India have exchange control restrictions? |
Yes, Foreign Exchange Management Act ('FEMA')
governs inbound as well as out-bound investments. Indian Rupee is partly convertible.
It is convertible on "current" account and non-convertible on "capital"
account. In one sense, rupee is already almost fully convertible.
Rupee rates in the Foreign Exchange market are market determined and not Reserve
Bank of India ('RBI') prescribed.
of the transactions for inward foreign investment are liberalised.
For outward investments, upto US $ 15 million, automatic permission is available.
Larger outward investments are also permissible if one
can satisfy RBI about the project. A few areas are left because of which one has
to use the word "almost" fully convertible.
Speculation in Foreign Exchange is not free.
There are still some procedural issues which can be simplified.
There are still some "business decisions" which RBI monitors. Like valuation
of shares in case of sale by collaborators.
Foreign Exchange dealing in India can be done only by "authorised persons"
Are there any locational restrictions
in setting up units in India?
are free to select the location of a project. In cases of cities with population
of more than one million, the proposed location should be atleast 25 km away from
the Standard Urban area limits of that city unless it is to be located in an area
designated as 'industrial area'. Electronics, computer software and printing are
exempt from such location restrictions.
The location of industrial units
is further regulated by the local zoning and land use regulations as also the
is India's policy on Foreign Direct Investment ('FDI')?
Indian regulations allow
investment in all industries expect those in the negative list. Additionally,
there are sectoral caps for investing in certain industries. FDI is not permitted
beyond these caps. FDI can be brought into India through the Automatic Route under
the Reserve Bank of India and for certain activities through government approval.
A foreign enterprise can plan the following modes for doing business in India
- Joint Venture with an Indian Partner
Wholly Owned Subsidiary
- India Technology Collaboration
- India Project
- India Liaison Office
- India Branch Office
What is India's policy on investment
by Non-Resident Indians ('NRI') and Overseas Corporate Bodies ('OCB')?
Investments by NRIs and
OCBs in which the NRIs hold at least 60 percent equity are treated as Foreign
Direct Investment (‘FDI'). For all sectors excluding those falling under government
approval, NRIs and OCBs are allowed to bring investment through the automatic
route under the Reserve Bank of India (‘RBI'). Other proposals require approval
from the government through a special cell called Foreign Investment Promotion
is the policy on transfer of technology to Indian companies?
India encourages foreign
technology agreements in all industries. The Reserve Bank of India (the apex exchange
control authority in India) grants automatic approval to foreign companies for
transfer of technology subject to the following limits:
- Lumpsum technology fee upto USD 2 million;
- Royalty payments
upto 5 percent on domestic sales and 8 percent on export sales subject to an overall
ceiling of 8 percent of total sales.
of consideration higher than the above limits, the Indian government approves
such agreements on a case by case basis.
What is the rate of corporate taxation?
Are there any other taxes on profits?
For the current year (Fiscal Year 2005-2006),
rate of corporate tax is 30 percent for domestic companies plus a surcharge of
10 per cent. Foreign companies are chargeable to tax at 40 percent plus a surcharge
of 2.5 percent. In addition, Education Cess of 2 per cent over and above tax so
arrived would also be levied. India has entered into Double
Tax Avoidance Agreements with various countries, which provide favourable
In addition, corporate are required to pay tax @ 12.5
percent at the time of distribution of dividends to their shareholders plus surcharge
and education cess.
are the other taxes apart from corporate taxes?
Some of the main taxes apart from corporate
taxes are as follows:
duty is levied on imported products. This tax is a tariff - type tax
payable at the time of entry of products into India. Peak rate of customs duty
on non-agricultural goods is 15 percent,subject to certain exceptions.
duty is levied on manufacture of goods within India. This is also a
tariff type tax and is payable on an ad valorem (i.e. a fixed percentage of the
cost of production) basis.
- Sales tax is levied on the
sale of a product that is produced or imported and sold for the first time. Either
the central or the state government levies sales tax.
tax is levied on specified services and is like excise duty except that
excise duty is levied only on goods/products.
What is the overall policy of India
realises that development of infrastructure is crucial to India's growth strategy.
To this end India has sectoral
policies to attract private/foreign investment in areas like power, telecommunications,
road and highways, ports, oil and gas, etc.
in infrastructure/ service sector:
In respect of the companies
in infrastructure/service sector, where there is a prescribed cap for foreign
investment, only the direct investment will be considered for the prescribed cap
and foreign investment in an investing company will not be set off against this
cap provided the foreign direct investment in such investing company does not
exceed 49% and the management of the investing company is with the Indian owners.
The automatic route is not available.
What are Small Scale Undertakings?
Are there any restrictions on investing in these undertakings?
An industrial undertaking
is defined as a small scale unit where the investment in fixed assets (classified
as in plant and machinery) does not exceed Rs. 10 million. Such units can manufacture
any item including those notified as exclusively reserved for manufacture by the
small scale sector. Foreign equity in such units is restricted to 24 percent of
total equity. However, one can invest upto 100 percent in case the entire production
is to be exported from India.
there a requirement to seek Environmental Clearances?
Yes, statutory clearance
relating to pollution control and environment for setting up an industrial project
is required under the Environment Protection Act. Industries like petro-chemical
complexes, petroleum refineries, cement, power plants, bulk drugs, fertilisers,
dyer, paper, etc require such clearance.
What is the Foreign Direct Investment
policy on Venture Capital Fund ('VCF') and Venture Capital Company ('VCC')?
Offshore Venture Capital
Funds/Companies are allowed to invest in domestic venture capital undertaking
as well as other companies through the automatic route, subject only to SEBI regulations
and sector specific caps on FDI.
What is the Foreign Direct Investment
('FDI') policy on Trading?
in trading upto 51 percent is permitted under the automatic route provided it
is primarily export activities and the undertaking enjoys classification as an
export house/trading house/ super trading house/ star trading house.
100 percent FDI is permitted in trading (through the FIPB route) in the following
- Bulk imports with export/exbonded
- Cash and carry wholesale trading
- Other import
of goods or services subject to certain conditions.
What is the typical distribution
channels in the Indian market?
conventional distribution channel employed in India is a pyramidal structure involving
movement of goods from carrying and forwarding (C&F) agents to wholesalers
and distributors down to retailers. About 12 million retail outlets give India
the largest retail outlet density in the world. The new supply chain systems include
cutting down on intermediaries as in direct marketing or network marketing.
What is the size and potential of
the rural markets in India?
rural consumer class is growing at 3-4 per cent per annum and adding about 1.2
million new customers every year. Spread over 630,000 villages, India's rural
population generates one third of the national income. Apart from growth in demand
for agricultural inputs, rising rural disposable incomes have also spurred the
demand for fast moving consumer goods and consumer durables.
What has been the “structural shift”
in the Indian economy?
is no longer the dominant sector of the GDP. Also, the share of agriculture has
gone down from a high of 70 per cent in the sixties to just about 27 per cent
today. The value added services sector has emerged as the growth engine of the
What is the scope for the retailing
industry in India?
The present size of the retail industry in India is around
USD 180 billion. This is expected to touch USD 450-500 billion by 2010. Within
the retail sector, grocery constitutes the biggest component with about 50 per
cent share. Apparel is another high growth area in the retail sector.
"I just found out my company is months behind
on entering transactions. Can I get part-time bookkeeping services that won't
cost as much as a full-time bookkeeper?"