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INVESTING IN INDIA

October 2007

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FDI Policy Framework

Foreign Direct Investment

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Investing inIndia Entry Routes

Automatic RoutePrior Permission

(FIPB)

Investing in India

General rule

No prior permission

requiredOnly information to theReserve Bank ofIndiawithin 30 days of inflow/Issue ofshares

By exception

Prior Government

Approvalneeded

DecisiongenerallyWithin 4-6 weeks

Investing inIndia Entry Routes

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Manufacturing 100% FDI permitted in all activities under automatic route

except:

Cigar and cigarettes of tobacco - FIPB

Products reservedfor Small Scale Sector FDIless than 26% under automatic route FDI beyond 26% - FIPB subject to export obligation

Defence products FDI upto 26% - FIPB subject to licensing ofArms and

Ammunitions

FDI Policy forIndustry Sector FullypermittedFDI Policy forIndustry Sector Fully permitted

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FDI Policy forIndustry Sector. Fully permittedFDI Policy forIndustry Sector. Fully permitted

Mining Coal FDI upto 100% as per Coal Mines (Nationalization) Act 1977 Diamond, Gold, Silver, Minerals upto 100% under automatic route

as MMRD Act Atomic minerals upto 74% in JV with PSUs FIPB

Electricity FDI upto 100% under automatic route in Generation, Transmission,

Distribution and Power Trading as per Electricity Act 2003

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FDI Policy for Service Sector-Infrastructure. LargelyPermittedFDI Policy for Service Sector-Infrastructure. Largely Permitted

Roads & Highways- 100% FDI permitted under automatic route

Airports Greenfield Projects- 100% FDI permitted under automatic route ExistingAirports- 100% FDI, beyond 74% requires FIPB approval

Air Transport- up to 49% FDI under automatic route,100 % NRI

Telecom Basic and cellular, UnifiedAccess Services,National/International Long

Distance etc.- 74% (IncludingFDI,FII,NRI, beyond 49% underFIPBroute

ISP without gateway,Infrastructure provider providingdarkfibre, right ofway,duct space, tower(Category-I), Electronic mail andvoice mail-100%, beyond 49% requires FIPB approval

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FDI Policy for Service Sector-Infrastructure. LargelyPermittedFDI Policy for Service Sector-Infrastructure. Largely Permitted

Shipping and Ports-100% FDI under automatic route

Railways- Rolling stocks openforFDI, Railway transport reservedforPublic sector.

Industrial Parks- 100% FDI under automatic route

Hospitals- 100% FDI under automatic route

Hotels & Tourism (include restaurants, beach resorts, and othertourist complexes providing accommodation and/or catering andfoodfacilities to tourists. Tourism related industry include travel agencies,tour operating agencies and tourist transport operating agencies)-100% FDI under automatic route

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FDI Policy for Service Sector- Infrastructure. Fully PermittedFDI Policy for Service Sector- Infrastructure. FullyPermitted

FDI- 100% permitted unjder automatic route

Objectives- Development of infrastructure facilities,Investment

Promotion, Promotion ofexports ofgoods and services, Generation ofemployment opportunities etc.

Establishment Procedure- SEZ can be established either by theCentral Government, State Government or any other entity.

Requirements- Minimum area requirements fordifferent class ofSEZs, every SEZ is divided into a processing area(for units) and thenon-processing area (for supporting infrastructure).

Simplified Procedure- Single window clearance for setting up SEZas well as units within SEZ

SPECIAL ECONOMIC ZONES- Fuelling Indias Economic Growth

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SEZ Current StatusSEZ Current Status

396 SEZs formally approved: 19 Multi Product SEZs; 6 Port based Multi Product SEZs; 132 Sector Specific SEZs; 249 EH/IT/ITES SEZs

169 valid in-principleapprovals;

151 SEZs notified; over45 SEZs functional

2006-07 Exportsat US$8.3billion (Rs. 34,787 Crores)

Growth in exports 52% over2005-06

Projected exports2007-08 US$15 billion(Rs.67,088 crores)(200% increase in two years)

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Incentives for SEZ DevelopersIncentives for SEZ Developers

Exemption from customs/excise duties fordevelopment of SEZsapproved by the BOA.

Income Tax exemption on export income forablock of 10 yearsin 15 years underSection 80-IAB of the Income Tax Act.

Exemption from dividend distribution tax underSection 115O ofthe Income Tax Act.

Exemption from Central Sales Tax (CST).

Exemption from Service Tax

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Incentives andfacilities for the units in SEZIncentives andfacilities for the units in SEZ

Duty free import/domestic procurement of goods fordevelopment, operation and maintenance of SEZ units

100% Income Tax exemption on export income forSEZ unitsunderSection 10AA of the Income Tax Act forfirst 5 years, 50%

fornext 5 years thereafterand 50% of theploughed backexportprofit fornext 5 years.

External commercial borrowing by SEZ units upto US $ 500million in a yearwithout any maturity restriction throughrecognized banking channels.

Exemption from Central Sales Tax.

Exemption from Service Tax.

Exemption from Statesales tax and otherleviesasextended by

therespective State Governments.

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Real Estate- Policy and conditionsReal Estate- Policy and conditions

FDI is not permitted in thebusiness of buying and selling ofproperty

FDI up to 100% undertheautomatic route in townships, housing,

built-up infrastructureand construction-development projectsincluding housing, commercial premises, hotels, resorts,hospitals, educational institutions, recreational facilities, cityand regional level infrastructure)subject to following conditions:

Minimum area to be developed under each project would be 10 hectaresfordevelopment ofserviced housing plots and 50,000 sq.mts in case of

construction-development projects.

Minimum capitalization ofUS$10 millionfor wholly owned subsidiariesand US$ 5 millionfor joint ventures with Indian partners.

Original investment cannot be repatriated before a period ofthree years

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Real Estate inIndiaReal Estate inIndia

Second largest employernext only to agriculture

US $ 12 billion industry

Growing at about 30% perannum

Housing sectorcontributes to 5%of the countrys GDP

FDI Inflows: (from 1991 to June 2007) Housing & Real Estate:US$1123 million

ConstructionActivities (Including Roads & Highways):US$1875 million

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Indian Real Estate- Catalyst for GrowthIndian Real Estate- Catalyst for Growth

With Indian economy growing strongly, requirements of housing,commercial and industrial infrastructurebound to rise.

More than 367 Million Sq. Ft. ofadditional officespace needed by2012-13 ( Estimated by Ernst & young)

4.7 million housing unitswould have to be completed by 203

0 (Estimated by Deutsche Bank)

Asian Development Bankestimatesrequirements of 10 million unitsby 2030

Indian Ministry of Tourism forecasted requirements of 2.9and 6.6Million hotel rooms to meet the tourismand businessby 2010 and

2020. Fast growing Medical tourismwill become US$2 billion industry by

2012 and will require huge investment in Health Servicessector.

Booming retail tradesectorneeds 13Millionsq. Ft. ofspaceby 2008end in topeight large cities in India

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Real Estate Development- IncentivesReal Estate Development- Incentives

Tax Holidays; Exemption from tax on 100% forprofits derived by an undertaking

engaged in developing/operating/maintaining an Industrial Park.

Exemption from tax on 100% forprofits derived by an undertakingengaged in developing and building housing projects.

Exemption from tax on 100% forprofits derived by an undertakingengaged Development, operation and maintenance ofan SEZ.

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MajorForeignDevelopers inIndiaMajorForeignDevelopers inIndia

INVESTOR COUNTRY PROJECT LOCATION

Emmar Group Dubai Hyderabad

Kontur Bintang/Westport Malaysia Gur gaon

Singapore Housing Board Singapore Hyderabad/Chennai

Keppel Land Singapore Banglore

Salim Group Indonesia Kolkata

Lee Kim Tah holdings Singapore Chennai/Mumbai

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FDI Policy for Service Sector-Other than infrastructure. LargelypermittedFDI Policy for Service Sector-Other than infrastructure. Largelypermitted

FM Broadcasting(20%) - FIPB

UplinkingNews and CATV Channel - FIPB

Print Media News Papers & Periodicals -FIPB

Insurance -Automatic

Upto 26%

Upto 49% Broadcasting - Cable Network,DTH,

Setting up hardware - FIPB

Stock Exchanges - FIPB

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FDI Policy for Service Sector. LargelypermittedFDI Policy for Service Sector. Largelypermitted

Private sector banks - Automatic

Publishing scientific magazines - FIPB

Courier services - FIPB

NBFC - Automatic

Upto 74%

Upto 100%

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FDI Policy for Agriculture Sector. Largely RestrictedFDI Policy for Agriculture Sector. Largely Restricted

Floriculture, Horticulture,Development ofseeds, Animalhusbandry, Pisciculture, Cultivation ofvegetables,Mushrooms under controlled condition allowed100% underautomatic route

Tea plantation 100% with FIPB anddivestment of26% in5 years

Other activities not allowed.

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FDI Policy . Prohibited activitiesFDI Policy . Prohibited activities

Retail except single brand retailing allowed upto 51% withFIPB approval

Atomic energy

Lottery business

Betting and Gambling

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Foreign Direct Investment

FDI Data Analysis

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FDIInflows.Robust GrowthFDIInflows.Robust Growth

4029 4322

19531

7722

6051

5035

6130

0

5000

10000

15000

20000

25000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

US$m

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0

1000

2000

3000

4000

5000

6000

7000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

US$

m

Mauritius USA Japan Netherlands Singapore

FDI Country wise

Mauritiuscontinues to lead

USA retains its position as 2nd most importantsource country

Spurt inFDIfrom Singapore

4012

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0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

U

S$

m

ElectricalEquipment (including Software) Telecommunications Transportation

Chemicals (other than Fert.) Services Sector Fuels (Power & Oil Refinery)Construction Activities

FDIInflows- Sector -wise

Electrical equipment including softwaremoves to over all 2nd position inNov 2006.

Servicessectorshows spurt ingrowth andthe top sector attractingFDI moving up fromthe third position.

Spurt inFDI inReal Estate causes theconstruction sector to the third position inNov2006.

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INVESTMENT AGREEMENTSINVESTMENT AGREEMENTS

Important features of Bilateral Investment PromotionAgreement (BIPA) :

National Treatment forforeign investment;

MFN treatment forforeign investment and investors;

Free repatriation/ transfer ofreturns on investment;

Recourse to domestic disputes resolution and internationalarbitrationfor investor-State and State-State disputes;

Nationalization / expropriation only in public interest on a non-discriminatory basis and against compensation etc.

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INVESTMENT AGREEMENTSINVESTMENT AGREEMENTS

Government ofIndia have, so far, signed BIPAs with 68 countries out ofwhich 50 BIPAs have already come into force.

To name a few; Australia, Austria, Belgium,Denmark,France, Germany,Israel,Kuwait, Malaysia, Mauritius,Netherlands, S. Korea, Switzerland,Thailand, UK andlike.

Countries with whom BIPA has been signed and will come inforceshortly: Turkey, S. Arabia, Bahrain, S. Arabia,China, Mexico etc.

Countries with whom negotiations are on: Brazil,Colombia, Japan,Canada etc.

India has signed Comprehensive Economic Co-operation Agreement

(CECA) with Singapore only, which is an integrated package comprisinga free trade agreement, a bilateral agreement on investment promotionand protection, an improveddouble taxation avoidance agreement anda work programme for cooperation in healthcare, education, media,tourism, customs, e-commerce, intellectual property, and science andtechnology.

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Portfolio Investment

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Investing inIndiaInvesting inIndia

Main features of thepolicy on investment by FII are:

FIIs are required to allocate their investment between equity anddebtinstruments in the ratio of70:30.

It is also possible for anFII to declare itselfa 100% debt FII

FIIs can buy/ sill securities an stock Exchanges. No individualFII/ Sib-account can acquire more than10% of the paid up

capital ofanIndian company

FII and their sub-accounts cannot acquire more than 24% ceiling to theSectoral Cap / Statutory Ceiling as applicable by passing a resolution by itsBoard ofDirectors,followed by passing a special Resolution to that effectby its General Body.

More that 1100 registeredFIIs with more than 3800 sub accounts

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Indias Equity Capital MarketsIndias Equity Capital Markets

Market Cap ofboth BSE andNSE crossed US$ 1trillion in July 2007

India first BRIC country with Market Cap ofabove GDP and joins select group ofcountries

The Bombay Stock Exchange is one ofthe oldest stock exchanges in the world and has more than 5,000listed companies.

The National Stock Exchange ofIndia Limited(NSE) is thirdlargest in terms ofvolume oftrade.

Electronic screen-based trading systems. Early adopters ofsatellite communication and T+2 RollingSettlement.

Market capofmajorcountries

May 2007

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Debt andForeign ExchangeDebt andForeign Exchange

Bond market US$340 bn(95% domestic, over 75% sovereign/ municipaldept). Wellestablished and on of the largest bond market in Asia (NSE, RBI & Prime database).

Tenor of instruments range from overnight to 20 years by Government, CorporatesandFinancialInstitutions.

Strong andliquidderivatives market. Volume in OTC derivatives market are US$1.4bn.

Boominggrowth expected with securitization market and infrastructure financingpoisedfor takeoff.

Country foreign currency debt rating upgraded by S&P in 2007 to BBB-/A-3 with astable outlook. Moodys andFitch have upgraded to investment grade in 2004 and2006.

Foreign exchange management practices among the best (IMF). INR partially convertible on capital account, subject to progressive relaxation.

Large demandfor OTC derivatives with corporates using sophisticated swap andoption structures inlocal andforeign currency.

Highly sophisticated and broad based interest rates derivatives market (WorldBank/RBI)

DEBT

Forex

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Investing inIndiaInvesting inIndia

A foreign company to set upbusiness operations in India has thefollowing options:

Incorporation ofcompany (governed by the Companies Act,1956)

Liaison office/ Representative office

Project o ffice Branch office

Branch office on stand-alone basis in special economic zone