ca institute presentation

8/14/2019 CA Institute Presentation

1/36

www.afterschoool.tk

NEW ECONOMIC

OPPORTUNITIES FOR BUSINESS

IN INDIA

& ROLE OF CAs

a presentation forICAI BIKANER CHAPTER

DR. T.K. JAIN

AFTERSCHO OL

DEVELOPING CHANGE MAKERSCENTRE FOR SOCIAL ENTREPRENEURSHIP

PGPSE PROGRAMME World Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship

OPEN FOR ALL FREE FOR ALL


2/36

www.afterschoool.tk 2

Phases of Indian Economy

1947-1980

Command and Control Economy

Allocation of resources by the Government (budgetary grants)

Government took active part in setting priorities for the economy

Self-Reliance was the buzz word

Nationalisation of Banks

Limited scope for private participation


3/36



1991-2000

Liberalization and Globalization of Indian Economy

Increased emphasis on private sector participation

Limited extent of FDI participation

Gradual improvement in the enabling environment


4/36



post 2000

Political Coalitions have started providing stable governments

Government to get out of owning and managing businesses: DisinvestmentPolicy

Gradual relaxation in the FDI Policy


5/36


Progressive Liberalisation

Many new sectors opened to FDI; viz., insurance (26%), integrated townships(100%), mass rapid transit systems (100%), defence industry (26%), teaplantations (100%), print media (26%).

Sectoral caps in many other sectors relaxed;

BJP coalition government: pursued reforms vigorously and initiated second

generation reforms.

Post 2000

All sectors placed on the Automatic Route for FDI except for a small negative list

BJP coalition government:(coalition of Left and Right wing parties) was traditionally

seen as opposed to FDI, but continued with economic reforms.

2000

Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/51%/50%

United Front Government: Inclusive of left parties, was perceived as traditionally

opposed to FDI, but continued with the reforms.

1997

35 high priority industry groups were placed on the Automatic Route for FDI up to51%

Minority Congress government: Initiated economic reforms in a big way

1991

FDI was allowed selectively up to 40% under FERA

This period was dominated by the Congress party

Pre-1991


6/36


Consensus on Economic Liberalisation

Change in perception

Indian Business Houses

Government

Legal Framework: shift from a Positive List to a Negative List (FERA FEMA)

Gradually all sectors moving to Choice and Competition (Multiple Player

Model)


7/36


Present Picture

India: Fourth largest economy in terms ofPurchasing Power Parity

Tenth most industrialized economy

GDP growth rate of 8.1% - Second highest in theworld. Considerable improvement in FDI inflows FII inflows:

For the period, July 2003 Jan 2004 FII inflow hasexceeded USD 7 bn, which is more than the cumulativeFII inflow in the last five years.

Still a big gap between India and China


8/36


The Industrial Policy

Industrial Licensing All Industrial undertakings exempt from obtaining an

industrial license to manufacture, except for: Industries reserved for the Public Sector Industries retained under compulsory licensing Items of manufacture reserved for the Small Scale

Sector

If the proposal attracts locational restriction Industrial Entrepreneur Memorandum


9/36



Industries reserved for the Public Sector: (1) AtomicEnergy and (2) Railway Transport

Compulsory licensing needed in the following

industries: Distillation and brewing of alcoholic drinks

Cigars and cigarettes and manufactured tobacco substitutes

Electronic aerospace and defence equipment of all types

Industrial explosives including detonating fuses, safety fuses,gun powder, nitrocellulose and matches

Certain hazardous chemicals


10/36



Locational Policy Industrial undertakings are free to select the location Location to be 25 km away from any city with a

million strong population Exceptions:

When located in an area designated as an IndustrialArea before the 25th July, 1991.

Electronics, Computer Software and Printing (and anyother industry which may be notified in future as nonpolluting industry).


11/36



Small Scale Industries Suitable for Foreign Investment? Cap on Investment in fixed assets (plant and machinery) is Rs.

10 million (approx. SGD 3,70,000) Not more than 24 per cent of total equity can be held by

any industrial undertaking either foreign or domestic Upon such equity exceeding 24% the SSI status is lost.

Carry-on-Business (COB) Licence required. Various items reserved exclusively for SSIs.


12/36


The Entry Process: Automatic Route

All items/activities for FDI investment up to 100% fallunder the Automatic Route except the following:

All proposals that require an Industrial Licence.

All proposals in which the foreign collaborator has aprevious venture/ tie up in India.

All proposals relating to acquisition of existing shares in

an existing Indian Company by a foreign investor.

All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.


13/36


The Entry Process: Government

Approval

FIPB ApprovalFor all activities, which are not covered

under the Automatic RouteComposite approvals involving foreign

investment/ foreign technical collaborationPublished Transparent Guidelines vs.

Earlier Case by Case ApproachDownstream Investment


14/36


Subsequent Investment in the same

or allied field

Press Note 18 No Automatic Route for FDI and/or technology collaboration

for those who have or had any previous jointventure/technology transfer/ trade mark agreement in the

sameor allied field. Same field :Four digit NIC 1987 Code Allied field :Three digit NIC 1987 Code.

IT Sector & International Financial Institutions exempted.

New Trend: FIPB examines objections by the earlierpartner objectively.


15/36


Acquisition of shares in a

Listed Company

Takeover Code Acquisition of more than specified equity stakes would entail public offer

Pricing: Average of 26 weeks or 2 weeks, whichever is higher

No takeover of management before completion of Takeover Code formalities


16/36


Other modes of Foreign Direct

Investment

GDR, ADR, FCCB

Indian Companies allowed to raise equity

capital in the international marketthrough the issue of GDRs/ ADRs/FCCBs.

No ceiling on investment

O h d f F i Di


17/36


Other modes of Foreign Direct

Investment

GDR, ADR, FCCB (Contd.)

No end-use restrictions on GDR/ ADR/ FCCB issueproceeds Except Investment in real estate Stock markets.

Government clearance required when sectoral cap is

exceeded, or for a project not falling under AutomaticRoute. 25% of the FCCB proceeds can be used for general

corporate restructuring.


18/36


Foreign Technology Collaboration

Foreign technology collaborations are permitted eitherthrough the automatic route or by the Government.

Policy for Automatic Approval To all industries for foreign technology collaboration

agreements, irrespective of the extent of foreign equity in theshareholding, subject to: The lump sum payments not exceeding US $ 2 Million;


19/36



Policy for Automatic approval(contd.) Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for

exports, subject to a total payment of 8 per cent on sales

No restriction on the duration of the royalty payments The aforesaid royalty limits are net of taxes and are calculated according to standard

conditions.


20/36



Policy for Automatic approval(contd.) Payment of royalty up to 2% for exports and 1% for domestic sales is allowed under

automatic route on use of trademarks and brand name of the foreign collaborator

without technology transfer.

Registration of FC Agreement with RBI.


21/36


ROUTES FOR MNCs

Forms in which Business can be conducted in

India

Wholly owned subsidiary Joint Venture Company

Branch Office

Project Office

India Presence: Liaison Office


22/36


Joint Venture

Advantages Limited liability

Market Penetration

Local Partners Expertise and Experience

Vital Considerations Choice of Joint Venture Partner

Due Diligence


23/36


Joint Venture

Vital Considerations(Contd.) Clearly defined agreement

Terms of the Shareholders Agreement should be reflected in the Articles of

the Company.

Share Transfer Restriction in a Public Limited Company Disproportionate voting Rights: Veto

Non-compete


24/36


Joint Venture

Vital Considerations(Contd.) Agreement for future issue of share capital

Dispute Resolution

Non-disclosure of confidential information post termination


25/36


Branch Office

Purpose/Viability of a Branch Office Represent the business interest of foreign company

For the purpose of execution of the Project

Project Office is in the nature of a BranchOffice set up for a particular project.


26/36


Facilitating FDI in India

Emergence of Independent Regulators

Regulators under consideration: Petroleum, Railways, Information and Broadcasting

Regulator to curb Anti-Competitive Practices

Government Directives


27/36


Labour laws changes

Move towards: hire and fire Progressive use of discretionary executive powers Permissions granted for closure of unviable units Inspections only upon workers grievances

Voluntary Retirement Schemes EPZs, SEZs etc may be exempted from application of certain

labour laws Amendment to Industrial Disputes Act under consideration Amendment to Contract Labour (Regulation & Abolition) Act, 1970

under consideration.

Incentives for investment in Telecom


28/36


Incentives for investment in Telecom

Sector

Movement towards technology neutral Unified LicensingRegime

Permission for Inter-Circle & Intra-Circle Mergers Exemplary growth in teledensity, subscriber base etc. Companies commencing operations before 31st March,

2004, would enjoy tax benefits: 100% deduction for first five years 30% deduction for next five years

Exemption from tax on interest income and long term capitalgains in certain cases

Import duty rates have been reduced for various telecomequipment

Investment Incentive for


29/36


Investment Incentive for

IT Industry

Software companies have a ten year tax holiday on their export income

In 1998 the Government set up a new Ministry of Information Technology

The Information Technology Act, 2000 was passed to tackle cyber crimes and facilitatee-commerce

Incentives for Investment in


30/36



Power Sector

New Legal Regime: Electricity Act, 2003 The Act provides for: Multiple Buyer Model,

Independent Regulatory Body, Open Access,

Power Trading as an independent business,delicensing of generation

100% FDI Automatic Route in: Hydro-electric power plants; Coal/lignite based thermal power plants; Oil/gas based thermal power plants.


31/36



Power Sector

Other investment incentives: New Power Projects eligible for 100% tax holiday in

any block of ten years, within first fifteen years ofoperation.

The Deadline for income tax exemption for newpower projects extended from 2006 to 2012.

Various indirect tax incentives: Concessional rate of import duties Special project import scheme Deemed export benefit for certain categories of power

projects.


32/36


Reforms in Financial Sector

FIIs allowed in Capital Market, can invest both in Debt and Equity

FDI cap in private sector banks raised to 74%

10% cap on voting rights

The Mutual Fund market is also open now to foreign players.

Equity issue pricing is market determined

FDI i R l E P li & I


33/36


FDI in Real Estate: Policy & Issues

Press Note 4 (2002 Series) 100% FDI under Automatic Route PERMITTED FOR Integrated Townships,subject to following conditions: Foreign company to be registered as Indian company under Companies Act, 1956 Core Business - Integrated Township Development with a successful track record.

Minimum area of development: 100 acres as per local bylaws/rules. In absence ofsuch by laws/rules, minimum of 2000 dwelling houses for about 10,000 populationto be developed by the investor.

Conditions post acceptance of FDI proposal

Minimum capitalization norms Upfront payment

Minimum lock-in period Time bound completion of project

FDI in Hotel and Tourism:Policy


34/36


FDI in Hotel and Tourism:Policy

and Issues

100% FDI under Automatic Route Hotel includes Restaurant, beach resorts and other tourist

complexes providing accommodation and/or Catering

Tourism related industries includes travel agencies, touroperating agencies, units providing facilities for cultural,adventure and wild life experience to tourists; surface, airand water transport facilities to tourists; leisure,entertainment, amusement, sports and health units for

tourists and Convention/ Seminar units and organizations. Automatic approval for Technical, Consultancy, Marketing,

Publicity, Managerial services subject to specified limits.


35/36


CHANGING ROLE OF CAs

Greater caution in audit

IT and system Audit

Greater scope of consultancy business

Build climate for corporate governance, ethical management

Scope for best practices


36/36


Thank You

ca institute presentation

Documents