succeeding in india: business + legal insights
DESCRIPTION
Kegler Brown and the Ohio Development Services Agency presented "Succeeding in India: Business and Legal Insights" on Tuesday, October 14, with Dr. Manoj Kumar Mohapatra, Deputy Consul General, Consulate of India, New York, as the keynote speaker. Topics included legal intelligence when conducting business in India, how the Ohio Development Services Agency can help Ohio businesses and a panel of local business leaders provided insight and practical advice from their experiences in India.TRANSCRIPT
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“Opportunities in India”
Vikram KohliTrade Manager
Ohio India Office
October 14, 2014
INDEX
1. India: An Introduction
2. India-US Bilateral Trade
3. Key Sectors in India
4. About Exhibitions India Group
INDIAAn Introduction
• 29 states, 7 union territories
• Area: 3.3 million sq. km.
(1.27 million sq. miles)
• Bordered by:
- China, Nepal, Bhutan (north)
- Afghanistan, Pakistan (north-west)
- Myanmar, Bangladesh (east)
- Sri Lanka (south)
• Coastline: 7,517 km (4,670 miles)
GEOGRAPHIC PROFILE
• Population: 1.25 billion
- 30% urban, 70% rural
- 65% of population is 35 years or
under
• Sex ratio: 940 females per
1000 males
DEMOGRAPHIC PROFILE
• Literacy rate: 74%
• Languages:
- Officially recognized: 22
- National language: Hindi
- Business language: English
• Religions:
- Hinduism, Islam, Christianity, Sikhism,
Buddhism, Jainism and others
0-14 yrs30%
15-65 yrs
65%
Above 65 yrs
5%
Distribution by Age Group
• Largest democracy in the world
• Parliamentary form of
government
• Secular state
POLITICAL PROFILE
President: Mr. Pranab Mukherjee
Prime Minister: Mr. Narendra Modi
Government: Led by the National
Democratic Alliance (NDA)
ECONOMIC PROFILE
Gross Domestic Product (GDP), 2013-14• Nominal: US$ 2.04 trillion,
10th largest in the world • PPP terms: US$ 7.27 trillion,
3rd largest in the world• GDP growth rate: 4.7 % • The services sector continues to be a
star performer with a 65% share in GDP
Per Capita GDP, 2013-14 • Nominal: US$ 1,625• PPP terms: US$ 5,777
Agriculture , 14%
Industry, 21%
Services, 65%
Sectoral composition of Indian GDP: 2013-14
ECONOMIC PROFILE
Foreign direct investment (FDI):
• During FY 2013-14, India attracted FDI worth US$ 24.3 billion,
up by 8 per cent from the previous year
• Singapore is the largest source of FDI in India
Singapore25%
Mauritius20%
United Kingdom
13%
The Netherlands
9%
Others33%
Country-wise FDI in India
ECONOMIC PROFILE
World Trade: India is• The world’s 19th largest exporter with total exports of
US$ 312.35 billion in FY 2013-14• The world’s 12th largest importer with total imports of
US$ 450.94 billion in FY 2013-14
300.4 312.35
490.7450.94
0
100
200
300
400
500
2012-13 2013 - 14
India Bilateral Trade (in US$ billion)
India's Exports India's Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE • From a modest US$ 5.6 billion in 1990, the bilateral trade between India-
US has increased to US$ 63.7 billion in 2013, representing an impressive 1037.5% growth in a span of 23 years.
• Bilateral trade in 2013 (January – December) increased by 2 per cent over the previous year to US$ 63.70 billion.
Source: US Department of Commerce, US Census Bureau
36.15
21.50
57.65
40.52
22.10
62.62
41.83
21.87
63.70
0
10
20
30
40
50
60
70
India's exports to USA India's imports from USA Total bilateral trade
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(U.S. IMPORTS) (U.S. EXPORTS)
Product Percentage
Precious stones & metals 22.00
Pharmaceutical 10.77
Mineral Fuel, Oil 9.33
Organic chemicals 5.26
Textiles 5.02
Others 47.61
Product Percentage
Precious stones & metals 26.48
Aircraft, spacecraft, Parts 13.70
Machinery 10.50
Electrical machinery 5.94
Optical instruments & equipment
5.94
Others 37.44
Percentage Share of Major Items (Jan – Dec 2013)
• India was the U.S. 18th largest export market in 2013
• India was the U.S. 10th largest supplier of goods imports in 2013
INDIA-OHIO TRADE
Growth in Ohio’s Exports
• India is Ohio’s 21st largest export market in 2013
• Ohio’s exports to India was US$ 384 million in 2013
Industrial Machinery,
26%
Plastics & Articles
Thereof, 12%
Optic/Medical Instruments,
11%Chemical Products, 7%
Electrical Machinery, 7%
Others, 37%
Ohio’s Top Exports to India
Market Opportunities in India
KEY SECTORS
AEROSPACE AND DEFENSE• Indian civil aviation industry is amongst the top 10
globally, with a market size of US$ 16 billion• India ranks among the top 10 countries in the world in
terms of military expenditure• Indian carriers plan to double their fleet size by 2020 to
around 800 aircrafts• India's current maintenance, repair and overhaul MRO
market size is estimated to be around US$ 700 million and is expected to reach US$ 1.5 billion by 2020
• India’s defense budget for FY 2013-14 hiked by 5.3 per cent from previous year at US$ 37.4 billion
• About 70% of India’s defense requirements are met through imports.
– India is one of the world’s top importers in the defense category.
– US bagged Indian defense deal worth US$ 10 billion in the last decade, and become no. 1 supplier to India
– Government of India has raised the foreign direct investment (FDI) limit from 26 per cent to 49 per cent
SMART CITIES
• Exhibitions India Group is organizing Smart Cities India Exhibition and Conference at New Delhi from 20 - 22 May, 2015
– The expo will connect Indian and foreign exhibitors, with various ministries, state governments, municipal bodies, industry leaders, decision makers, and stakeholders, who are developing smart cities
• 843 million people will be living in Indian cities by 2050
– To accommodate this massive urbanization, India needs to find smarter ways to manage complexities, reduce expenses, increase efficiency and improve the quality of life
• 100 new cities will be developed by the Government of India, with plans to transform satellite towns and existing cities
• Investments of about USD 1.2 trillion will be required over the next 20 years across areas like transportation, energy and public security to build smart cities in India
• USD 1.2 billion has been allocated by the Government during FY 2014-15 for smart cities to improve the quality of life for Indian citizens
• U.S. multinational companies such as IBM, HP Cisco are working on Smart Cities projects.
• The current market size of the Indian Gem & Jewellery Industry is US$ 41.53 billion and is expected to reach US$ 82.75 billion by 2018, growing at a CAGR of around 15 per cent per annum.
• India is the largest consumer of gold in the world
• Gems and jewellery industry in India accounts for around 20 per cent of world consumption
• Nearly 9 out of 10 diamonds sold worldwide are cut and polished in India
• The highly fragmented sector comprises of more than 500,000 gems and jewellery players across the country
• American companies such as Walmart and JC Penney source jewellery from India
• 100 per cent foreign direct investment (FDI) is allowed
GEMS AND JEWELLERY
MEDICAL DEVICES• The Indian medical devices and equipment market is
valued at US$ 6.3 billion in FY 2013 - 14 and is expected to grow at a CAGR of 15 - 18 per cent to reach US$ 50 billion by 2025
• The Indian medical device industry is fragmented with close to 1,700 registered medical devices companies manufacturing primarily low technology products
• 75 per cent of medical devices sold in India are imported.
– Out of which around 85 percent of the imports of medical devices into India are from the US, Germany and Japan
• The import duty on medical devices and equipment is about 10 percent and many are even duty-free
• India has emerged as one of the top markets for investment by multinational companies manufacturing devices
• Several MNCs are now undertaking substantial amount of their product development / manufacturing in India, particularly to meet local demand
CAPITAL GOODS• Capital goods sector is of primary importance for the
growth of manufacturing industry in India
• It is a large and diverse sector with a market of more than US$ 52 billion and is expected to reach US$ 129 billion by 2017
– Heavy electrical equipment and engineering goods are the largest sub-sectors constituting around 75 percent of the overall market
• The sector employees around 1.5 million people across all sub-sectors
• The capital goods sector contributes around 1.8 per cent of the GDP
• 30 per cent of India’s domestic demand for capital goods is met through imports, mostly of critical components
• FDI up to 100 per cent permitted on automatic route
• Addition of 88,000 mega watt power generation in 12th five year plan, which will drive a strong demand for heavy electrical equipment
• Capital goods sector has a large domestic demand from various end-user industries
PAPER
• India has 17 per cent of the world's population, but it consumes just 3 per cent of paper globally
• The Indian paper industry is valued at US$ 7 billion and is expected to reach US$ 11.83 billion by 2017
• The Indian paper industry’s annual operating capacity is of 12.75 million tonnes (MT)
• Annual production is 11 MT against the consumption of 11.23 MT – a shortage of 0.23 MT
– The deficit would widen to around 2 MT by 2015-16
• The per capita consumption in India stands at only 10 kg as against 312 kg in the US, 42 kg in China, 22 kg in Indonesia and 25 kg in Malaysia
• FDI up to 100 per cent permitted on automatic route
ABOUT USThe Exhibitions India Group
Exhibitions India Group is: • A trade promotion organization established in 1987, creating
opportunities for trade, investments, joint ventures, technology transfers etc.
• An organizer of trade fairs in India with allied businesses in sales representation, consulting, publishing, conferences, travel & hospitality and display design
• Headquartered in New Delhi with branch offices in Ahmedabad, Bangalore, Chennai, Hyderabad and Mumbai
• The only trade fair organizer in India to have both ISO 9001:2008 & ISO 14001:2004 certifications
• Certified for transparency in international transactions by Trace International, Inc. (USA)
ABOUT US
ABOUT US
• Ohio Development Services Agency India Office: Representing the business interests of the State of Ohio, USA in India since January 2008. The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market.
• Council of Great Lakes Governors (CGLG) India Trade Office: Set up in July 2012, the CGLG India office works to promote exports from the State of Wisconsin, USA to India through market research, business matching, trade show participation, delegation visits etc.
Comnet Consultants represents:
ABOUT US
Consultancy Services:Comnet Consultants provides the following services to companies seeking to access the Indian market:
• Customized Market Research Reports
• Partner Search: Qualified contacts of potential distributors, representatives, agents, prospective customers, JV partners etc.
• Due diligence review of potential partners
• Trade mission appointment facilitation and in market support to companies
• Facilitate participation at Indian trade shows
• Other Services:
– Facilitate contact with local law firms, accountancy firms etc.
– Identify local marketing tools such as trade shows, periodicals, etc.
– Monthly Newsletters
– Media Promotion
– HR consulting, etc.
Vikram KohliTrade ManagerOhio India Office217-B, Second Floor, OkhlaIndustrial Estate Phase 3, New Delhi 110020E-mail: [email protected]: +91 11 4279 5072
THANK YOU
Business Unit
India : The Investment Destination
Consulate General of India, New York
October 13/14, 2014
India: Reasons to Invest
Source: UNCTAD, World Investment Report 2014
Top 10 host economies for 2014 -16
0 10 20 30 40 50
10 Russian Federation
9 Vietnam
8 Thailand
7 UK
6 Germany
5 Brazil
4 India
3 Indonesia
2 USA
1 China
o 3rd largest economy (PPP)
o Fourth best destination for
FDI (2014) - UNCTAD
• 5.5 % of total global FDI (value)
• 6.3 % of global FDI (projects)
o Second most promising country
for overseas business operations
o Top investment destination for the
long-term
Opening of FDI in Key sectors
• DEFENCE sector policy liberalised
• FDI cap raised from 26% to 49%.
•100% FDI under automatic route allowed in specified RAIL INFRASTRUCTURE projects
• Easing of norms in progress in the CONSTRUCTION DEVELOPMENT sector
Avenues for collaboration and investments
Infrastructure development
Manufacturing growth,
Employment creation and promoting
entrepreneurship
Energy sufficiency
Skill development Business environment improvement
East Coast Industrial Corridor
Opportunities in Infrastructure Development
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• Five new Industrial Corridors are planned
• Each Corridor to have 6 – 8 key nodes developed on Smart City principles
• Focus is on improving both Industrial and Urban Infrastructure
Urban infrastructure
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Smart Cities
USD 1.2 billion allocated to develop 100 Smart Cities in the country
Affordable housing USD 700 million allocated to increase flow of cheaper credit for affordable housing
Swachha Bharat ProjectProvide complete sanitation facilities by the year 2019
Manufacturing and Employment
Objectives of National Manufacturing Policy (NMP):
To promote investments in the manufacturing sector ;
Make the India a hub for both domestic and international markets
To increase the sectoral share of manufacturing in GDP to 25% by 2022 (from about 15% presently)
To double the current employment level in the manufacturing sector
To enhance global competitiveness of India’s manufacturing sector ;
NMP proposes setting up of National Investment and Manufacturing Zones (NIMZs), which would be much larger than SEZs in area (can be viewed as a cluster of smaller industrial areas . SEZs, EoUs etc.)
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Sectors of Strategic Importance
Defence Equipment
Aerospace
Ship-building & Repair
Capital Goods & Engineering
Sectors of Basic Inputs
Steel
Mineral Exploration and Development
Fertilizer
Cement
Sectors for Depth and Value Addition
Automotive
Electronics
Drugs & Pharma
Chemical
Petrochemicals
Paper
Sectors for Employment Generation
Textlies
Food Processing
Leather & Leather Goods
Gems and Jewellery
Source: NMP 2011
Opportunities in Manufacturing
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Overview
Third largest armed forces in theworld
Largest importer of conventionaldefence equipment
Defence budget in 2014-15 is USD38 billion
Predicted to reach USD 50 billionby 2018
Investment opportunities
Manufacturing of defence equipment
Maintenance, repair and overhaul segment
Engineering services outsourcing
FDI policyUp to 49% under the government route and beyond 49% through CCS (in case of transfer of technology)
1. Defence
Opportunities in ManufacturingOpportunities in Manufacturing
Overview
• Accounts for 10 % of global pharma industry
• Expected to grow at 12.1% during 2012–20
• Expected to reach USD250 billion by 2020 from the current USD65 billion
Investment opportunities
• Active pharmaceutical ingredients (APIs)
• Contract research and manufacturing services (CRAMS)
• Formulations
FDI policy
• 100% FDI is allowed under the automatic route for Greenfield projects.
• For brownfield project investment up to 100% is under the government route.
2. Pharmaceuticals
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Opportunities in Manufacturing
Overview
Size of the industry (2012-13) is around USD 144 billion
Accounts for 16% of the world production of dyes
Predicted to grow by 8-10% in polymers
Investment opportunities
Petrochemicals Specialty chemicals Agrochemicals Colorants Technical training
FDI policy100% FDI is allowed under the automatic route subject to all the applicable regulations and laws.
3. Petrochemicals
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Opportunities in Manufacturing
Overview
Fourth largest consumer of crude oil and petroleum products (2013)
Oil imports constitute 80% of India’s total domestic oil consumption
Second-largest refiner of crude oil in Asia (as of 2013)
Investment opportunities
Underground coal gasification Exploration &Production services
and equipments City gas distribution Refinery Technology partnerships
FDI policyFDI is subject to the existing sectoralpolicy and regulatory framework
4. Oil and Gas
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Opportunities in Manufacturing
Overview
Second largest employer and contributor to economic activity
Second highest FDI inflow (USD 80 billion – 2013)
Expected to grow to USD 140 billion in 2017
Investment opportunities
Residential, retail, commercial and hospitality sectors
Technologies and solutions for sustainable cities, environment friendly building materials
Training and skill development of construction sector workers
FDI policy 100% FDI is allowed under the automatic route.
5. Construction
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Opportunities in Manufacturing
Overview
Industry size is USD 15 billionGrowing at 8.4% for the last five yearsValue addition of sector as share of
GDP manufacturing was 9.8%
Investment opportunities
Fruits and VegetablesDairyFood additivesGrain ProcessingFood processing equipmentConsumer food
FDI policy100% FDI through automatic route for
most of the food products except for items reserved for MSME.
6. Food Processing
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Opportunities in Manufacturing
Overview
Exports amount to USD 6 billion and domestic market amounts to USD 5 billion
Exports projected to grow at 24% Domestic market expected to double
in next five years.
Investment opportunities
Tanning and finishing of leather products
Manufacturing of leather garments and other products
FDI policy100% FDI is allowed under the automatic
route subject to all the applicable regulations and laws.
7. Leather
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Opportunities in Manufacturing
Overview
• Second largest textile manufacturing capacity
• Contributes 14% to industrial production and 4% to GDP and 13% of country’s export earnings
• Estimated to reach USD 100 bn by 2017
• Exports are expected to increase to USD 65 bn by 2017
Investment opportunities
• Technical Textiles• Garments• Retail Brands
FDI policy• 100% FDI is allowed under the automatic
route in textile sector
8. Textiles
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Opportunities in Manufacturing
Overview
• Predicted to become the third largest auto market in the world by 2016• Will account for more than 5% of the global vehicle sales• Expected size by 2016 is USD 145 billion.
Investment opportunities
•Passenger Vehicles•Two Wheelers•Three Wheelers•Commercial Vehicles•Low cost electric vehicles
FDI policy• 100% FDI is allowed under the automatic
route.
9. Auto
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Opportunities in Manufacturing
Overview
•Worth USD 40 billion in 2012–13•Exports increased at 17% between 2008-13•Exports have risen to USD 10 billion in 2012-13
Investment opportunities
•Engine and Engine Parts•Transmission and Steering Parts •Suspension and Breaking Parts•Electrical parts
FDI policy100% FDI is allowed under the automatic route
10. Auto components
Opportunities in Energy Sufficiency
Fifth largest producer and consumer globally
• With a production of 1,006 TWh, India is the fifth
largest producer and consumer of electricity in the
world
Power generation and installed capacity has grown rapidly over the years
• Over FY07–13, electricity production expanded at a
CAGR of 5.5%
• Installed capacity increased steadily over the years,
posting a CAGR of 10.9 per cent in FY09–13
Strong policy support to further incentivize power sector
• Policies such as Electricity Act, 2003, National Tariff
Policy, 2006, Ultra Mega Power Projects (UMPPs),
R-APDRP and fuel supply agreement are aiding
growth of the sector
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Opportunities in Energy Sufficiency
Growing Demand
• Increased industrialization• Growing population• Increasing per-capita usage• Power consumption is
estimated to increase from 821.2 TWh in 2013 to an estimated 1433.2 TWh in 2022
Attractive opportunities
• Large capacity additions (189GW) targeted in the 12th
and 13th Five-Year Plans
• Increasing investments and diversification of renewable sources
Policy Support
• Removal of licensing and entry barriers for various segments
• Fuel supply agreement of power producers with Coal India
Higher Investments
• FDI inflows touched USD7.8 billion between April 2000-March 2013
• Major investments earmarked by public as well as private sector companies across the value chain
Advantage India
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Initiatives and Reforms Key highlights
• Process of applying for IL/IEM and ESIC/EPFO registration available online and 24X7
• Self certification and third party inspection for the Boilers Act
• Security clearances by MHA within 3 months.
• Requirement of License on a number of Defence List products removed
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• Validity of Industrial License extended from 2 years to 3 years.
• Questionnaires on ‘Enforcing Contract’ and ‘Resolving Insolvency’ filled by Government for the first time.
Initiatives and Reforms
Advisory sent to Ministries/State Governments:• All returns to be made online
• Check list of all compliances to be put on web-site
• All registers to be replaced with one single electronic register
• No inspection without approval from Head of the Department
• Self-certification for non-hazardous/non-risk businesses
Labour related initiatives
• Unified single web portal for Labour Law Compliance
• Initiated amendment of Factories Act, 1948 to allow for:
o Night shift for women
o Increased hours of overtime
o Compounding of Offences
• Rationalization of Returns and Register requirements
• Initiated amendment of Apprentices Act, 1961 to increase the percentage of workforce as apprentice and restrict inspections
• Single labour law for MSME to be introduced by December, 2014
• Evidence based inspections through Central Analysis and Intelligence Unit
Initiatives and Reforms
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eBiz Mission: India’s G2B Portals
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• Offers a single window for businesses and investors
• Increased transparency in processing of requests
• Entrepreneurs to submit one integrated application for multiple licenses
• Single consolidated payment for the various licenses required by entrepreneurs
• Reduction in the number of procedures; and therefore reduced cost and time taken for obtaining approvals
Results of our Collective Efforts
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The path to growth in India
4.7
-0.4
-1.2
5.7
4.2
3.5
-2
-1
0
1
2
3
4
5
6
7
GDP Industry Manufacturing
Quarterly Growth of GDP (%)at Factor Cost in Q1 (April-June)
2013-14 (Q1) 2014-15 (Q1)
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GDP Growth
•GDP growth rate improved to 5.7% in the first quarter (April-June) of 2014 compared to 4.7% in first quarter of 2013
•Industry GDP growth rate spiked at 4.2% in the first quarter of 2014 compared to -0.4% in the first quarter of 2013.
•Manufacturing GDP growth rate spiked to 3.5% in the first quarter of 2014
•IMF has revised India’s GDP growth to a higher trajectory: 5.6 % in 2014 & 6.4% in 2015
Increased Foreign Direct Investment
33%
• FDI inflows have increased 80% in the months of May-June 2014 (combined) over the same time period in the preceding year
• M-o-M FDI equity inflows have increased 33% in June 2014 compared to June 2013
• Overall Index of Industrial Production (IIP) has grown by 3.4% in June 2014 as compared to -1.8% in June 2013
• Growth rate of Capital goods in IIP has shot up from -6.6% in June 2013 to +23% in June 2014
• Purchasing Managers Index (PMI) as on 1st August 2014 was at 17-month high
• Manufactured exports have recorded 6.6% growth in July 2014 as compared to July 2013
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Hon’ble Prime Minister, in his Speech from ramparts of Red Fort on Independence Day on August 15, 2014 has defined future course of action:
“I want to appeal all the people world over; Come:
Make In India. Sell anywhere but manufacture here”.
The Road Ahead
“We should manufacture goods in a way that they carry zero defect, that our exported goods are never returned to us. We should manufacture goods in a way that they should not have a negative impact on the environment.”
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presented by Vinita Bahri-Mehra
October 14, 2014
Doing Business in India:Legal Intelligence + Practical Advice
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Why India?
India is the 4th largest economy in the world as measured by purchasing power.
India has a consumer base of 1.2 billion people.
The youngest population of the world – hence sustainable, long term growth is assured.
Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies.
Rapid growth in the number of middle class consumers.
Eager and savvy consumer market with growing buying potential.
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Some Success Stories
2nd largest small car market in the world
One of three countries that makes its own supercomputers
2nd largest group of software developers after the US
100 of the Fortune 500 have R&D facilities in India
Indian students represent 20% of all international students in U.S. higher education
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CulturalLanguage
Geographic Scope
Hierarchy: Indian Management Style
LegalFDI Regime – Key Sectors for Investments
Keys to Exporting
Contract Enforcement
Process and Procedures Delays
Negotiations
Corruption
Key Differences: Overview
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U.S./India Exporting at a Glance
U.S. Exports to India in C-Y 2013: $41.5 billion (a 7.8% increase)
Imports from India in C-Y 2013: $60.52 billion (a 9.5% increase)
Total Bilateral Trade in C-Y 2013: $102 billion (a 9.7% increase)
India has emerged as the 18th largest export market for U.S.
India has emerged as the 12th largest market for Ohio exports
India’s GDP growth for F-Y 2013-2014 5%/6%
Indian firms eager to buy American products and services
India’s WTO commitments → resulted in opening of markets
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Mining + Mineral Process Equipment
Oil + Gas Field Machinery
Pollution Control Equipment
Safety + Security Equipment
Telecommunications Equipment
Textile Machinery
Water Treatment
Airport + Ground Handling Equipment
Computers + Peripherals
Education Services
Electric Power Generation, Distribution and Transmission Equipment
Machine Tools
Medical Equipment
Markets with Significant Export Potential
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CURRENT TOP 5 LEGAL TRENDS POST-ELECTION1. Adopting International Best Practices.
(e.g. Streamlining Taxes, Effective Changes in Indian Laws)
2. A Dominating Legislative Agenda
(e.g. A faster process to pass business-friendly legislation)
3. Comprehensive Economic Partnership Agreement with Countries.
(e.g. An Impetus to bilateral trade)
4. Continued Economic Growth After Pre-Election Decline.
5. Stability in Value of Rupees.
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Top 5 Keys to Successful Exporting to India1. Strategic Planning – Finding Partners, Distributors and Agents
2. Due Diligence
3. Geographic Diversity
4. Consistent Follow Up
5. Patience and Commitment
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Top 7 Legal Issues for Doing Business in IndiaA. Understanding India; FDI regime.
B. Contract enforcement and negotiations. Are Restrictive Covenants enforceable?
C. What is the tax incidence on profits and gains and whether any tax breaks are provided by government? Are repatriation of investments and profits allowed?
D. Are there any labor issues to consider?
E. What should be done to protect one’s IP?
F. What law should govern the contract and which courts should have jurisdiction to adjudicate on disputes?
G. What mechanism of dispute resolution is preferable?
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A. India’s FDI Regime
100% foreign investment permitted in most sectors on automatic basis except:
Banking (74%).
Telecom services (74%).
Civil Aviation (49%).
Insurance (49%).
Defense (49%)
Retail trading: New – Single Brand up to 100% . Multi-Brand – 51%. (Approval Route)
– 100% FDI is allowed in cash and carry wholesale formats, B2B sales.
Certain sectors where FDI is prohibited:
Atomic Energy.
Lottery business, Gambling and Betting.
Agriculture
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A. India’s FDI Regime
Railway Transport (New Guidelines in Works for potential Investments.
Arms and Ammunition
Coal and Ignite
Certain sectors where there are minimum capitalization requirements:
Non-banking financial services activity (certain activities – fee based and fund based).
Real estate construction and development projects.
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A. Structuring Investments – FDI
Investing in India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of shares/business assets of an existing Indian Company
Invest in a U.S. company with a services fulfillment subsidiary in India
Invest in a Caymans or Mauritius company with a services fulfillment sub in India
Direct investment in an India company from outside India (Mauritius/Singapore subs)
Direct investment in an Indian company from outside India through a venture capital fund registered with the SEBI
Liaison Office
Branch Office
Project Office
Joint Ventures
Wholly owned Subsidiary
Private
Public
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B. Non-Compete/Non-Solicitation
Every agreement by which anyone is restrained from exercising a lawful profession, trade or business is void. (Section 27 of the Indian Contract Act, 1872).
Non-compete and non-solicitation are such restrictive covenants.
Exception: Restrictive covenants that reasonably protect a party’s proprietary or commercial interest post-acquisition of a business with goodwill.
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B. Non-Compete/Non-Solicitation
Exception: A partial restriction, reasonable in terms of time, geography or other limitations.
Indian Courts tend to enforce a restrictive covenant operating “during term of employment” and not those “after the term of employment”.
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B. Contract Enforcement
Remedies: It’s advisable to negotiate and provide for a liquidated damages and/or penalty clauses in contracts as a safeguard.
Damages is the primary remedy for breach of contract.
No compensation nor indirect remedy or indirect loss or damages.
Damages to prove (i) Direct-damages; and (ii) indirect / consequential damages.
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Indian Courts follow customary Private International Law rules.
Choice of law made by parties is acceptable.
Parties may also choose which court will have jurisdiction.
Subject to public policy, courts recognize and enforce foreign laws.
Absent choice, courts determine proper law of contract.
Law with the closest connection to transaction.
B. Contract Enforcement
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Caveat:
Certain issues may be subject to a law different from one agreed upon by parties.
For example: IP transfer, registration, protection in vendor territory, real estate, labor laws, bankruptcy, enforcement of foreign judgment/award.
B. Contract Enforcement
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B. Contract Negotiations
Negotiations:
Contract negotiations can be expected to go more slowly in India – particularly if dealing with India bureaucracy.
Different Approach to Communication:
Indian parties may not disagree with you directly about contractual issues. Instead, they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response.
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B. Contract Negotiations
Flexibility:
It is recommended that U.S. companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted.
Believe:
Relationships and respect. Building a lasting and trusting relationship is very important for a successful business venture in India.
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C. Taxation in India
Dividends declared can be repatriated freely through an authorized Indian bank.
Dividends are tax-free in the hands of shareholders.
A distribution tax of 16.66% is payable by company.
Corporate tax rate for foreign companies is 41.2%. For domestic companies, 30.99%.
Withholding tax on royalties/technical fees/interest income.
Domestic tax law – 10% [effective AY 2014-2015, it will become 25%].
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C. Taxation in India
Indo-US DTAA – 10% for right to use of any industrial, commercial or scientific equipment.
20% in any other case. (First five years of agreement).
15% in any other case (subsequently).
Computed on “gross amount”.
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C. Taxation in India
For Receiving Payments:
Submission of a Tax Residency Certificate (TRC) a must, especially if availing tax treaty benefits or no withholding taxes.
Furnishing of PAN required.
Currently, tax rate of domestic law could be utilized as it is less than DTAA.
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C. Taxation in India
Service tax rate is 12.36%Computed on the “Gross Amount” charged by the service provider.
Sales Tax Rate (VAT): Varies from state to state, depending upon classification of goods. Two basic rates are 5% and 14.5%.
Sales Tax Rate (CST): Levied at 2%
Excise Tax: Imposed on goods manufactured locally. Varies from 8-10% –12%.
Custom Duties: Peak rates reduced from 350% (June 1991) to an average 10% currently for some products.
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C. Taxation in India
India’s tariffs still very high – range from 0% - 150% based upon classification of goods in accordance with Harmonized System or HS.
Exports to India are zero-rated for VAT. All import and export of goods to/from India are exempted from sales tax.
Tax incentives are available during a limited time for 100% Export-Oriented Unit, under Software Technology Park Scheme and Special Economic Zones Units, generation and distribution of power, etc.
Incentives for acquisition and installation of new plant or machinery by manufacturing company.
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C. Taxation in India
Comparative – Corporate + Personal Tax Rates
Capital Gains Tax
Depends upon type of asset (e.g. shares, property, debt instrument) and length of time the investor held asset.
Long-term capital gains (securities held for more than 1 year and assets held more than 3 years): 20%
Short-term capital gains (securities held for less than 1 year and assets held less than 3 years): 30%
Sr. No Country Corporate Tax Rate Personal Tax Rate
1 India 32.445% 30.90%
2 USA 35% 39.60%
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C. Important Taxation Issues
India’s tax code has elaborate Transfer Pricing Regulations.
All entities having an aggregate value of international transactions in a financial year exceeding INR 15 crs (i.e. approx. US $3.3 mn) subject to compulsory transfer pricing scrutiny by the Indian tax authorities.
Rules govern minimum profit margin to be maintained by Indian companies in transactions involving associate enterprises
Avoidance of Permanent Establishment (“PE”) status is critical.
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D. Employment Issues
Employment Agreement: Advisable to have a detailed document (not a one-pager!), read in conjunction with the existing employment policies of the Company.
Compliance required of both Federal and State laws.
Important to identify locational advantages; Indian States have restrictions and relaxations.
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D. Employment Issues
Labor unions prevalent in some states – leading to collective bargaining agreements
“Without cause” termination for “Workmen” may become subject to:
“Last come, first go”;
Some level of compensation based on years of service;
Sufficient notice to employee; and,
Employer issuing a release certificate. However, consider the following while issuing release:
Is there a possibility of breach of confidentiality?
Is there a possibility of a breach of a non-compete covenant?
Otherwise “At-Will” employment with notice is recognized.
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D. Employment Issues
Social Security system spread by a variety of laws, including:
Employees’ Provident Scheme
Employees’ State Insurance Act, 1948
Workmen’s Compensation Act, 1923
Maternity Benefit Act, 1961
Payment of Gratuity Act, 1972
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E. Intellectual Property Enforcement
India is a member of the WIPO; signatory to major harmonization conventions and member of WTO.
Remedies for IP violation: Civil remedies (injunctions, damages, or accounts) as well as criminal penalties. However, criminal prosecution is available on in trademark and copyright cases, not in ones involving patents or designs.
Provisional Measures: Injunctions and ex-parte search warrants and seizes orders, known as “Anton Piller” orders, are available through the Indian Courts to stop infringements and to contain damages.
Fast-track System (specialized forums): Intellectual Property Appellate Board – Appeals on IP prosecution (patents).
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E. Intellectual Property Enforcement
Minimize IP Risks
“Airtight” Contractual provisions:Explicit obligations to ensure that the “receiving” party will protect “disclosing” party’s IP.
Business practices:From the beginning, have a method in place to ensure controlled use of IP rights by the local associates.
Define IP violation clause.
Conduct Regular IP Audit.
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E. Intellectual Property Rights
Indian IP Laws do not provide for automatic assignments.
Golden Rule: Advisable to have a covenant to assign IP in contracts and to obtain Deed of Assignment where required.
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E. Intellectual Property Rights
Specific IP Issues + Related Law
Patent + Design: Inventor/Author is owner.Formal assignment is necessary.Term: 20 years from date of filing.Registration of “Product Patents” allowed.
Copyright: IP work is made in course of author’s employment under contract of service, employer is the first owner of copyright therein.
Subtle difference from the U.S. concept of “works for hire”.Term: 60 years from date of publication.
Possible Dispute: Work made in course of the author’s employment as against work made outside the course of employment.
Therefore, emphasis is on “scope of employment”.
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E. Intellectual Property Rights
Trademarks + Service Marks:
Trademark protection extends to shape of goods, packaging and combination of colors.
Statutory infringement and common law remedy of passing off is available.
Trade Secrets:
No specific Indian legislation for statutory protection of trade secrets or confidential information. However, Courts (several precedents) specifically enforce confidentiality agreements through mandatory injunctions.
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F. Dispute Resolution
Litigation vs. Arbitration
Bottom line: If the parties want to quickly end disputes arising from the contract, an arbitration clause is necessary to avoid lengthy civil procedures.
Litigation – Enforcement of Foreign Judgment.
Judgments from courts in “reciprocating territories” can be enforced directly by filing before an Indian Court an Execution Decree.
The United Kingdom of Great Britain and Canada are noted as “reciprocating territories”.
Presently, the U.S.A. is not declared as a “reciprocating territory”.
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F. Dispute Resolution
Judgments from “non-reciprocating territories”, such as the U.S.A, can be enforced only by filing a law suit in an Indian Court for a Judgment based on the Foreign Judgment.
The foreign judgment is considered only as evidence.
Such a law suit is to be brought within 3 years of foreign judgment.
Likely a long and slow procedure as the Indian Courts are overburdened.
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F. Dispute Resolution
Arbitration-Enforcement of Foreign Arbitral Award.
India is a party to the New York Convention, 1958.
U.S. arbitral awards on commercial disputes are directly enforceable in India through foreign award being made a Decree of the court.
Indian Courts may grant preliminary injunctions and other protective orders pending international commercial arbitration.
An arbitration clause can avoid the time consuming and sometimes ineffective process of seeking damages through the civil courts in India.
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There are some internal barriers that might provide obstacles in doing business or establishing business in India. It is necessary to be cognizant about them in order to be well prepared.
For example:
Corruption (FCPA) (PCA)
Infrastructure mess
High tariffs and protectionist policies
Local content requirement
New laws (increase in compliance)
Practical Advice: Identify the Obstacles
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Things to Ponder
Have knowledge of Indian business and market – Evaluate Product Strategies and related Pricing.
Analyze and identify the region/state most appropriate for your business needs.
Do Business in India…the Indian Way: ‘Think Global, Act Local’
The Indianized Chinese
Kellogg's – no to cold cereals?
KFC – Tandoori Chicken preferred to the ‘KFC experience’
McDonalds –‘McVeggie Burger’ & ‘McAloo Tikki’
Domino’s – ‘Pepper Paneer’ & ‘Chicken Chettinad’
Pizza Hut/Pizza Express – spicing it up
Due Diligence is the Key
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Legal Advice
This presentation is designed to provide an overview of a number of legal principles and considerations.
As each legal issue is fact dependent, this presentation should not be used or viewed as legal advice, and your legal counsel should be consulted on the application of your particular factual situation to the current law.
Copyright: 2014 Kegler Brown Hill + Ritter
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Thank You!
Vinita Bahri-Mehra, DirectorAsia-Pacific Team LeaderKegler Brown Hill + [email protected]/bahrimehra614-255-5508614-464-2634 (fax)