auto components have been categorised as priority sectors for Foreign Direct Investment [FDI]. For foreign equity participation up to 51 per cent equity, the Reserve Bank of India accords automatic approval. For equity participation greater than this, each proposal is considered by the Foreign Investment Promotion Board [FIPB].

Some of the joint ventures in the passenger car sector envisage the initial importing of cars in either semi-knocked down [SKD] or completely knocked down [CKD] form. Whilst the Government has decided to grant the required licences to approved joint ventures in the automotive sector, they are required to give details about their import programme, their indigenisation plans and future export possibilities. Each must sign a memorandum of understanding with the Directorate General for Foreign Trade [DGFT] in this respect. This Memorandum needs to be based on the following undertakings:

• The establishment of actual production facilities for the manufacture of cars and not for mere assembly of imported kits or components
• Minimum foreign equity participation of US$50 million to be invested by the foreign partner within the first three years from the start of operations, if the joint venture involves majority foreign equity ownership. This condition applies only to new joint venture companies.
• The indigenisation of components up to a minimum level of 50 per cent in the third year [or earlier] from the date of clearance of the first import consignment of SKD/CKD kits or components, and up to a level of 70 per cent in the fifth year [or earlier]. Once the joint venture operation has reached an indigenisation level of 70 per cent, there will be no need for further import licences from DGFT. Once the firms have achieved the 70 per cent indigenisation level they automatically move outside the ambit of the Memorandum. However, each must discharge their export obligations corresponding to the imports made by them up to that time.
• In terms of export obligations, firms entering into the Memorandum of Understanding should achieve a broad neutralization of foreign exchange over the entire period of the Memorandum in terms of balancing between the actual CIF value of imports of CKD/SKD kits or components and the FOB value of the cars and/or auto components over the said period. The period of export obligation would commence from the third year of commencement of production. The date of commencement of production would be deemed to be the date of the first release of a consignment from the factory after payment of excise duty, although there would be a two year moratorium from this date of production commencement when the company need not fulfil any export commitment. Then, from the third year onwards [effective from the date of release of the first consignment], the joint venture company would have an export obligation equivalent to the CIF value of imports made by them for the remainder of the MOU period until they complete the entire export obligation. From the fourth year onwards, the value of imports of CKD/SKD or components may be regulated with reference to the export obligation fulfilled in the previous years, as per the Memorandum of Understanding. The export commitment can be met by the export of both cars and auto components. It should also be noted that this export obligation is over and above any EPCG [Export Promotion Capital Goods Scheme] related export obligation.

The underlying idea for this is to discourage "screwdriver technology" and to have an assurance that the joint venture partners have long term commitments to the projects. This requirement does not apply to other categories of vehicle, such as tractors, commercial vehicles etc.

Outlook

On account of the strong linkage the automobile industry has with other industries - such as agricultural operations - investment in this industry can act as a catalyst for overall economic development, employment generation and the development of business and commercial activities. An expanding manufacturing base of vehicles also leads to the development of components and ancillaries with a multiplier effect.

Since the development of India's railway rolling stock and rail infrastructure is constrained by heavy capital costs, road transport is expected to grow alongside the economy's revival and the development of road infrastructure by the private sector.

Given the long term growth forecasts for the economy and, in particular, the transformation of the rural economy, demand for automobiles is predicted to grow strongly.

The establishment of large, modern manufacturing units by foreign companies, benefiting from significant economies of scale, will also increase exports.

The long term increase in income levels, the concomitant increase in the standard of living across an ever-growing middle-income group within India, plus easier access to credit financing for vehicle acquisition, will all help to spur growth in this sector. These forces will help to make the projected turnover of Rs 2,500 billion in 2005 for the automotive industry a reality.

VEHICLE PRODUCTION TARGETS [Quantity in thousand units].

Contact

Joint Secretary
Automotive Division
Ministry of Industry
Department of Industrial Policy & Promotion
Udyog Bhawan,
New Delhi - 110011

Tel: 91-11-301 2750
Fax: 91-11-301 2655

The origin of the Indian auto component industry dates back to 1953, when the Indian Government decided to develop its own manufacturing base with the principal intention of import substitution. The Indian auto component industry today is a very vibrant sector of the Indian economy and is a net foreign exchange earner for the country.

The principal feature of the Indian auto component industry is that it is a high investment sector of the Indian economy using state-of-the-art technology, serving a large number of vehicle models.

There are over 350 major companies in the auto component sector. Most of them are evenly distributed in the north, south and western parts of India. There are very few component manufacturers in the eastern region and therefore this region is a very marginal contributor to the country's output for auto components.

Over the years the industry has very successfully fulfilled its mandate of maximising the percentage of locally manufactured content used by the Indian automotive industry. India is probably the only country in Asia after Japan which has developed its own car from its own component base.

The auto component industry in India has been consistently exporting an average of about 20 per cent of its production over the last few years. The industry's exports in 1995-96 stood at US$255 million as against US$207 million in 1994-95 (representing growth of 23 per cent). On the basis of the data available, it is estimated that the growth in exports in the next five years is going to be 20 per cent annually.

Over the last few years, the type of customer found in the export market has undergone a considerable change. From being exporters principally to the after market, India's auto component manufacturers are graduating into principle suppliers to Original Equipment Manufacturers (OEMs) throughout the world. The supply contracts to major OEMs are won against stiff international competition and it is a reflection on the quality of products now being produced by the component manufacturers in India that their success rate is high.

The export destinations for auto components have also undergone corresponding change in the last few years. From being exporters to mainly Africa and South East Asia, the principle destinations for auto components are now Europe and America. The export destinations for Indian auto components are as given below:

Advanced technology manufacturing

A considerable amount of foreign investment has flowed into this sector through joint-ventures and technical tie-ups with foreign partners. These tie-ups have resulted in a significant upgrading of manufacturing technology in the past few years. Already 322 collaborations exist in the auto component sector (37 of which new tie-ups took place in 1995-96 alone). As a result, the industry can justifiably claim to use cutting-edge technology in the following areas:

• Forgings, connecting rods, flywheels and auto safety seat belts;

• EPDM rubber profiles and PVC profiles;

• Noise suppressed ignition wire sets and exterior lighting;

• Metallic gaskets, flywheel ring gears and parts;

• Instrument panels;

• Aluminium radiators;

• Energy efficient electric filament or discharge lamps;

• Road wheels and parts;

• Hydraulic brake hose assemblies;

• Airbags;

• Automotive roller chains;

• Bumpers and dash boards;

• Exhaust systems;

• Catalytic converters

• Pistons and piston rings;

• Transmission shafts and other shafts;

• Engine bearings, castings and parts;

• Windshield washer pumps, electronic fuel pump, etc.

• Heat exchangers and parts;

• Combination switches and ignition switches;

• Steering wheels;

• Control cables, wiring harnesses;

• Solex carburettors;

• Shock absorbers;

• Cold rolled formed automobile door frames.

Over the years, the Indian auto component industry has taking significant strides towards achieving world beating levels of quality and has embraced the ISO9000 / QS9000 quality systems. Already 119 companies in the ACMA have been certified for ISO9000 quality standards. Seven ACMA member companies have also been able to achieve the QS9000 quality standard, set by the "big three" global car manufacturers: General Motors, Ford and Chrysler.

As a result of collaborating with foreign partners, the auto component industry has been able to develop several world class companies with world class products. Following is a breakdown of these collaborative operations, broken down by the partners' country of origin:

It is expected that these collaborations with foreign partners in the form of technical tie-ups, joint-ventures, equity participations, etc. will result in a considerable inflow of investments into the auto component sector. In 1995-96 alone, this inflow was US$400 million. It is estimated that approximately US$380 million will be invested in this sector in the next five years.

The auto component sector in India is poised for a quantum leap in installed capacity, production technology and product diversification. With the high level of foreign direct as well as domestic investment in manufacturing ventures in the automotive industry, the growth of the component sector will receive added momentum.

A large number or foreign direct investment proposals for setting up auto component units have been approved by the Government. There is also a concerted effort to absorb the latest technology in this field and to upgrade the quality of all products to an international level. With the globalisation of the industry, the export of auto components has also been growing steadily. The various reform policies recently adopted by the Government, such as delicensing and the rationalisation of the duty structure for auto components, will help to open up tremendous investment and technology transfer opportunities both for foreign as well as Indian entrepreneurs in the sector

Joint Secretary
Automotive Division
Ministry of Industry
Department of Industrial Policy & Promotion
Udyog Bhawan,
New Delhi - 110011

Tel: 91-11-301 2750
Fax: 91-11-301 2655

Petrochemicals

India's chemicals industry is both large and distinctive. The country is self-sufficient in most of the heavy chemicals and demand for the products of this sector is huge and diverse because of numerous and differing end users. The chemicals sector remains very much technology driven. The main thrust in the chemical sector has been towards modernisation in order to improve efficiency and lower operating costs, not least as technological obsolescence is an ongoing risk in this sector.

Though there was considerable Government control in the chemicals sector, the post-1991 years saw the loosening up of these controls with major steps such as the derestriction of phosphate fertiliser manufacture and the easy approval of foreign investment.

The Indian chemical industry had a turnover of around Rs 900 billion in 1996 - 97 and this figure is likely to surpass Rs. 1000 billion by the turn of the century. The sector also accounts for 10 per cent of total Indian exports during 1996 - 97.

Key products within the sector are caustic soda, soda ash, carbon black, phenol, acetic acid, methanol, dyes and their intermediates.

In tune with the Government's ongoing liberalisation policies, industrial licensing has been lifted from all but a small number of hazardous chemicals. Investors and entrepreneurs are therefore free to set up chemical industries simply by following the Industrial Entrepreneurs Memorandum. As with other key sectors targeting significant FDI inflows, automatic approval for FDI exists for investment up to 51 per cent and up to 74 per cent in key sectors.

The chemical product range includes pharmaceuticals, dyes, man-made fibres, plastics, pesticides, fertilisers, cosmetics and toiletries, paints, auxiliary chemicals and a wide range of organic and inorganic compounds. The estimated production value of basic organic and inorganic chemicals amounted to Rs. 5 million MT in 1996-97. For pesticides and agrochemicals (the demand for which is supposed to rise to 97,000 MT) registered a production level of 95,000 MT in 1995-96. Dyes and pigments production was over 37,000 MT during the same period.

The total export value of the chemicals and allied sectors in 1996 - 97 was Rs.128 billion.

Joint Secretary
Department of Chemicals and Petrochemicals
Shastri Bhawan
Dr. Rajendra Prasad Road
New Delhi - 110001

Tel: 91-11-338 1573
Fax: 91-11-338 2176

There are 449 airports/airstrips in the country. Among them the Airport Authority of India (AAI) owns and manages 92 airports and 28 civil enclaves at defence airfields and provides air traffic services. In 1996-97, 120 airports/civil enclaves handled 396,000 airport movements involving 24.3 million domestic and 12.2 million international passengers and 200,000 metric tonnes of domestic and 480,000 metric tonnes of international cargo. 52 per cent of traffic was handled at the international airports at Mumbai and Delhi. Presently, the various airlines are operating only through 61 airports.

It has been projected that domestic traffic will grow by 10.5 per cent up to the year 2000 and by 8.5 per cent for the subsequent five year period. The projections for growth in international passenger traffic during the same periods are 7per cent and 6 per cent respectively.

To develop airport capacity in accordance with these projections, a new policy on Airport Infrastructure was announced in December 1997. This classifies airports into three categories:

• International links would be for the dispersal of international traffic. These would at present cover Delhi, Mumbai, Chennai, Calcutta and Thiruvananthapuram. Airports at Bangalore, Hyderabad, Ahmedabed, Amritsar and Guwahati can be added to the list when facilities are upgraded to the desired level.
• Regional links will have to act on an operational basis for regional airlines using smaller aircraft to provide air connections to the interior of the country.
• Other operational airports will be developed so as to be cost-effective on the basis of individual needs to meet the requirements of traffic handled by them.

Looking at the quantum of investment required the policy recognises the need for private investment [including foreign investment] in this sector. All options have been kept open in respect of management of airports or parts of airports: these could be on a BOT, BOOT, BOO or other basis. Foreign equity participation in such ventures is permitted up to 74per cent. Fiscal incentives provided including tax holidays will be similar to those included in other infrastructure projects.

A Civil Aviation policy which is likely to spell out the nature and scope of private participation including foreign participation in airport project is under the consideration of the Government.

Ministry of Civil Aviation
Rajiv Gandhi Bhawan
Safdarjang Airport
New Delhi 110 003

Tel: 91-11-461 0363
Fax: 91-11-469 7051

Coal mining in India dates back to the 18th century, however the regulatory framework for this industry was conceived in 1923. In 1972-73, the Indian Government nationalised the coal industry, primarily to develop the sector, since it was considered of strategic importance for rapid industrial development. Coal India Ltd. (CIL) was incorporated as a holding company for seven coal producing subsidiaries and a planning and design focused institute. CIL is engaged in mining from a total of 495 working coal mines which accounts for nearly 88 percent of total production.

India has seven per cent of the world's coal reserves and estimates suggest that reserves are enough to meet India's needs for at least another century. 60 per cent of the country's total energy requirements are met by coal. As part of the country's economic liberalisation, Government controls on pricing and distribution are being relaxed and a new coal policy permitting private sector participation in commercial coal mining, has been announced.

India has huge untapped potential for underground mining. The predominant method in use is open cast mining, to exploit the 64 billion tonnes of proven reserves situated within a depth of 300 metres. Lower operating and production costs, greater percentage recovery and a higher output per man shift compared with underground mining are some advantages presently associated with open cast mining in India.

Coal deposits in India occur mostly in thick seams and at shallow depths. Non-coking coal reserves are an aggregate 172.1 billion tonnes and the ash content in Indian coal ranges from between 15 and 45 percent. The use of beneficial coal has gained acceptance in both steel plants and power plants, located at a distance from the pithead. Currently, India has 19 coal washeries (total capacity: 27.2 million tonnes per annum) of which 15 are owned by Coal India Limited (CIL).

India's coal demand is expected to increase significantly within the next 5 to 10 years due to the completion of on-going coal-based power projects, as well as demand from metallurgical and other industries. Demand for coal has been rising at an annual rate of 6 percent since 1992-93 and CIL and it's subsidiaries will be unable to meet the projected demand alone. The investment needed to bridge the gap - 400 million tonnes - between the present level of production in the public sector (290 million tonnes in 1995-96) and the projected demand of 690 million tonnes (2009-10) - is estimated to be US$18 billion.

The public sector coal companies are expected to increase their production by making an additional investment of US$ 8-10 billion. The balance requirement of 150 million tonnes will have to be met by imports in the short run and by new investments in the long run. India's coal sector therefore offers immense potential for the astute investor.

Steel Foundry

Already fifty seven coal mines have been identified for private sector participation and nineteen of these have been allocated to power, steel and cement plants for extraction of coal for captive consumption. There is also considerable scope for investment in the area of coal washeries with the Government now permitting Build Own Operate (BOO) washery projects by coal companies and as agents of coal consumers.

The integrated coal policy announced by the Government towards deregulating the coal industry provides for:

• Private Indian companies (with foreign investment of up to 50 per cent of total equity) to mine coal and sell to third parties at market prices;

• Freeing of prices of most coal grades; and

• Creation of a centralised exploration data bank to assist investors choosing projects.

Pharmaceuticals

The pharmaceutical industry is a high tech industry involving sophisticated technology and meeting special needs [such as US Food and Drug Administration approval] and matching international standards of GMP. From a meagre production level at the time of Independence, the country now has around 24,000 units [including 250 large units] producing more than 400 bulk drugs and a complete range of formulations.

Production during 1997-98 of bulk drugs is estimated at Rs. 26,230 million and formulations value is estimated to be around Rs. 120,680 mIllion. Drugs production is 8 per cent of volume and 1.3 per cent of value of the industry globally. While the growth rates of bulk drugs and formulations are around 1.5 per cent and 20 per cent respectively, the country is performing very well on the export front also. Exports during 1996-97 amounted to Rs. 40,903 million with a 40 per cent share of this going to western countries. Major products exported are cephalosporins, cloxacillin, ampiciIlin, amoxycillin and their salts, sulphamethoxazole, ibuprofen, ciprofloxacin, ethambutol ranitidine.

The objective of drug policy relating to the pharmaceutical industry is to ensure abundant availability of essential and life saving drugs of quality at reasonable prices, in addition to strengthening the indigenous production base. This Is achieved through Drug Price Control Order 1995 wherein 74 bulk drugs are price controlled. The number of drugs under price control is being gradually reduced. Industrial licensing has been abolished except for production of vitamins B1, B2, folic acid, tetracycline, oxytetracycline and their salts, products of recombinant DNA technology, bulk drugs and repairing in-vivio use of nucleic acids as active principal and specific cell / tissue targeted drug formulations. Investment above 51 per cent foreign equity will be considered on merit in areas such as bulk drug production from basic stages, drugs using recombinant DNA technology and specific tissue targeted formulations.

The industry's strength Iies in its use of world class technology_, the cost effective production of 90 per cent of bulk drugs and all required formulations, a rich biodiversity and competitive R&D costs. With an export growth rate of over 20 per cent and with the ever increasing number of off-patent built drugs plus the capability of Indian scientists in process technology, the share of Indian pharmaceutical products in the world market is expected to rise further.

Further positive features of the industry include the opportunities for collaborative research with national laboratories, manned by excellent scientific manpower, and the creation of high quality training facilities for drug regulatory personnel through the newly-created National Institute of Pharmaceutical Education and Research (NIPER). This Institute also offers excellent facilities for pharmaceutical research and sponsored projects for the pharmaceutical industry.

Joint Secretary [PI]
Department of Chemicals & Petrochemicals
Dr. Rajendra Prasad Road
Shastri Bhavan
New Delhi

Tel: 91-11-3383756
Fax: 91-11-3384915

IT Park

Overview The electronics industry in India has been growing remarkably over the last decade and a half: by 1996-97 it was estimated to be US$ 8 billion in size, growing at a Compound Annual Growth Rate [CAGR] of 22 per cent during 1992-97. The industry's growth was led by software valued at US$ 1.75 billion during 1992-97, growing at a CAGR of 53 per cent during 1992-97.

In the hardware sector, growth was running at 17 per cent between 1992-97, and was made up of computer systems [26 per cent], communication and broadcasting equipment [20 per cent], electronic components [16 per cent] and consumer electronics [15 per cent].

In the next five years [1997-02], the electronics industry is projected to grow to US$ 38.5 billion, made up of software at US$ 15.64 billion by 2001-02 [CAGR of 54 per cent] and hardware at US$ 22.79 billion [CAGR of 30 per cent]. This latter figure would be led by computer systems at US$ 4.96 billion by 2001-02 [CAGR of 46 per cent].

Electronics exports were worth US$ 1.75 billion during 1996-97 [CAGR of 41 per cent] and software exports accounted for US$ 1.03 billion of this [representing a CAGR of 54 per cent]. During 1997-02 electronics exports are projected to rise to US$ 13.6 billion by 2001-02 [CAGR of 52 per cent], of which US$ 10.14 billion will be for software [CAGR of 58 per cent].

Though this boom has been basically led by an upsurge in demand for consumer goods, the industry now covers the gamut of electronic products from avionics, computer software and hardware, to medical electronics and telecommunications equipment. The electronic sector today accounts for more than 4 per cent of the output of the industrial sector and represents 1.5 per cent of the GDP of the country. Consumer electronics have been a leading catalyst for India's electronics industry. Growing rapidly during the 1980's, it now contributes about one-third of the total electronics hardware production in India.

Electronics Production in India: Structure and Growth Profile

Indian software expertise

The Indian software industry is renowned for its sophistication and technical competence. Skill and expertise has been developed in the design and implementation of a number of core activities, namely:

• management information and decision support systems;
• banking insurance and financial applications;
• conversion methodologies and technologies;
• expert systems, AI and fifth generation systems; and
• CAD, CAM and CIM.

Recognising the special advantages of the Indian option, many leading IT multinationals have set up software operations in India. Crucial to this has been the availability of a large pool of university trained, technically qualified programmers and analysts, with skill and productivity matching global standards. Yet, manpower costs in India are under a quarter of international costs.

A large software export capability has been built up, supported by the establishment of data transfer facilities of international standards. For instance, packet switched data networks are expected to help exporters of software services promote interactive development on offshore projects and provide on-line remote services. Currently, the software industry in India is amongst the fastest growing sectors in the Indian economy: presently worth US$ 2.5 billion, it is expected to be worth US$ 15 billion by 2002.

There are various IT investment incentive schemes offered, but chief among them are Electronic Hardware Technology Parks (EHTPs) and Software Technology Parks (STPs).

At present there are 9 STPs set up by the Department of Electronics and these are functioning as Single Window facilities to software units. A High Speed Data Communication [HSDC] facility is available through a wide band F-3 IBS earth station in STPs at Bangalore, Hyderbad, Thiruvananthapuram, Gandhinagar, Bhubaneshwar, Noida and Jaipur, which serve as international gateways. These gateways are connected with line of sight point-to-multipoint digital TDMA equipment, connecting user premises located outside the complex via microwave links. STPs are also being set up at Mohali near Chandigarh and Srinagar in Jammu & Kashmir.

Foreign equity up to 100 per cent is permitted for units set up in these parks and organisations are allowed to import raw materials duty-free along with components and other inputs as well as capital goods. There is a complete tax holiday for five years.

There is no minimum value addition requirement for exports in respect of Electronic Hardware Technology Parks (EHTPs). Access to the Indian domestic market is however, not allowed for electronic hardware products without a minimum value addition of 10 per cent and as value addition is increased, so domestic sales can go up to 40 per cent.

In respect of Software Technology Parks (STPs), domestic sale is permitted up to 25 per cent. The minimum value addition for software is 30 per cent. The new Government which assumed office in March 1998 has recognised information technology in its National Agenda as an important vehicle for the ongoing development of the country. The revised Export Import Policy announced in April 1998 has come up with further concessions granted to investments in this sector. For example, the depreciation limit has been raised from 70 per cent to 90 per cent over a period of five years in electronic goods. Significantly, the threshold limit for Zero Duty under the Export Promotion Capital Goods Scheme (EPCG) - which has also been brought down from Rs. 200 million to Rs. 1 million.

The Electronic Hardware Technology Park units also have a facility to sell 50 per cent of their production in the Domestic Tariff Area [DTA] without any stipulation of minimum foreign exchange earnings. However such DTA sales are on payment of the applicable customs duty. Software companies holding ISO certificates are also eligible for the grant of Special Import Licences for the import of negative list items at a rate of 5 per cent of the FOB value of exports.

Department of Electronics
CGO Complex
Khan Market
Lodi Road
New Delhi

Tel: 91-11-436-3078
Fax: 91-11-436-3084

The engineering industry in India is a diverse one with a number of distinct sectors. Capital goods represent one of the most important sectors consisting of electrical and non-electrical machinery, transport equipment and machine tools. Other sub sectors include castings, forgings and foundries. The capital goods sector has crucial links with the rest of industry. While the trend and pattern of its growth determine the productivity and performance parameters of other industries, the production within these industries is itself derived from demand from the user industry segments. This interdependence makes this sector all the more important.

The liberalisation measures introduced since 1991 had a beneficial impact on capital good industries. The lifting of licenses, broad banding of industries, capacity re-endorsement and easing of import restrictions have helped domestic industries to improve their competitive position as well as enhance efficiency. However, potential for this sector is still significant and vast opportunities are available for both domestic and international investors in most of the areas relating to the capital goods sector. Following is a brief review of the principal sub-sectors within this group:

There are approximately 320 units manufacturing complete textile machinery including fibre producing, spinning, weaving, chemical processing machinery and testing/controlling/monitoring instruments. During the last three years production capacity of the industry has increased from Rs. 16,000 million to Rs. 30,000 million per annum.

The industry manufactures machinery of different levels of technology and sophistication, including state-of-the-art machinery to meet the latest demands from various sectors. There are still excellent opportunities here for joint ventures with foreign investors looking to take this technology further.

There are 118 units in this sector engaged in the manufacture of chemical machinery which are required in various sectors such as refineries, petrochemical complexes etc. Products can range from heat exchangers, pressure vessels, columns, towers and tower internals, storage vessels, reactors, evaporation plants, condensers and multi-walled vessels, all of different sizes, capacities and construction.

As equipment manufacturers are now also required to supply equipment on a turnkey basis, they have to develop systems engineering capability. Although Indian manufacturers have the capability to supply equipment to various plants, the import of technology is required in selective areas. At the same time, indigenous industry has already started to acquire expertise in total system design.

There are at present 19 units in the sector for the manufacture of rubber machinery mainly required for the tyre/tube industry. The present installed capacity has been estimated at Rs. 4000 million.

There are at present 217 units in the production of complete sugar plant and components. Besides complete sugar plants, the range of equipment includes cane-handling and milling plants, evaporators, bagasse drying plants, centrifugals, weighing and bagging machines etc.

The industry is in a position to manufacture 21 complete sugar plants per annum and is capable of handling large capacity plants of up to 10,000 TPD. The existing installed capacity of the units has been estimated at Rs. 200 million per annum and the production estimated during 1995-96 was of the order of Rs. 1260 million.

There is now a need to modernise the design of this equipment to enhance a mill's extraction capability, reducing the loss of sugar in molasses, etc. There is also a need for technology to help reduce energy consumption by introducing co-generation power plants with the help of fluidised bed boilers.

Cement Plant

The cement machinery sector has made a significant contribution in the growth of Indian cement production and is capable of manufacturing and supplying complete cement plants based on the dry process and pre-calcination technology for capacities up to 7500 TPD.

Existing installed capacity has been estimated at Rs. 6000 million per annum. Production during 1995-96 was Rs. 4000 million. There is considerable scope for technology transfer in the cement sector relating to the reduction of fuel consumption, the present low level of recovery and the utilisation of solar energy particularly in drying, heating and driving small motors.

A technological gap still exists in some key areas and for which the introduction of new technology is considered necessary. The development of vertical roller mills for the grinding of raw material and coal in place of ball mills, the use of pre-blended stockpiles, continuous homogenising silos for homogenisation of raw material, the use of advanced processing systems with 5 to 6 stage cyclone, preheating, the use of energy efficient separators backed up by efficient ESP's: these are just a few examples of the latest equipment needed for modern cement plants.

At present there are 39 units in the sector engaged in the manufacture of various types of metallurgical machinery. There has been considerable development in the technology for the production of steel both on terms of integrated steel plants as well as through arc furnaces. There is still a technology gap for producing steel, in comparison to the most advanced countries, in terms of productivity of blast furnaces, coke ovens, converters and in terms of overall energy consumption. Of late, indigenous machinery manufacturers have geared up to incorporate the latest features of blast furnaces, converters, castings and rolling mill equipment in collaboration with some of the world's most reputed manufacturers.

The investment in new equipment for producing pig iron, castings etc. has also been undertaken. The production of high quality DD/EDD grades of steel through indigenously produced steel refining has been taken up by the different machinery manufacturers in collaboration with world-leading partners. In the mini steel sector also, equipment suppliers have upgraded their know-how to manufacture large size electrical furnaces (50 tonnes and above) The use of ultra high power transformers, the adoption of oxy-fuel burners and automatic process controls, the design of efficient ladle refinery furnaces and the use of water cooled panels etc. has been adopted by Indian companies eager to reduce energy consumption and to increase productivity. Even use of strip casting is now being contemplated.

There remains though a sizeable gap in companies' basic design capabilities. Due to such restrictions, even though most of the machinery manufacturers have been able to absorb and adopt technologies imported by them, they still have limitations when it comes to improving existing products or in developing new ones.

Total investment in India's machine tool industry is over 10,000 million rupees with an annual production of an equal amount, and direct employment of 55,000 in 450 units. Imports accounted for over 45 percent of total consumption in 1995-96. At the global level, India ranks 18th in the machine tool market and produces about 1 percent of the world's machine tool output.

The average import content in respect of CNC machines during the early 1990's had been around 40 percent. This has been reduced to around 20 to 25 per cent by indigenisation of most of the components. Today, the import of components is limited to super precision bearing controls for specialised applications like grinding etc.

There are at present 13 units in the organised sector for the manufacture of air and gas compressors in various sizes and specifications. The total licensed/registered capacity is of the order of 73650 items per annum. Air compressors up to 5 HP are reserved for the small scale sector.

There are at present 18 units in the organised sector with an installed capacity of around Rs. 1000 million engaged in the manufacture of various categories of air pollution control equipment.

Most of the existing units have collaborated with reputed foreign firms. Some companies have also taken steps to upgrade their technology by introducing micro-processor control systems in electrostatic precipitators with a view to better energy management, lower operating costs etc.

Steel forgings can be broadly divided into two groups:

• Closed die forgings.
• Open die heavy forgings.

Though the technology for closed die forgings is adequate from the point of view of traditional domestic users, it will have to be upgraded to meet the demands of an international clientele. There is, for instance, a perceptible demand shift in terms of very close tolerance forgings. The introduction of the necessary technology for such forgings would, therefore, be essential.

There is a significant requirement for heavy forgings which continue to be imported from the power generation industry. The power industry's requirements are gradually increasing from 110/120 MW to 200 MW turbine rotors and turbo generator rotors of 500 MW and above are in demand for nuclear power plants. Such requirements demand intensive development work from the forging industry in order to manufacture items with improved performance in such areas as creep ductility and fracture toughness.

There are about 300 forgings units in the country both in the small scale and organised sectors. The installed capacity of 141 units in the organised sector is estimated to be about 470,000 tonnes per annum while their production during 1994-95 was estimated to be 230,000 tonnes. Modernisation of existing units will enable better utilisation of the present installed capacity. This in turn will help to meet increased production turnover that results in the production growth of the domestic forging industry in the years to come, driven by the export potential for steel forgings.

There are 90 units presently engaged in the manufacture of ERW steel pipes and tubes (both galvanised and black) including precision steel tubes with a total annual licensed/installed capacity of 40 million tonnes. There is adequate capacity in the country to meet the demand for such tubes.

There are also 7 units engaged in the manufacture of seamless carbon/alloy steel tubes with a total installed capacity of 2,995,000 tonnes per annum. The industry is able to manufacture tubes up to 245 mm OD and is generally able to meet the complete requirement of bearing, high pressure boiler and gas cylinder manufacturing. As far as the oil sector is concerned, the units are able to meet the production requirements for up to 245 mm OD casing pipes.

The present demand for seamless carbon/alloy steel tubes is around 320,000 tonnes per annum. Oil industry tubular goods account for the bulk of the demand (60 per cent of the total). The bearings, automobile and boiler sectors contribute equally to the market, each one having a share of approximately 10 per cent.

There are more than 5000 foundries in India covering SSI and non SSI units. Of these, 600 foundries are in the organised sector covering captive units in the public and private sectors.

The steel foundry industry has undergone tremendous technological developments in the field of melting, sand technique, mould preparation, heat treatment and casting finishing. With such technological developments, and to keep pace with the stringent requirements from such key customers as manufacturers of boiler plants, earth moving equipment, petrochemical and pharmaceutical plant, refineries and machine tools, it is imperative that steel foundries introduce the latest and most sophisticated processes.

There are about 170 units in the organised sector manufacturing ferrous castings with an aggregate installed capacity estimated to about 420,000 tonnes during 1994-95. Modernisation of the existing units will bring improved utilisation of this installed capacity for increased production in the years to come.

The capital goods industry allows automatic foreign equity participation of up to 51 per cent. In view of the importance of the sector, metallurgical industries, scientific instruments etc. have also been included for automatic foreign equity participation up to 74 per cent.

Technology upgrading has received considerable attention and foreign technology collaborations are freely permitted. Lump sum payments for collaborations of technology projects have been raised to US$2 million.

With a view to improving the competitive position of this industry, appropriate tariff reforms have been undertaken to reduce duty rates across the board. Machinery items now attract much lower duty: now almost half of the peak duty rate of 50 per cent.

Under the Export Promotion of Capital Goods Scheme (EPCG), capital goods can be imported even at zero duty with specified export obligation.

Both surging domestic demand and ongoing export potential offer unlimited investment opportunities both for the domestic and foreign entrepreneur in the machinery sector. Domestic demand will continue to be buoyant and overall industrial production is expected to maintain a growth rate of over 10 per cent over the next five years.

While domestic capital goods industries have diversified and matured, there has been a need for continuous upgrading of the technology used. Obsolescence in the capital goods sector occurs very frequently. A number of key areas for upgrading therefore exist:

• A technology gap exists in the areas of:

1. flue gas desuplhurisation and DeNox systems;
2. dry scrubbing technology for removal of fluorides from aluminium smelters;
3. cleaning carbon monoxide-rich blast furnace gases from steel converters (using special gas tight multi-stage variable throat venturi);
4. energy management systems for ESP's;
5. fabric filters (particularly for fly ash applications).

• There is a need to modernise sugar machinery equipment design to enhance mill extraction capabilities and to reduce energy consumption by introducing co-generation power plants with the help of fluidised bed boilers.
• In cement machinery segment, technological gap still exists as there is need for automation based on distributed digital control system and X-ray analyser.
• Heavy steel castings are required in the manufacture of steel plant equipment, cement mill equipment, ship building industries, castings for water and steam turbine components, equipment for nuclear power plant, etc. Appropriate technology needs to be inducted.
• There remains a sizeable capability gap in basic design and engineering for sophisticated plants and equipment in most areas, particularly in environment and effluent control areas.

India is an ideal source for a large variety of food produce. It is endowed with about 169 million hectares of arable land and diverse climatic zones ranging from temperate to tropical. India is one of the world's leading food producers and is the second largest producer of fruit and vegetables, milk and rice as well as having the largest livestock population.

The country's diverse agricultural sector works with a wide variety of soils and climates, providing a wide range of raw materials for processed foods. At the same time, India is one of the largest emerging markets with a population of over 950 million and a significant middle class of 250 million. Rapid urbanisation, the increasing number of working women and rising per capita income have all contributed to the rapid growth in, as well as change in the pattern of, food demand. In view of all this, the country offers significant opportunities for investment in the processed food sector.

The Government has given high priority to the food processing sector with a number of fiscal reliefs and incentives to encourage commercialisation and increase the value added in agricultural production. This is also important to minimise post-harvest wastage as well as generating both employment and exports. A recent study of the food sector revealed a total turnover of approximately Rs 250,000 Crore [US$ 61 billion] of which Rs. 80,000 Crore [US$ 20 billion] was for value added food products.

Since the liberalisation of the Indian economy in 1991, a number of initiatives have been undertaken to encourage foreign investment in the food processing sector. Automatic investment approval [including foreign technology agreements within specified norms] up to 51 per cent foreign equity or 100 per cent NRI equity [including overseas corporate bodies] is allowed for most of the sector. The only exceptions are for malted food, alcoholic beverages such as beer and for items reserved exclusively for manufacture in the small scale sector. These include pickles and chutneys, bread, confectionery [excluding chocolate, toffees and chewing gum etc.], rapeseed, mustard, sesame and groundnut oils [except solvent extracted], ground and processed spices other than spice oil and olio-resins, sweetened cashew nut products, tapioca sago and tapioca flour. It's worth noting though that foreign equity ownership of up to 24 per cent is allowed in the small scale sector.

As a result of various policy initiatives, a large number of overseas companies in various food processing sub-sectors have entered India - with total foreign investment of over Rs. 8,000 Crore since July 1991.

The sector is one of the key thrust areas identified buy the Government for exports. At present, processed food exports from India are worth Rs. 10,000 Crore per annum and constitute about 10 per cent of the country's total exports.

Ministry of Food Processing Industries
Panchsheel Bhavan
August Kranti Marg
New Delhi - 110 049

Tel: 91-11-6493227 / 2216
Fax: 91-11-6493228 / 3012
Email: mofpi@hub.nic.in

Website: http://www.nic.in/mofpi

Steel Foundry

India's iron and steel Industry dates back to 1907 when the Tata Iron and Steel Company Ltd was registered. Production at its Jamshedpur works started in 1911-12. For four decades, as a state monopoly, the industry grew in a highly protected and controlled environment, with massive tariffs, administrative control over prices and distribution and state allocation of import resources.

Since independence, the steel industry has experienced substantial growth. Domestic production of crude steel has grown at an annual average compound rate of 6.1 per cent and that of finished steel at the rate of 6-8 per cent between 1948 and 1990. Indian Crude Steel output also grew from 1.5 million tonnes in 1951 to 15.1 million tonnes in 1990.

Since 1991, licensing requirements for capacity creation has been abolished, except for certain locational restrictions and the steel industry has been removed from the list of industries reserved for the public sector. Automatic approval of foreign equity investment up to 74 per cent is now available. Price and distribution controls were removed in January 1992 to make the steel industry both more efficient and competitive.

Restrictions on external trade, both for imports and exports, have been removed. Import duty rates have been reduced drastically. Certain other policy measures such as the reduction in import duty of capital goods, the convertibility of the rupee on trade account, permission to mobilise resources from overseas financial markets and the rationalisation of the existing tax structure have also benefited the industry.

The effects of these reforms has been enormous. The total crude steel capacity of the steel industry increased to 27.38 million tonnes in 1995-96, registering a growth of 23.6 per cent. Notably, in the secondary sector, the rate of increase in capacity moved up from 1.5 per cent in 1991-92 to 24 per cent during 1995-96.

There are a wide range of incentives available to the investor:

• Iron and steel has been included in the list of high priority industries for automatic approval for foreign equity investment up to 74 per cent.
• The price and distribution of steel has been deregulated, although priority remains to meet the requirements of small scale industries, exporters of engineering goods and the north eastern region of the country. Strategic sectors such as defence and railways also retain priority.
• Trade policy has been liberalised and the import and export of iron and steel is allowed. There are no quantitative restrictions on the import of iron and steel items. The only mechanism regulating imports is the tariff mechanism. Tariffs on various items of iron and steel have come down drastically since 1991-92 levels and the Government is committed to reduce them to international levels.
• The freight equalisation scheme has been withdrawn, removing what was a freight disadvantage to states located near steel plants in the country.
• The levy on account of the Steel Development Fund was discontinued in April 1994 providing greater flexibility to main producers to respond to market forces.
• The Government provides linkage for raw materials, rail movement clearance and so on for new plants and the expansion of existing ones.
• The clearance of projects has been streamlined.
• The Ministry of Steel identifies infrastructural and related facilities so that their absence does not lead to bottlenecks in the future growth of the sector.

Ministry of Steel
Government of India
Udyog Bhawan
New Delhi-110001

Tel: 91-11-3013772
Fax: 91-11-3013236
Website: http://www.nic.in/steel/

India is wholly or largely self sufficient in about 40 minerals. These constitute primary raw materials for thermal power, iron and steel, aluminium, cement, refractors, ceramics, glass and inorganic chemicals. The country ranks among the top producers of barytes, bauxite and iron ore, coal and lignite and aluminium. It exports minerals both in raw and processed forms. India is also an emerging world player in industrial minerals and is already influential in talc, barytes and wollastonite.

There exists immense scope both for exploration of known deposits and discoveries of new ones. Both the national and state Governments are aware of the potential, and have been consistently opening up the mining sector to private investors with funds, technology, managerial expertise and commitment. With increasing levels of consumption, infrastructural development and growth of the economy, mineral demand is expected to grow rapidly. The emergence of a vibrant middle class has created robust demand for base metal products, in addition to the traditional demand for gold and silver.

As part of India's economic liberalisation, the National Mineral Policy was revised in 1993. The objective was to streamline existing legislation, ease restrictions and attract foreign investment. The act was amended the following year to speed up the inflow of private capital as well as state-of-the-art technology. First, 13 minerals which were once reserved for the public sector have been de-reserved (iron ore, manganese, chrome ore, sulphur, gold, diamond, copper, lead, zinc, nickel, molybdenum, tungsten ore and the platinum group of metals). Any company registered in India, irrespective of the level of its foreign equity holding, can now apply for prospecting license or a mining lease. The states have also been given more powers to fine tune the minerals and metal policy to suit their own and their investors specific needs.

Guidelines have been issued by the Ministry of Mines, which regulates and promotes the activities of mining in the country, for the granting of prospecting licenses for aerial prospecting. These licenses cover areas of up to 5,000 sq. km. for a single block and 10,000 sq. km. in the entire country, subject to a scheme of relinquishment and expenditure commitments. The Government has approved 34 proposals so far received from reputed international mining companies for prospecting and exploration in the minerals sector.

With a view to attracting further foreign investment, the extent of foreign equity participation permitted has been liberalised. Foreign equity up to 50 per cent is automatically approved in three categories of mining projects which are termed as 'high priority'. These are:

• Mining of iron ore;

• Mining of manganese, bauxite, copper, lead and zinc ores; and

• Mining of rock aggregates, sand and clays; minerals for construction; fertilisers and chemical minerals; ceramics, refractory and glass minerals; salt mining; mica; and other non-metallic minerals.

Further, automatic approval for foreign equity investment up to 74 per cent is available for services incidental to mining like drilling, shafting, reclamation of mines, survey/mapping (excluding services related to gold, silver and precious and semi-precious stones).

For foreign investment in activities not covered by automatic approval (primarily gold, silver, diamond and precious stones), an application would be required to be made to the Apex Investment Approval authority i.e. the Foreign Investment Promotion Board (FIPB). The application would be considered using criteria such as the size of the project, the commitment of external resources for funding project costs, the company's mining track record and its financial strength, the level of technology sought to be employed in the project; and the share of equity holding available to the Indian partner.

100 percent, wholly owned subsidiaries may be permitted subject to the condition that prior approval is received from the FIPB. In the case of captive mining, foreign equity for the mine will be allowed up to the level approved for the main plant (which could be more than 50 percent).

There are a range of investment incentives available:

• Operators in specified areas, subject to certain conditions, are eligible for a complete tax holiday for a period of five years from the start of production and a partial tax holiday after that.
• Tubs, winding and haulage ropes, stowing pipes and safety lamps used in mines and quarries are allowed 100 per cent depreciation in the year in which the equipment is purchased. So too is environment protection, pollution control and energy saving equipment.
• One-tenth of the expenditure on prospecting, extracting or production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from total income. No deduction is allowed for the expenditure on the acquisition of a site or deposits, nor for capital expenditure on which depreciation is available.
• Minerals in their finished form have been exempted from excise duties.
• Custom duty on capital equipment and for minerals has been reduced.

India is currently the fourth largest oil consumer in the Asia Pacific region after Japan, China and South Korea. Estimated to increase at the rate of 7 per cent a year, the demand for petroleum products is expected almost to double from the present level of 80 million tonnes to 155 million tonnes a year by 2006-07.

India is endowed with 26 sedimentary basins totalling around 1.72 million sq. km of which the offshore area amounts to 0.38 million sq. km. Most of the basins are under various stages of active and/ or reconnoitary exploration.

India's oil industry goes back to the last part of the 19th century when petroleum was discovered in Digboi in the north-east of the country. After independence, the industry was totally nationalised. Since economic liberalisation, however, the oil and gas sector has gone through some very fundamental changes moving away from its administered pricing regime (under which refineries, oil marketing companies and pipelines were compensated for operating costs and assured a 12 per cent post-tax return on net worth) to market-determined, tariff-based pricing.

The last six years have also seen a radical restructuring of the sector. Recent initiatives allow private oil companies - both foreign and Indian - to explore new oil and natural gas reserves, develop proven reserves and establish petroleum refineries and pipelines. The Government has actively attempted to enhance investment in the industry, the divestment of equity in public sector undertakings to improve efficiency and to set up joint ventures.

In exploration and production, India has been opened up to the private sector as well as to foreign participation under production sharing contracts and the New Exploration and Licensing Policy.

Since the fourth round of bidding for exploration blocks in 1991, the Government has signed nine exploration block contracts and a decision to sign production sharing contracts for 18 more exploration blocks have also been announced. Among the awardees are both Indian and foreign companies.

The refining sector has been opened to the joint sector (public-private partnerships) as well as to the private sector. Refinery projects with a total capacity of about 27 MMTPA are currently available for investment. These include a joint venture with Hindustan Petroleum Corporation (capacity 6 MMTPA) on the west coast, and with Indian Oil Corporation in south India for the same capacity. In marketing and distribution, the private sector is now permitted to import most petroleum products. Pipelines, terminals and tankages have also been cleared for private investment.

Free imports are now permitted for almost all petroleum products, except motor spirit and diesel. Free marketing of imported kerosene, liquefied petroleum gas (LPG) and lubricants is allowed. All petroproducts will eventually be taken out of the administered pricing regime, in a phased manner, and the system will be replaced by a progressive tariff regime to provide a level playing field for new investors.

For gas fields developed in the private sector, promoters are free to market the gas at negotiated prices. The Government has contracted to purchase some of the gas from fields being developed by the private and joint sectors. In such cases, fuel oil-linked gas prices have been agreed upon.

There are now numerous incentives for the investor in this sector:

• Indian tax laws provide for deductions and allowances to companies prospecting for petroleum and natural gas. Expenses incurred by a prospector or developer on abortive exploration can be set off against revenues from other fields on the commencement of commercial production.
• The Production Sharing Contract for exploration provides that capital expenditures incurred in respect of exploration and drilling operations are fully tax-deductible.
• Companies providing services or facilities used in exploration, development or production of mineral oils, are taxed on a deemed profit basis. Indian law deems the taxable income of such companies as 10 per cent of their gross total revenues. Since foreign companies are proposed to be taxed at 48 per cent for financial year 1997-98 according to the budget presented to parliament by the finance minister, the effective rate of tax on their revenues is 4.8 per cent.
• Joint ownership of assets is now permitted for availing depreciation for tax purposes.
• There is a seven-year tax holiday after the start of commercial production for blocks in north east India.
• Specific equipment imported for oil and gas exploration or exploitation is exempt from customs duty.
• The Government has exempted crude oil and natural gas in its gaseous state from excise duty. LNG is however excisable at 10 per cent.

Petrochemicals

The Indian petrochemical Industry has made rapid strides in terms of production and consumption. The demand for petrochemicals during the Eighth plan period (1992-93 to 1996-97) grew at 13 per cent per annum while production grew by 15 per cent. The higher level of petrochemicals production is largely attributed to the emphasis put on the industry by the Government of India.

Foreign investments are invited in the field of petrochemicals and are approved through two routes:

a. Automatic - by the Reserve Bank of India.

b. On a case to case basis by the Government via applications received by the Secretariat for Industrial Approvals_, Ministry of Industry for Foreign Investment Promotion Board,

Automatic approval with equity participation up to 51 per cent is given in the following sectors:

i. Synthetic resins and polymers;

ii. Manmade fibres;

iii. Synthetic rubber;

iv. Synthetic detergent;

v. Processed plastic articles;

There is a provision for automatic approval for 100 per cent equity participation by Non-Resident Indians [NRIs] in new investment and for any expansion or diversification of higher priority industries with full repatriation benefits. Bilateral agreements exist for investment protection and promotion between India and the U.K., Germany, the Netherlands, Singapore and Malaysia. For other foreign equity proposals approval from the foreign investment board is required.

Production of commodity plastics, which constitutes the bulk of petrochemical production in the country, is given below:

LDPE = Low Density Polyethylene
LLDPE = Linear-Low Density Polyethylene
HDPE = High Density Polyethylene
PP = Polypropylene
PS = Polystyrene
PVC = Poly Viny1 Chloride

The demand for major petrochemicals is set to grow rapidly during the Ninth Plan. The demand estimates for major petrochemicals are as follows:

*: CARG = Compound Annual Rate of Growth

Outlook

To meet the growing demand for petrochemicals, production facilities capable of producing 4.2 million tonnes of ethylene by the end of the Ninth Plan period [i.e. March 2002], are required. At present the production capacity is for 1.2 million tonnes of ethylene. As a result, the corresponding downstream utilisation / production facilities will increase too.

Joint Secretary
Department of Chemicals and Petrochemicals
Shastri Bhavan
Dr. Rajendra Prasad Road
New Delhi - 110001

Tel: 91-11-3385131
Fax: 91-11-3382294

India has 11 major ports and 139 operable minor ports, classified on the basis of traffic handled by them. The primary responsibility for development and management of major ports rests with the Central Government. Administration of minor ports is the responsibility of the state Government. The 11 major ports are:

• Mumbai Port.

• New Mangalore Port.

• Chennai Port.

• Kandla Port.

• Jawharlal Nehru Port, Mumbai.

• Mormugao Port.

• Kochi Port.

• Tuticorin Port.

• Paradip Port.

• Calcutta Port.

• Visakhapatnam Port.

Major ports accounted for 95 percent of the total traffic handled. Traffic growth at Indian ports has been on the upswing over the last few years. The annual traffic during 1996-97 estimated to have been around 227 million tonnes, is projected to rise to 390 million tonnes by 2001 and over 650 million tonnes by 2005-06. It has been estimated that US US$ 7.3 billion will be required to create 350 million tonnes of additional cargo handling capacity required by 2005-06.

With a view to encouraging foreign investment in the port sector, automatic approval is available for foreign direct investment up to 74 per cent for construction and maintenance of ports and harbours. There are a large number of projects including those in the area of;

• Construction/operation of container terminals.

• Construction/operation of bulk, break bulk, multipurpose and specialised cargo berths.

• Warehousing, container freight stations, storage facilities and tank farms.

• Cranage/handling equipment.

• Setting up captive power plants.

• Dry docking and ship repair facilities.

• Leasing of equipment and floating crafts from the private sector.

• Pilotage.

• Captive facilities for port based industries.

These have been identified as types of project ready for foreign participation. Leading foreign port operators such as P&O and PSA have won container holding projects in Jawahallal Nehru Port and Tuticorin Ports successfully.

A number of minor ports have also been opened up for private sector participation. The maritime states (Gujarat, Tamil Nadu, Orissa, Kerala, Andhra Pradesh, Maharashtra, etc.) have taken significant steps towards attracting private investment in the sector. A proposal to permit collaborations between major and minor ports, major ports and private investors and between major and foreign ports has been given in principle approval by the Government.

Ministry of Surface Transport (Roads and Ports)
Transport Bhawan
New Delhi - 110001

Tel: 91-11-3715905
Fax: 91-11-3731270
Website: http://www.nic.in/most/

Overview To sustain the projected growth of the economy, India needs to meet its massive power demands in a short space of time. From independence until 1991, power generation, transmission and distribution were almost wholly the preserve of the central and state Governments. In 1991, the Government allowed private participation, both Indian and foreign.

Automatic approval is granted where there is up to 74 per cent foreign equity in a project for electricity transmission and generation, or for the construction of a project for generation and distribution of non-conventional energy.

Total installed capacity is 89,167 MW. Some 65 percent is owned and operated by the State Electricity Boards (SEBs) and 29 percent by corporations set up by the Government. The National Thermal Power Corporation (NTPC) which uses coal and gas-fired units is the largest among these, owning some two-thirds (17,000 MW) of the total capacity of central undertakings. Nuclear stations under the Government-owned Nuclear Power Corporation account for 2 percent of installed generating capacity, and four private distributors own the remaining 4 percent.

Severe power shortages, however, persist and capacity addition has fallen short of consumption growth. Energy deficiency is approximately 8.1 per cent and peaking shortage runs at 11.3 per cent. The gap between demand and supply has widened over the last five years and is expected to increase in the short term. This is especially so as demand is expected to rise at a rate of 7.5 per cent per annum over the next decade. The energy requirement of 376.7 billion KwH in 1995-96 is assessed to be 502.3 billion KwH in 1999-2000.

Over the next 10 years, the minimum capacity addition needed is estimated to be over 86,156 MW. At an average cost of US$1 million per MW, the investment called for is US$86 billion. If the investment required in transmission and distribution infrastructure are taken into account, the total figure rises to US$146 billion. A majority of this amount will have to be funded by the private sector, both domestic and foreign.

The Power Policy announced by the Government in 1991 changes the state of affairs dramatically. The Indian Electricity Act and the Electricity (Supply) Act have been amended to permit power generation by private sector companies registered in India. The private sector can now set up coal, gas or liquid fuel based thermal projects, hydro projects and wind or solar projects of any size. Foreign investors are allowed up to 100 percent ownership of power projects subject to approval.

The investor will find a number of important incentives when looking at the energy sector. In particular:

• New power projects are eligible for a five year tax holiday.

• Duties on the import of equipment for power projects have been reduced considerably. Since 1991, the Government has announced a range of policy measures that seek to liberalise the power sector and facilitate private investment further.

• The approval process has been simplified. States like Maharashtra, Tamil Nadu, Karnakata, Utter Pradesh, Madhya Pradesh and Punjab offer attractive conditions for industrial cogeneration and captive power generation projects.

• New external commercial borrowings guidelines exempt power projects from the restriction regarding end use of such funds and provide a fair degree of flexibility in structuring the financing of these projects.

• Several state Governments have agreed to allow private sector involvement in distribution.

• The process of seeking environmental clearances is likely to be simplified with the decentralisation of these approvals to the state.

The new Government which assumed office in March 1998 has declared that it will put especial emphasis on infrastructure development, particularly energy and power. In accordance with the Prime Minister's announcement, it has been decided that for the transmission and generation by certain categories of power plants as well as the construction and maintenance of power plants, foreign equity up to Rs. 15 billion would be eligible for automatic RBI approval, subject to the clearance by the State or UT concerned. An Ordinance has therefore been promulgated on 25 April 1998 to set up a Central Electricity Regulation Commission [CERC] and a State Electricity Regulation Commission [SERC]. These Commissions will have quasi-judicial powers and will be empowered to fix tariffs and lay down the governing principles for generation, transmission and distribution tariffs.

Ministry of Power
Shram Shakti Bhavan
Rafi Marg
New Delhi - 110001

Tel: 91-11-3710389
Fax: 91-11-3717519
Website: http://www.nic.in/powermin/

Industrialisation has brought inevitable demands for more and better roads. The investment needed by 2005-06 to develop national and state highways is estimated to total US$33.7 billion. Budgetary resources are expected to provide US$13.3 billion and multilateral and bilateral agencies a further US$8.3 billion. As a result, and to facilitate commercial borrowings, the roads sector has been declared an industry.

Capital subsidy in privately funded projects is now available in the form of (NHAI) participation in the equity (by up to 30 per cent). In the case of tariff shortfalls, there is also a provision for loans by NHAI to meet the temporary cash flow problems of the investors. FDI up to 74 percent is granted automatic approval in this sector and external commercial borrowings (ECB) has been permitted up to 35 percent of the project cost.

The NHAI is the implementing agency for private sector participation in national highway projects. Immediate emphasis is being put on capacity expansion for high density corridors (turning these routes into four lane roads). The four major corridors linking the cities of Delhi, Mumbai and Chennai (totaling about 5000 KMs) will be taken up on priority basis. NHAI is having various project options examined. This includes four laning, strengthening, bridging and by-passing. All possible funding options are are also being considered and this includes budgetary funding, funds leverage by NHAI, private sector funding etc.

All existing and future four lanes highways, whether funded from budget or from private funds, will be tolled in perpetuity so as to generate resources for the sustained development of national highways. A beginning has already been made on the Jaipur - Koteputli section of the National Highway since April 1998. Two sections of expressway - Agra-Kanpur and Vadodara-Mumbai - are also to be taken up for development in the near future.

Ministry of Surface Transport (Roads and Ports)

Transport Bhawan
New Delhi - 110001

Tel: 91-11-3715905
Fax: 91-11-3731270
Website: http://www.nic.in/most/

India's telephone network of over 15 million lines is the twelfth largest in the world, and the third largest in the emerging economies. Yet, given the low telephone penetration rate - only 1.72 per 100 persons based on the 1991 census, one-tenth of the global average - India offers vast scope for growth. Unsurprisingly, the country has one of the fastest growing telecommunications systems in the world.

The Indian telecommunications network is undergoing revolutionary change, in terms of coverage, quality and range of services. Network equipment capacity has grown to 17.74 million lines with about 22,200 exchanges and has registered an annual growth rate of 16.5 percent over the last six years: amongst the fastest in the world. India possesses 117,267 route kilometres of radio systems and 52,432 route kilometres of optical fibre systems in the long-distance transmission network (as of March 31, 1997).

Demand for the next 10 years is estimated to be 81.83 million lines (i.e. an additional 67.40 million lines). Assuming that the Department of Telecommunications (DOT) is able to grow at an annual rate of 12-13 percent through internal accruals alone, the projected demand gap is expected to range from between 20 and 25 million lines in 2007. Investments to the tune of Rs. 1,900 billion (US$53 billion) are therefore required for the provision of these new connections.

The Industrial Policy of 1991, followed by the National Telecom Policy 1994 have removed all licensing requirements for manufacturing telecom equipment. Telecom services - including both basic telephony and value-added services - have been open for private sector participants. Foreign direct investment in a telecom venture (particularly basic and cellular services) is permitted up to 49 per cent. It should be noted though that the balance of 51 per cent could be subscribed to by an Indian company which itself may have foreign investment up to 49 pe cent.

The telecom sector has been accorded a range of fiscal benefits such as a reduction in import duties and tax holidays. An autonomous body - the Telecom Regulatory Authority of India (TRAI) - has been set up and is functioning from April 1997.

Department of Telecommunications
Sanchar Bhawan
20, Ashoka Road,
New Delhi - 110001.

Tel: 91-11-3717542
Fax: 91-11-3718288

The textile industry occupies a prominent place in the Indian economy. It contributes about 4 per cent of GDP, 20 per cent value addition in manufacturing and over 30 per cent of total export earnings.

Cotton production in India has fluctuated and is still characterised by low productivity. In 1997 - 98 cotton production is estimated to have been 148 Lakh bales compared to 176.50 Lakh bales in 1996 - 97. Even though cotton has been a predominant fibre for usage as a raw material in the textile industry, the fibre balance between cotton and non-cotton fibre in India has been around 65:35 whereas internationally the fibre balance is 45:55.

The man made fibre and yarn industry comprise fibres and filaments both of cellulosic and non-cellulosic origin. This sector contributes around 30 per cent of raw material consumed in the industry. Substantial increases in installed capacity have taken place.

The industry is divided into the organised mill sector and decentralised powerloom and hosiery sectors. While the spinning activities are totally confined to the organised sector, more than 90 per cent of cloth production comes from the decentralised sector, i.e., handloom, powerloom and hosiery.

This is a major economic activity producing direct employment for more than three million weavers and indirect employment for a further ten million workers. The sector contributes about 22 per cent of cloth production and amounted to approximately 7000 million sq. mtr. in 1996 - 97. By 2001 the handloom share in cloth production would be stabilised at around 20 per cent of total cloth production.

India is the second largest producer of silk. Mulberry accounts for 93 per cent of silk produced, the remainder accounted for by Eri, Tasar and Muga. The main thrust for the future is on quality and consistency in production of raw silk and finished products.

Handicrafts play an important role in the cultural and economic milieu of the country. Production is expected to increase from the present level of around Rs. 34,000 Crore to around Rs. 60,000 Crore by 2001

This, one of the oldest industries, has somewhat declined but still plays an important role in providing material and is increasingly being recognised for providing environmentally friendly packaging material. Diversification and development of diversified jute goods is an important thrust area.

Textiles are an important item in India's export basket. In response to WTO-related developments, the phasing out of MFA and the opening up of imports, the Government's ongoing structural transformation programme will intensify the changes to India's export composition. Indian textile exports are under pressure at present due to various protectionist and non-tariff barriers imposed by certain trading partners.

Domestic Tariff Area (DTA): an industrial licence is not required to set up a unit if it is not to be located within 25 km of the periphery of a city with a population of more than one million. An investor only has to submit an Industrial Entrepreneurial Memorandum to the Secretariat for Industrial Assistance in the Ministry of Industry [for statistical purposes] and they are exempted from licensing requirements.

Export Oriented Units (100 per cent EOU): 100 per cent EOU/EPZ textile units can be set up according to Government policy in the textile sector. Units under 100 per cent EOU/EPZ are required to have minimum value addition norms of 30 per cent for spun yarn, fabric, ready-made garments and made-ups and 20 per cent for any remaining items. The duty free import of capital goods facility, for raw material and other inputs, is available to units set up under this scheme.

Textiles do not figure in the list of high priority industries which allows automatic approval by the Reserve Bank of India on FDI up to 51 per cent of equity. All foreign equity proposals for the textiles sector must therefore receive the clearance of the Foreign Investment Promotion Board [FIPB].

Joint Secretary
Ministry of Textiles
Udyog Bhavan
New Delhi

Tel: 91-11- 301 2326
Fax: 91-11- 301 2326
Website: http://www.nic.in/texmin

A Kerala Beach

Palace Interior

Temple Gateways

Amer Fort

Despite a lack of adequate infrastructure and facilities, tourism in India is growing at nine per cent per annum and is the single largest net foreign exchange earner for the country. India will need 100,000 hotel rooms by the turn of the century and the shortage of hotel accommodation is a major bottleneck. Along with hotels, there is also a need to develop tourism-related services like travel and tour operators and others who can provide leisure, entertainment and convention facilities. As a result, the tourism sector has been declared a high priority industry. Automatic approvals for foreign equity up to 51 percent as well as foreign technology agreements are available from the Reserve Bank of India. This includes restaurants, beach resorts and other tourism complexes that provide accommodation and catering facilities to tourists.

The Tourism Finance Corporation of India has been set up to help the private sector build hotels, and large hotel projects are financed by all Indian financial institutions.

Other assistance is also available in terms of interest and capital subsidies, tax exemptions and special foreign exchange facilities. For example under the Export Promotion Capital Goods (EPCG) scheme, capital equipment for hotels and restaurants, travel agents and tour operators for which payments are received in freely convertible currency, is allowed at a concessional rate of customs duty of 15 per cent.

The central Government offers the following incentives to investors:

• An interest subsidy for hotel projects in the one to three star category.

• There is a substantial subsidy available for the conversion of any interesting building (bungalow, palace or haveli) more than 75 years old into a heritage hotel.

• 50 percent of the profits derived by hotels, travel agents and tour operators in foreign exchange are exempt from income tax under section 80 HHD of the Income Tax Act. The remaining profits in foreign exchange are also exempt if reinvested in a tourism related project.

• Hotels located in the hilly areas, rural areas, places of pilgrimage or a specified place of tourist importance will be eligible to 50 percent deduction from profit/gain if they start operating between 1 April 1997 and 31 March 2002. They will also be exempt from payment of expenditure tax for 10 assessment years.

• In respect of hotels which start operating between 1 April 1997 and 31 March 2002 in other places except Delhi, Calcutta, Mumbai and Chennai, the deduction allowed is 30 percent only (for 10 assessment years).

India faces today the common problems associated with rapid urbanisation. In 1981, 83 per cent of the population lived in rural areas whereas in 1991 this figure had dropped to 74 per cent. At the same time, much of the investment flowing into India since economic liberalisation has been [and will continue to be] into urban areas. As a result, Indian cities and their infrastructure services are under tremendous strain.

The Government recognises the need for considerable investment in the sector but the magnitude of the funding requirement makes it necessary for the Government's budgetary resources to be supplemented by investments from the private sector.

The India Infrastructure Report has estimated that the amount required for urban infrastructure - excluding urban transport - over the next 10 years would be in the region of Rs. 250,000 Crore. The funds required for urban public transport alone have been estimated at Rs. 150,000 Crore over the next 10 years by Rail India Technical and Economic Services.

In addition to seeking private investment, public/private ventures in sectors like water supply, sanitation, public transport, new township development and land development also need to be explored. In order to induce private investment, the Government is contemplating support for investors in the form of equity contributions, fiscal concessions, dedicated levies to repay loans as well as a transparent regulatory framework.

One of the examples of the commercialisation of urban infrastructure is the water supply system in Vishakhapatnam in Andhra Pradesh. Cross-subsidisation amongst various consumer goods has been attempted to run the water supply system on commercial principles and efforts have been made to tap the capital market for additional funds. The Municipal Corporations of Ahmedabad and Bangalore have floated Municipal Bonds, which have been received very positively by the public. Both public issues have been fully subscribed. The Calcutta Metropolitan Development Authority (CMDA) has also floated non-SLR bonds, which has again got a very positive response from the public.

It is significant that the above-mentioned bonds issued by the municipal/ development authorities do not have Government guarantees.

The development of water supply sources at regional vantage points in rivers and lakes for its bulk supply to local bodies and industries, plus the development of water mains networks in a number of contiguous towns and villages, are both suitable for private investment.

Investors can negotiate with public agencies on the sale price of water and the concessions needed.

Water distribution and billing, sewerage reclamation and re-use for non-domestic purposes, management of unaccounted-for water, manufacturing of water supply equipment, are some of the other areas which should prove viable for the private sector.

Solid waste disposal is being privatised in several cities within an overall regulatory framework provided by committees at the community level. Technological innovations, especially in improving the re-usability of the recycled waste, should increase returns and make projects viable.

With 23 metropolitan cities already, and this figure likely to rise to 40 by 2001, the cities in India offer great investment opportunities in public transport. Feasibility studies have already been carried out for the introduction of public transport In Delhi_, Bangalore, Calcutta, Chennai, Hyderabad, Ahmedabad, Jaipur, Jammu, Shimla, Noida, Cuttack and Rhubaneswar.

Studies are also underway in Kanpur, Lucknow etc. As urban transport projects are highly capital intensive in nature, it is going to be difficult for the Government to find sufficient resources for the introduction of LRT/MRT systems using budgetary resources alone. With this in mind, the Government is looking at executing such projects on a public/private format, or by seeking external funding. Delhi MRTS is one such example for which 55 per cent of the cost of the project has been financed by loans agreed with OECF of Japan. The Government of India and the Government of NCT Delhi are contributing up to 30 per cent of the project's cost. The balance funding is via property development and subordinate development.

In Bangalore, the Government of Karnataka has proposed that the project may be executed on a Build Own Operate Transfer [BOOT] basis.

Besides LRT/MRT systems, the Government would also welcome investments in construction of fly-overs, bridges, toll expressways, urban buses, etc.

The National Housing Policy 1994 envisages that the Government's role will shift from a builder to an enabler. Under this policy, the Government is committed to removing barriers to access to land, finance and technology by reforming the legal and regulatory frameworks. Several pieces of legislation affecting the housing sector are in the process of being amended to make them more liberal. The National Agenda for Governance treats Housing for All as a priority area and has fixed a construction target of 2 million additional dwelling units in the country every year.

The Government is also considering an attractive package of fiscal concessions to give a boost to this sector. There is a heavy backlog in housing and investment opportunities exist in land development, assembly, housing construction, real estate development, modern and innovative building material production and construction technologies. Opportunities exist for NRI/Persons of Indian Origin/Overseas Corporate bodies (in which at least 60 per cent stock is held by NRI) to invest in housing, real estate, urban infrastructure and the building material industries. This would be on a repatriation basis after a lock-in period of two years. OCBs are free to repatriate profits up to 16 per cent after a lock-in period of three years and any dividend/interest earned can also be repatriated.

Joint Secretary (UD)
Ministry of Urban Affairs & Employment
Department of Urban Development
Nirnan Bhawan
New-Delhi - 110011

Tel: 91-11-3012809

Investment Now:

The liberal investment regime, rapid growth of the economy, strong macro economic fundamentals, progressive de-licensing of sectors and the ease in doing business has attracted global corporations to invest in India

And consequent to policy changes and procedural simplifications, FDI equity inflows have registered a phenomenal upswing. FDI inflows have recorded over five-fold increase in the last three years, from US$ 2.2 billion in 2003-04 to US$ 15.7 billion in 2006-07. Simultaneously, FDI share in India's GDP has increased from 0.77 per cent to 2.31 per cent.

Significantly, FDI has come to play an increasing role in the economic growth of the country. The share of FDI in total investment has more than doubled from 2.55 per cent in 2003-04 to 6.42 2006-07.

Destination India

According to the AT Kearney FDI Confidence Index 2007, India continues to be the second most preferred destination for attracting global FDI inflows, a position it has held since 2005. Similarly, UNCTAD's World Investment Report, 2005 considers India the 2nd most attractive investment destination among the Transnational Corporations (TNCs).

Clearly, India is in the reckoning. And the figures appear to be improving by the day. FDI equity inflows which totaled US$ 5.5 billion in 2005-06 grew by almost three times to US$ 15.7 billion in 2006-07. In fact, going by the international best practices for calculating FDI would place India's total FDI at US$ 19.5 billion in 2006-07 against US$ 7.72 billion in 2005-06, representing a whopping 153 per cent growth rate.

This huge inflow of FDI has in turn reversed the past trend, with FDI inflows overtaking the portfolio investment inflows by almost US$ 5.6 billion in 2006-07, according to the RBI's report on International Investment Position.

FDI inflow continues apace in the new fiscal with total FDI during April-February 2007-08 recording a growth rate of 70 per cent to US$ 20.1 billion from US$ 11.88 billion in the corresponding period last year, taking the cumulative FDI inflows during August 1991 to February 2007 to US$ 73.64 billion.

In fact, the US$ 5.67 FDI inflows recorded in February 2008 was the highest-ever during any month since 1991 and more than the entire annual inflows from 1991-92 to 2004-05.

This surge in FDI is likely to further boost India's attraction as an investment destination. Already, India recorded a higher change in Investor outlook than China in the latest FDI Confidence Index of A T Kearney, implying bridging the gap between the two countries in terms investment attractiveness. Also, India has emerged as the preferred investment destination for European investors, ahead of even china.

Sector-wise FDI

A large portion of the FDI flows into skill intensive and high value-added services industries, particularly financial services and information technology. Service sector and computer software and hardware industry together account for about 35.49 per cent of the total FDI into India between April 2000 to December 2007.

India, in fact, dominates the global service industry in terms of attracting FDI with its unbeatable mix of low costs, deep technical and language skills, mature vendors and supportive government policies. India topped the AT Kearney's 2007 Global Services Location Index, emerging as the most preferred destination in terms of financial attractiveness, people and skills availability and business environment.

Global investors have also shown increasing interest in other sectors as well. Particular amongst them have been telecommunication, energy, construction, automobiles, electrical equipment among others. For example, all the five leading global telecom companies have made significant investment in India. Similarly, leading automobile companies have set up their manufacturing base in India.

Country-wise, Mauritius has been the leading nation for FDI inflows into India, followed by USA, UK, Singapore, Netherlands and Japan during April 2000 to December 2007. It is to be noted that Mauritius pre-eminence has been due to its stature as a tax haven and most volume of FDI inflows through Mauritius has been from the USA.

Some Investments

The surging economy has resulted in India emerging as the fastest growing market for many global majors like HSBC, Dell among others. This has resulted in many companies lining up aggressive investment plans for the Indian market.

• Arcelor Mittal, the world's largest steel producer, plans to invest US$ 20 billion for building two 12 million-tonne steel plants.
• Vodafone, the world's second-biggest mobile firm, plans to spend US$ 2 billion a year on capital expenditure.
• DailmerChrysler India Pvt Ltd, makers of Mercedes-Benz cars, has decided to set up a new plant in Pune.
• Nokia plans to invest US$ 170 million to ramp up its production unit in Chennai.
• US-based hotel chain Hampshire Hotels and Resorts LLC plans to develop 25 hotels at an investment of US$ 1.26 billion.
• Teva Pharmaceutical Industries, the world's largest manufacturer of generics, plans to invest over US$1 billion.

In fact, the advantage of setting up a base in India is turning a host of companies like Ford, Suzuki, Cisco, Mercer and LSG Sky Chefs among others to make India as a hub for their global operations.

Government Initiatives

The sweeping economic reforms undertaken by the government aimed at opening up the economy and embracing globalization have been instrumental in the surge in FDI inflows.

• Restructuring the Foreign Investment Promotion Board.
• Establishment of the Indian Investment Commission to act as a one-stop shop between the investor and the bureaucracy.
• Expanding the number of industries for which 100 per cent FDI is allowed through the automatic route.
• Progressively raising the FDI cap in other sectors like telecom, aviation, banking, petroleum and media sectors among others.
• Removal of the investment cap in the small scale industries (SSI) sector.

With government planning further liberalization measures across a broad range of sectors and continued investor interest, the inflow of FDI into India is likely to further accelerate. Already, buoyed by the growth in FDI into the country, the government has put a target to attract US$ 30 billion in the current financial year (2007-08).

(Source: Indian Brand-Equity Foundation IBEF - www.ibef.org)

Economy Now:

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.

The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing a major part of this growth, suggesting the structural transformation underway in the Indian economy.

For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and per cent 16.64 per cent, respectively.

Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a proportion of GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate-reflected as the gross capital formation as a proportion of GDP-has increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.

The Current Fiscal Year

The process continues in the current fiscal year. On the back of 9.9 per cent growth in the first half of 2006-07, GDP grew by 9.1 per cent during April-September 2007.

• While overall industrial production grew by 9 per cent during April-December 2007, importantly capital goods production rose by 20.2 per cent compared to 18.6 per cent during same period in 2006.
• Services grew by 10.5 per cent in April-September 2007, on the back of 11.6 per cent during the corresponding period in 2006-07.
• Manufacturing grew by 9.6 per cent during April-December 2007, on the back of 12.2 per cent growth during same period in 2006-07.
• Core infrastructure sector continued its growth rate recording 6 per cent growth in April-November 2007.
• While exports grew by 21.76 per cent during April-December 2007, imports increased by 25.97 per cent in the same period.
• Money Supply (M3) has grown by a robust 22.8 per cent growth (year-on-year) as of December 21, 2007 compared to 19.3 per cent last year.
• The annual inflation rate in terms of WPI was 3.5 per cent for the week ended December 29, 2007 as compared to 5.89 per cent a year ago.
• Fiscal and revenue deficit decreased by 11 per cent and 17.2 per cent, respectively, during April-November 2007-08 over corresponding period last year.

With such a robust growth rates, the advance estimates of the Central Statistical Organisation (CSO) expects the economy to grow by 8.7 per cent in 2007-08.