Personal Investment and Taxes Planning

7/27/2019 Personal Investment and Taxes Planning

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Personal Investment and Taxes Planning

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Introduction

India has made many great improvements over the last decade in

achieving economic growth and poverty reduction. The most

significant advancement came in 1991 when India removed

governmental obstacles and allowed its doors to open to foreign

investment. Foreign Direct Investment (FDI) has emerged as an

eminent source of economic development and employment

generation for developing countries (including India) as it contributes

in creating a more competitive business environment, enhances

enterprise development, human capital formation and international

trade integration. This paper is an attempt to throw light on the

various investment opportunities and challenges in INDIA.

Definition:

Investment is the commitment of money or capital to purchase

financial instruments or other assets in order to gain profitable returns

in the form of interest, income or appreciation of the value of the

instrument(source: Wikipedia)

Various policies related to investments in INDIA as prescribed by

Indian government:

I. Setting up as an Indian or a Foreign Company

A foreign company planning to set up business operations in India

http://en.wikipedia.org/wiki/Interest

http://en.wikipedia.org/wiki/Income

http://en.wikipedia.org/wiki/Income

http://en.wikipedia.org/wiki/Interest




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has the option of either setting up as an Indian company or as a

foreign company

1) As An Indian Company

A foreign company can commence operations in India by

incorporating a company under the Companies Act, 1956 through

Joint Ventures (JV) or Wholly Owned Subsidiaries.

A) Joint Ventures

Foreign Companies can set up their operations in India by

incorporating a JV Company with an Indian partner and/or with the

general public and operating either as a listed company or as an

unlisted company.

B) Wholly Owned Subsidiaries

Foreign companies can also set up wholly owned subsidiary in

sectors where 100% foreign direct investment is permitted under the

FDI policy.

2) As A Foreign Company Foreign Companies can set up their operations in India through

A) Liaison Office/Representative Office: It acts as a channel of

communication between the principal place of business or head

office and entities in India.Its role is limited to collect information

about possible market opportunities and providing information about




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the company and its products to prospective Indian customers. It can

promote export/import from/to India and also facilitate

technical/financial collaboration between parent company and

companies in India.Approval for establishing a liaison office in India

is granted by Reserve Bank of India (RBI).

B) Project Office: Foreign Companies planning to execute specific

projects in India can set up temporary project/site offices in India.

RBI has now granted general permission to foreign entities to

establish Project Offices subject to specified conditions.

C) Branch Office: Foreign companies engaged in manufacturing and

trading activities abroad are allowed to set up Branch Offices in India

for the purposes of export/import of goods, rendering professional or consultancy services, carrying out research work in which the parent

company is engaged.

D) Branch Office on Stand Alone Basis: Such Branch Offices

would be isolated and restricted to the Special Economic zone (SEZ)

alone and no business activity/transaction will be allowed outside the

SEZs in India, which include branches/subsidiaries of its parent

office in India.

II. Procedures prescribed for FDI




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FDI in relation to control or ownership of a company in India takes

one of two routes:

1) Procedure Under "Automatic Route" FDI in sector/ activities to the extent permitted under automatic route

does not require any prior approval either by Government of India or

RBI. The investor are only required to notify the Regional office

concerned of RBI and file the required documents with that office

within 30 days of receipt of inward remittances. This route is

available to all sectors or activities that do not have a sector cap i.e.

where 100% foreign ownership is permitted, or for investments that

are within a sector cap and where the Automatic route is allowed.

2) Procedure Under "Government Approval" FDI in activities not covered under the automatic route requires prior

Government Approval and are considered by the Foreign Investment

Promotion Board (FIPB). Approvals of composite proposals

involving foreign investment/ foreign technical collaboration are also

granted on the recommendation of the FIPB.

3. FDI in the Small Scale Sector

Small Scale Undertakings (SSUs) are defined as units having

investments in fixed assets in plant and machinery of not more than

INR 10 million. Under the small scale industrial policy, equity




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holding by other units including foreign equity in a small scale

undertaking is permissible up to 24 per cent.

4. Other Modes of Foreign Direct Investments

a. Global Depository Receipts (GDR)/American Deposit Receipts

(ADR)/Foreign Currency Convertible Bonds (FCCB).

b. Minority stakes in host-country firms

5. Investment in a Firm or a Proprietary Concern By NRIs

A Non-Resident Indian or a Person of Indian Origin resident outside

India may invest by way of contribution to the capital of a firm or a

proprietary concern in India on a non-repatriation basis provided.

6. List of Sectors where FDI is restricted.

Sectors where FDI is not permitted are restricted to Railways,

Atomic Energy and Atomic Minerals, Postal Service, Gambling and

Betting, Lottery and basic Agriculture or plantations activities or

Agriculture and Plantations.

7. Sectors which attract Ceiling on Foreign Ownership Sector

Telecom, Coal and lignite, Mining, Private sector banking, Insurance,

Domestic airlines, Petroleum, Refining, Investing companies/

Services sector, Atomic minerals, Defence industry sector,

Broadcasting, Setting up hardware, facilities such as uplinking, HUB,




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etc., Cable network, Direct-to-Home, Terrestrial Broadcasting FM,

Small scale industries (SSI) sector, Satellites, Tea sector, Print

Media.

Foreign direct investment

Foreign direct investment (FDI) refers to long term participation by

country A into country B. It usually involves participation

in management, joint-venture, transfer of technology andexpertise.

Direct investment excludes investment through purchase of shares.

India has been emerging as the next market for foreign direct

investments. The reason behind the success is the rules and

regulations framed by the various ministries of government of India

as well as the regulators from SEBI, RBI. India, among the European

investors, is believed to be a good investment despite political

uncertainty, bureaucratic hassles, shortages of power and

infrastructural deficiencies. India presents a vast potential for

overseas investment and is actively encouraging the entrance of

foreign players into the market. No company, of any size, aspiring to

be a global player can, for long ignore this country which is expected

to become one of the top three emerging economies. India is the fifth

largest economy in the world (ranking above France, Italy, the United

Kingdom, and Russia) and has the third largest GDP in the entire

continent of Asia. It is also the second largest among emerging

http://en.wikipedia.org/wiki/Management

http://en.wikipedia.org/wiki/Joint-venture

http://en.wikipedia.org/wiki/Transfer_of_technology

http://en.wikipedia.org/wiki/Expertise

http://en.wikipedia.org/wiki/Foreign_portfolio_investment

http://en.wikipedia.org/wiki/Foreign_portfolio_investment

http://en.wikipedia.org/wiki/Expertise

http://en.wikipedia.org/wiki/Transfer_of_technology

http://en.wikipedia.org/wiki/Joint-venture

http://en.wikipedia.org/wiki/Management




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nations. (These indicators are based on purchasing power parity.)

India is also one of the few markets in the world which offers high

prospects for growth and earning potential in practically all areas of

business.Yet, despite the practically unlimited possibilities in India

for overseas businesses, the world's most populous democracy has,

until fairly recently, failed to get the kind of enthusiastic attention

generated by other emerging economies such as China.

India has been ranked at the third place in global foreign direct

investments in 2009 and will continue to remain among the top five

attractive destinations for international investors during 2010-11,

according to United Nations Conference on Trade and Development

(UNCTAD) in a report on world investment prospects titled, 'World

Investment Prospects Survey 2009-2011' released in July 2009. The

2009 survey of the Japan Bank for International Cooperation released

in November 2009, conducted among Japanese investors continues to

rank India as the second most promising country for overseas

business operations, after China. according to the Asian Investment

Intentions survey released by the Asia Pacific Foundation in Canada,

more and more Canadian firms are now focussing on India as an

investment destination. From 8 per cent in 2005, the percentage of

Canadian companies showing interest in India has gone up to 13.4

per cent in 2010.




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India attracted FDI equity inflows of US$ 2,214 million in April

2010. The cumulative amount of FDI equity inflows from August

1991 to April 2010 stood at US$ 134,642 million, according to the

data released by the Department of Industrial Policy and Promotion

(DIPP). During April 2010, Mauritius invested US$ 568 million in

India, followed by Singapore which invested US$ 434 million and

Japan that invested US$ 327 million, according to latest data released

by DIPP. In May 2010, the government cleared 24 foreign

investment proposals, worth US$ 304.7 million. These include:

Asianet's proposal worth US$ 91.7 million to undertake the

business of broadcasting non-news and current affairs television

channels.

Global media magnate Rupert Murdoch-controlled Star India

holdings' investment of US$ 70 million to acquire shares of

direct-to-home (DTH) provider Tata Sky.

AIP Power will set up power plants either directly or indirectly

by promotion of joint ventures at an investment of US$ 24.4

million.

Sector wise challenges and opportunities

1. Automobile sector




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India is an emerging global manufacturing hub for low-cost

compact cars. It is Asia’s third-largest passenger vehicle market and

the world’s second-largest two-wheeler market. It is also the world’s

fourth-largest commercial vehicle market. Changing demographics,

rising disposable income and entry of several new players has

expanded the domestic market for passenger vehicles. Low

manufacturing costs due to economies of scale, low R&D and

sourcing costs, are increasing affordability and driving domestic

demand.

The Indian automotive industry is expected to be the world’s

seventh-largest automobile market by 2016 and the third largest by

2030, only behind China and the US. Recent acquisition of Jaguar

and Land Rover brands by Tata Motors and launch of world’s

cheapest car, Tata Nano, has placed the Indian automobile market on

the global automotive map. Total value of vehicle exports is

estimated to reach US$ 8 billion to US$ 10 billion by 2015. The

industry turnover is estimated to reach a level of US$ 155 billion by

2016. Overall production of automobiles increased from 8.7 million

units in 2004 – 05 to 11.4 million units in 2008 – 09. Between 2000 and

2009, the industry witnessed a cumulative foreign direct investment

(FDI) flow worth US$ 4.3 billion accounting for 4 per cent of the

total FDI into the country.




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Opportunities

Govt policies including weighted tax deduction has deduced

upto 200% for inhouse R&D activities in the country.

Increasing production cost, shorter product life cycle and

increasing trends of geographical expansion to deresk

dependence on one market are key factors that influence

companies to outsource.

Availability of low cost skilled and educated manpower; proven

product development capabilities and location advantage due to

India’s proximity to emerging markets.




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Revenues are estimated to increase from US$ 40 billion in 2002

to US$ 300 billion in 2015, thereby increasing its share from 0.8

percent to 3.5 per cent.

Challenges

Accelerated modification and diversification of the product

portfolio

Pervasion of automobiles with digital technology

Increased pressure for innovation and flexibility in development

and manufacturing

2. Textile and apparels

The textile industry in India provides direct employment to

more than 35 million people and is the second-largest employment

generator after agriculture. The textiles industry accounts for 14 per

cent of the total industrial production in India. At current prices, it

accounts for 4 per cent of the gross domestic product (GDP) — US$

51.36 billion. Textiles and apparel industry exports, valued at US$

20.02 billion (INR 963.05 billion), contributed about 11.5 per cent to

the country’s total exports in 2008– 09. In addition to the four

functional SEZs, there are 13 in-principle approved, 19 formally

approved and 12 notified SEZs in India.




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Opportunities

material for industrial, agricultural and consumer goods.

According to the Confederation of Indian Textile Industry

(CITI), the potential size of the Indian textiles industry is

expected to reach US$ 110 billion by 2012.

With consumerism and disposable income on the incline, theretail sector has witnessed rapid growth in the past decade.

Several international retailers are also focusing on India due to

its emergence as a potential sourcing destination.




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The packtech segment constitutes 38 per cent of the total

technical textiles production in India (2007 – 08). This industry

includes the production of flexible packaging

Challenges

Scale: Indian firms are typically smaller than their Chinese or Thai

counterparts and there are fewer large firms in India. Some of the

Chinese large firms have 1.5 times higher spinning capacity, 1.25

times denim (and 2 times gray fabric) capacity and about 6 times

more revenue in garment than their counterparts in India thereby

affecting the cost structure as well as ability to attract customers with

large orders.

Skills :

1. There is a paucity of technical manpower 2. Indian firms invest very little in training its existing

workforce and the skills are limited to existing proceses.

3. There is an acute shortage of trained operators and

supervisors in India.

Domestic Market

The Indian domestic market for all textile and apparel products is

estimated at $26 bn and growing. While the market is very

competitive at the low end of the value chain, the mid or higher

ranges are over priced.




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3. Healthcare sector

India’s growing population and increasing preference for private

health services over public services is augmenting the growth of thehealthcare delivery market. Among countries outside the US, India

has one of the largest numbers of Joint Commission International

(JCI) approved hospitals. The country has 0.5 million doctors, 0.9

million nurses and about 1 million beds. These factors have

transformed it into a leading medical tourism destination. Healthcare

expenditure in India is expected to increase by 15 per cent per

annum. This segment is expected to constitute 6.1 per cent of the

country’s GDP and employ around nine million people in 2012. The

share of tertiary care in the total healthcare market is currently about

11 per cent.




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Opportunities

An additional 1.75 million beds are needed for India to achieve

the target of two beds per 1,000 population by 2025.

To maintain the current doctor-to-nurse ratio of 2.2, an

additional 1,600,000 nurses will have to be trained by 2025.

India’s changing demogra phics and the increasing incidence of

non-communicable and lifestyle-related diseases is expected totrigger the need for more tertiary care hospitals to cater to this

demand.

The potential increase in the penetration rate of medical

insurance and employer plans could result in a higher demand

for premium healthcare services in India, and consequently,

increase the demand for hospital beds and medical equipment.

Challenges:

1. cutting edge technology

2. Research and development

3. new innovate treatment

4. customer service quality

4. IT and ITES sector

Total revenues in India’s IT industry touched US$ 70.5 billion




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in 2008 – 09 as compared to US$ 64 billion in 2007 – 08, growing at

more than 12 per cent. The Indian IT & ITeS industry is primarily

concentrated in seven clusters — Bengaluru, NCR-Delhi, Hyderabad,

Chennai, Pune, Mumbai and Kolkata. The contribution of IT industry

to India’s gross domestic product (GDP) has grown from 1.2 per cent

in 1997 – 2008 to an estimated 5.8 per cent in 2008 – 09. Total

revenues in India’s IT industry touched US$ 70.5 billion in 2008– 09

as compared to US$ 64 billion in 2007 – 08, growing at more than 12

per cent. The Indian IT industry has been growing at a compound

annual growth rate (CAGR) of 27 per cent from 2003 to 2008.

India’s software and services exports, including its ITeS-BPO

exports, touched US$ 47.3 billion in 2008 – 09, as compared to US$

40.4 billion in 2007 – 08, an increase of 14.3 per cent.




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Opportunities

It is estimated that the overall size of the domestic market grew

by 20 per cent in 2008 – 09 to reach US$ 24.3 billion by 2010.

Domestic IT BPO spending grew by 40 per cent in 2008 – 09.

The government is taking up e-governance initiatives and

increasing its IT spend/outlay with an allocation of more thanUS$ 400 million for the Unique Identification Authority of India

(UIDAI) in 2010 – 11.

The labour cost arbitrage in this sector is about 60 per cent of

that in the US.

The growth drivers include the high productivity of India’s

human resources and outsourcing of knowledge processes by

SMEs.

Challenges

1. Dependency on US

2. Indian IT firms are outsourced and off- shored

3. Rupee appreciation and FII

4. Diversification in verticals

5. Power sector




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Thermal power accounts for 64.2 per cent of the power

produced in India, followed by hydro-electric power. India’s total

installed capacity, as on March 31, 2010, has been estimated at

159,398.49 MW. The outlay for the sector is US$ 115.56 billion

(INR 5,547 billion), according to the Eleventh Plan. The government

has launched an initiative for the development of coal-based ultra

mega power projects (UMPPs), each with a capacity of about 4000

MW. The states contributed 79,391.85 MW to the total installed

capacity, while the Central and private sectors contributed 50,992.63

MW and 29,014.01 MW, respectively, as of March 2010. The

installed capacity of the renewable energy industry has been

estimated at 13,242 MW (as on July 31, 2009), which constitutes 9

per cent of the country’s total installed capacity.




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Opportunities

Construction, operation and maintenance of transmission lines

by private players.

Private transmission facilities to be either set up and operated by

independent power transmission companies or joint ventures

with state-owned transmission utilities.

Competitive bidding for multiple transmission projects.

Challenges




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Avoiding misconception of the new market arrangements

Keeping anticipation capabilities to adapt and correct policies

and processes (avoiding myopia and sheep behaviour)

Saving minimum core business competency at decision-making

level

The environment laws will increase the restrictions to electric

engineering

The automation and smart instrumentation presence will beincreased

New materials and processes will force a permanent knowledge

update

The demand of technical and financial management will

increase

The professional competition will increase

The legal aspects will increase in professional activities

6. Financial services sector

The Indian financial market is growing rapidly, with significant

potential for further growth (National Stock Exchange is ranked 18th

in terms of value of shares traded in the world). India has a strong

financial regulatory system, administered by Reserve Bank of India

(RBI) and supported by regulatory body such as Securities and

Exchange Board of India (SEBI), which govern capital markets and




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mutual funds, among other financial institutions. India’s high savings

rate offers significant opportunity for channelising resources into the

financial markets. The NSE and the BSE are the main exchanges,

with the NSE contributing over 70 per cent of the turnover. There are

more than 8,000 brokers in addition to about 44,000 sub-brokers

registered with SEBI. Mutual funds in India had assets under

management to the tune of US$165 billion (INR 7,944 billion) as of

December 2009. More than 11,000 non-banking financial companies

(NBFCs) are registered with the RBI. The microfinance segment in

India too is witnessing rapid growth. Market capitalisation of Indian

companies on the stock exchange has more than tripled between

2004 – 05 and 2009 – 2010.




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Opportunities

High GDP growth rate, driven by significant corporate earnings,

is expected to create the need for more intermediaries in the

capital market.

Large number of mutual funds and increasing AUM require

more distribution intermediaries and schemes for better market

penetration. Unorganised money lending is a general practice in micro-

credit. High level of professionalism, more transparency and

low interest rates brought in by organised microfinance firms, is

expected to expand the market.

Challenges

Adept to face increasing transaction volumes, regulation and the

integration of previously disparate global markets

Agile at identifying and managing risk

Operationally efficient

Customer – centric

Optimized in both business & technology

7. Steel sector

India is the fifth-largest producer of crude steel in the world




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(2008), with a production volume of 54.5 million tonnes. 222

memoranda of understanding (MoUs) have been signed by various

states with an intended capacity of about 275.7 million tonnes and an

investment of more than US$ 229 billion (INR 11,000 billion). India

and China are the only countries to have registered positive growth in

steel production in the period between January and March 2009.

The steel production capacity is estimated to reach 124 million

tonnes by 2011 – 12. In 2008 – 09, the installed capacity for crude steel

was estimated at 64.4 million tonnes, while production was estimated

at 54.5 million tonnes, resulting in an 85 per cent capacity utilisation.

Long-products constituted 57 per cent of the total finished steel

consumption, while the remaining 43 per cent was constituted by

flat-products in 2007 – 08.




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Opportunities

The rising costs of coal and crude oil have resulted in a shift

towards the use of alternate fuels. To leverage this opportunity,

companies are investing in building a pipeline network for gas

distribution.

The increasing investments by the state governments in water and sewage pipes infrastructure management are also expected

to augment the anticipated demand.

Challenges




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The condition of the infrastructural facilities of the steel industry

in India is not at all conducive to a sustainable growth and

development of the steel industry of the India.

Even though India is capable of producing steel at a good rate

and also increase the volume of production there is not enough

land available to support such activities. the design institutions

in India have not been successful at recruiting the best of

engineers and metallurgists in India. This has affected thetechnological aspect of the Indian steel industry.

8. Telecommunication sector

India is one of the biggest telecom markets in the world

with 581.81 million subscribers as on January 31, 2010, whichare estimated to reach approximately 700 million by 2012. At

the end of January 2010, the overall tele-density was recorded at

49.5 per cent with a total telephone subscriber base of 581.81

million. The telecom sector is one of the highest FDI attracting

sectors in India, and has recorded FDI inflows worth over US$

8.8 billion between 2000 and 2010. Multiple factors including

low tariffs, low handset prices, effective government

regulations, higher incomes and changes in customer behaviour

are the key drivers for growth. Broadband subscribers are




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expected to grow to 30 million, while Internet subscribers are

expected to grow to 45 million by 2012.

Opportunities

By 2012, total telecom penetration in the largely untapped

potential rural markets of India is expected to reach to about 40

per cent as compared to the current tele-density of about 16.61

per cent as of June 2009.

Despite the low penetration of internet services in the Indian

market, it is expected to grow in the next decade in terms of

number of subscribers. India is expected to feature among the

top 10 broadband markets by 2013.




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The expansion of wireless networks and growth in subscriber

base, both in urban and rural areas, has led to a boost in the sale

of mobile handsets across India. The mobile handsets sale grew

by 7.9 per cent in 2008 – 09.

Challenges

1. advanced technology for authentication and e-purchase

2. security measures

3. efficient use of bandwith.

Conclusion

Through this paper we have seen the various investments in India in

different sectors. These sectors are the core sectors apart from these

there are many more areas where investments can be made. As India

is fast emerging as an developed nation the FDIs are the most

important areas from where revenues can be earned. Therefore

India’s opportunity for building up a strong base for investments

particularly FIIs is very much higher and the Government of India is

supporting this move. We hope to see move FDIs in India for the

betterment of the trade as well as for the country and its economy.




Bibliography

Ministry of finance (www.finmin.nic.in)

Indian brand equity foundation

www.managementfunda.com

www.economywatch.com

www.siam.org

http://www.managementfunda.com/


http://www.economywatch.com/

http://www.siam.org/



http://www.economywatch.com/


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