Doing Business In India


India - U.S. Economic Relations

1. Introduction

2. U.S. investments in India

- Foreign Direct Investment

- Portfolio Investment

3. India’s investments in USA

4. Institutional Framework for India-US Economic Cooperation

- US-India Economic Dialogue

5. Prospect for further India-US Economic cooperation

6. Details of top investing companies of US

7. United States Fortune-500 investors in India

8. Contacts for economic issues at the Indian Missions in the US


1. Introduction

India and the US have multi faceted relations ranging from political, strategic to economic and commercial. India-US economic relations in the form of bilateral investments and trade constitute important elements in India-US bilateral relations particularly because India is now the second fastest growing economy in the world and USA is the world’s largest economy.

Economic Reforms introduced since 1991 have radically changed the course of the Indian economy and led to its gradual integration with the global economy. Benefits of the reform process are visible in the form of better growth rates, higher investment and trade flows and accelerated decline in income poverty. The effects of these reforms on trade and investment relations with the United States have been profound. USA is the largest investing country in India in terms of FDI approvals, actual inflows, and portfolio investment. US investments cover almost every sector in India, which is open for private participants. India’s investments in USA are picking up. USA is also India’s largest trading partner.Since 2000, the two countries have been making efforts to strengthen institutional structure of bilateral economic relations by means of the “India-US Economic Dialogue” that aims at deepening the Indo-American partnership through regular dialogue and engagement.

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2. U.S. investments in India

   - Foreign Direct Investment

U.S. is one of the largest foreign direct investors in India. Cumulative FDI inflows from USA till July 2007 was $6215 million. FDI inflows from USA constitute about 12 percent of actual FDI inflows into India in rupee terms.

Share of US FDI in Total – Actual Inflow

Years	Total FDI ($ Mln)	US FDI ($ Mln)	US Share (%)
1991	143.6	11.3	7.87
1992	258.0	43.9	17.02
1993	582.9	147.7	25.34
1994	1048.5	118.9	11.34
1995	2172.0	215.6	9.93
1996	3021.0	271.0	8.97
1997	4579.1	736.6	16.09
1998	3377.2	347.1	10.28
1999	4016.1	431.2	10.74
2000	4498.1	418.4	9.30
2001	4281.1	367.6	8.59
2002	4434.5	282.8	6.38
2003	3109.0	396.3	12.75
2004	3753.6	647.65	9.93
2005	4353.8	472.07	10.00
2006	11,122	732.34	6.59

Source: Data Compiled from SIA Newsletter, Department of Industrial Policy & Promotion, Govt. of India  

The sectors attracting FDI from USA are: Fuels (Power & Oil Ref.), (Telecommunications (radio paging, cellular mobile & basic telephone services ,Electrical Equipment (including Computer Software & Electronics) Food Processing Industries (Food products & marine products) , and Service Sector (Fin. & Non-Fin. Services).

   Portfolio Investment

In Portfolio Investment also, USA is the leading investor. Currently out of 1030 FIIS there are 388 US based with SEBI. 

US companies in India are involved in a broad spectrum of economic activities. From infrastructure to consumer goods, and from information technology to consultancy services, American companies are represented in India as never before.

Year-Wise Foreign Institutional Investments

Years	Total FII ($ Mln)	FII from USA ($ Mln)	US Share (%)
1993-94	1634	781	47.80
1994-95	1528	894	58.51
1995-96	2036	856	42.04
1996-97	2424	1019	42.04
1997-98	1463	1005	68.69
1998-99	-176	-9	5.11
1999-00	2235	841	37.63
2000-01	2222	1174	52.84
2001-02	1702	533	31.32
2002-03	525	174	33.14
2003-04	8630	2863	33.17
2004-05	10172	2065	20.30
2005-06	9332	3266	34.99
2006-07	7100	2240	31.55
Data Source:  Securities and Exchange Board of India

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3. India’s investments in USA

The policy for Indian direct investment abroad was initiated in 1992. Streamlining of the procedures and substantial liberalization has been done since 1995. As of now, Indian corporates/Registered partnership firms are allowed to invest in entities abroad upto 400% of their net worth and are permitted to make overseas investments in any bonafide business activity. The overall annual ceiling on overseas investment and also the requirement of prior approval of RBI for diversification of activity and for transfer by way of sales of shares have been done away with. The basic rationale for opening up the regime of Indian investments overseas has been the need to provide Indian industry access to new markets and technologies with a view to increasing their competitiveness globally and help the country’s export efforts.

Since 1996 and up to March 2007, the total Indian investment abroad amounts to US $21,954 mln.During the period April 1996 to March 2007, Channel Island was the largest recipient of approvals for Indian Direct investment at $5414.07 million followed by USA at $3285.19 million, Russia at $2839.63 million, U.K at $2683.3 million and Mauritius at $2572 million. During the period April 1999 to March 2007, largest amount of approvals for overseas investments was in the financial and non financial services sector (including software development) at US $ 13,099.72 million followed by manufacturing at $12538.38 million, other activities at $2393.06 million and trading sector at $1884.57 million. 
In the current financial year 2006-07actual outflows from India on account of overseas investment was US$ 11,001.28 million as compared to US$ 4531.87 million last year. In the current year, Channel Islands attracted the highest amount of investment ($5358.843 million) followed by U.K ($1869.548 million), Mauritius ($1162.78 million) and USA ($830 million).In the current year largest amount of approvals was in the financial and non financial services sector($8256.20 million) followed by manufacturing at $3748.01 million and Other activities at $1808.16 million and Trading at $1247.63 million. The returns on account of repatriation of dividend, royalty, consultancy fee etc. from overseas JV/WOS during 2006-07 amounted to US$ 1919.67 million.

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4. Institutional Framework for India-US Economic Cooperation

The institutional framework for bilateral economic relations has two streams. One is at government-to-government level and the other is at business-to-business level. Both these streams have regular interactions with each other to promote and strengthen the trade and economic interactions between the two countries.

US-India Economic Dialogue

During the visit of US President Clinton to India in March 2000, a joint statement on “US-India Relations: - A Vision for the 21st Century” was issued by then Prime Minister Vajpayee and President Clinton which pledged to deepen the Indo-American partnership through dialogue and engagement. It also outlined an architecture of several high level consultations which would institutionalize this dialogue in a separate document “Agreed Principles: Institutional dialogue between the United States and India”. This architecture laid out the following framework for the bilateral economic dialogue.

High Level Coordinating Group Led on Indian side by Deputy Chairman Planning Commission with MEA support. Led on US side by White House with States Department support

In addition to the above, the Agreed Principles provided for (a) setting up of a Joint Consultative Group on Clean Energy and Environment; and (b) establishing US-India Science and Technology Forum, both of which were strictly not under the rubric of the Economic Dialogue.

Subsequently in 2001, in addition to the three fora under the Economic Dialogue, two additional fora were created to address environment and energy issues under the Economic Dialogue itself. Besides, following meetings at the level of Prime Minister Vajpayee and President Bush in November 2002, efforts began to develop a “Statement of Principles” on High Technology trade including trade in “dual use” goods and technologies. On February 5, 2003 a “Statement of Principles for India-US High Technology Commerce” was signed in Washington DC. The basic objectives of HTCG are : (a) to further the objectives specified in the “Statement of Principles” of November 2002 (b) to develop a schedule of meetings and activities for promotion of High Technology commerce (c) to take steps to remove systemic tariff and non-tariff barriers, (d) to identify and generate awareness of market opportunities recognizing the importance of private sector in this endeavour (e) to create appropriate environment for successful High Technology commerce in partnership with private sector and (f) to maintain regular information flow on the changes on respective export control laws, regulations and policies and establishment of mechanism for prompt discussion on any bilateral “dual use” export control issues.

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5. Prospect for further India-US Economic cooperation

There are several areas where economic cooperation between India and the US can progress further. These include infrastructure, IT, Telecom sector, energy and other knowledge industries such as pharmaceuticals and biotechnology.

Closer economic ties in infrastructure sector can yield mutual benefits to both the countries. The Government of India is continuously reviewing its policies to create an investor friendly environment in sectors such as roads, ports and airports. Private sector participation in management, BOT projects, green-field airports, terminals and shipping berths and capacity augmentation has been initiated.

Today, nearly two in five of the Fortune 500 companies outsource their software requirements to India. Abundant investment opportunities exist for further strengthening Indo-US economic ties in the IT sector, especially, in areas like communication infrastructure, optic fiber cable, gateways, satellite-based communication wireless, IT-enabled services, IT enable education, data centers and server farms, and software development.

India’s Telecommunication sector, already a major recipient of US investment, is expected to continue to provide substantial opportunities to US investors. India’s telecom sector has been growing at a rate of about 20 percent per annum for the past few years. The teledensity has increased from 1.94% in 1999 to 21.85% as on September 30, 2007. The proportion of households moving towards richer and well to do category is going up in India. There also exist huge untapped rural potential.

Government of India is keen on foreign investment in manufacturing telecom equipment and handset. India would require telecom equipment of the order of $84 billion to achieve the projected target of 650 million subscribers by 2012. Most of these investments are expected to come from foreign investment source. Some of the key changes include increase in foreign ownership limit, reduction of regulatory charges, moving to unified licensing and spectrum policy, bringing about comprehensive broad band policy and revamping of national telecom policy. Keeping in view the comparative advantages of the two countries, there is a tremendous scope for further strengthening the business ties between the two countries in this sphere.

India’s energy sector has been an important destination for US investment. The sector offers for exploitation a vast untapped potential to investors in hydro electricity, oil & natural gas and coal. Although several U.S. companies have been looking at the Indian energy market closely, progress has so far been limited. With the introduction of Central Electricity Act 2003, the government of India has now liberalized the power sector. Private sector participation is now allowed in generation, distribution and transmission. Considering the vast present and projected demand supply gap, there is tremendous potential for economic cooperation between the two countries in this area.

Pharmaceuticals, biotechnology and chemical industries also provide great opportunities for closer cooperation. India is one of the largest manufacturers and exporters of pharmaceuticals. It also holds the key for genotype drug design and is widely acclaimed for its large pool of trained doctors and cost effective research & development (R&D) activities.

In order to promote bilateral trade and investment in the knowledge- based industries, the US India Business Council (USIBC), along with FICCI, has launched a Knowledge Trade Initiative (KTI). The KTI is a bilateral forum between India and the U.S. to discuss key issues affecting the trade of knowledge-based products and services between the two countries. KTI aims to solidify Indo-US leadership in the knowledge economy by harmonizing bilateral positions on key issues affecting knowledge trade.

* The US investor community is today increasingly sharing confidence in the future of the Indian economy. The growing synergy between the two countries in the technology sectors and mutually shared respect for democracy, rule of law and well established business practices make the two countries natural business partners.

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DETAILS OF TOP INVESTING COMPANIES OF US
(Amount in million)

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UNITED STATES FORTUNE-500 INVESTORS IN INDIA

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Contacts for Economic Issues at the Indian Missions in USA