| | | Foreign Direct Investment | | | | | | Marking its second investment in India, Warren Buffet’s Berkshire Hathaway will induce investment in a chlorinated polyvinyl chloride (CPVC) industrial unit in Gujarat, through its wholly owned subsidiary Lubrizol Corporation. Lubrizol will initially invest Rs 1,177 crore (US$ 242 million) in the project and its construction work is expected to commence by January 2013.In order to tap more foreign funds, Cox and Kings has got the nod from Foreign Investment Promotion Board (FIPB) to increase its foreign equity by 10 per cent to 53.94 per cent, from the previous 43.81 per cent. Currently, foreign promoters have a stake of 19.87 per cent and FIIs hold 22.72 per cent. FIPB has granted its approval to the travel company to raise Rs 750 crore (US$ 154 million) from foreign markets.Meanwhile, Singapore-based Global Schools Foundation plans to invest Rs 300 crore (US$ 61.6 million) and start 25 schools in India over 2011-16. The foundation owns and operates Global Indian International Schools (GIIS) and Global School of Silicon Valley (GSSV) across eight countries all over the world.Policy InitiativesRecently, the government has further liberalised the FDI mechanism for allowing overseas investment in bee-keeping and share-pledging for raising external debt.Moreover, it has eased FDI norms for construction of old-age homes and educational institutions. The modification endorses removal of issues pertaining to the minimum and built-up area, capitalisation and lock-in period as applicable for other construction activities.In a bid to facilitate addition of manufacturing capacities, technology acquisition and development in Indian pharmaceutical sector, FDI in Brownfield investment will be allowed through the FIPB for six months, following which such acquisitions will be coursed through the Competition Commission of India (CCI), while it will be allowed through automatic route for Greenfield projects. When FIPB will clear the acquisition in six months, CCI will put regulations in place to ensure effective M&A deal while monitoring public health concerns.Meanwhile, seeing the expansion of luxury brands market in India, the government is considering raising FDI bar to 100 per cent from current 51 per cent in single-brand retailing. The proposal has been placed before a joint government-industry task force for consultation.The above stated initiatives clearly show that the Indian Government continues to work on streamlining policies and make the environment friendlier to FDI.FDI In multi brand Retail:The industry ministry is looking to allow foreign retailers a bigger play in their wholesale ventures after the government backtracked from opening the $450 billion supermarket sector.

The department of industrial policy and promotion (DIPP), a government department that frames policy on foreign direct investment (FDI), has proposed that only wholly owned subsidiaries be treated as group companies in the FDI policy.

This will allow the foreign retailers to sell more to organised multi-brand retailers with whom they have a tie-up.

At present, foreign retailers cannot have more than 25% of their sales coming from group companies, the definition of which is not clear in the policy.

"There are multiple definitions for 'group company', so there is a need to clarify what constitutes it under the FDI policy," a government official said.

The DIPP has proposed to treat only those entities as group companies in which the company has more than 51% stake, the official said. However, the definition will be finalised only after inter-ministerial consultations.

With FDI in retail on the backburner, the industry ministry is keen to incentivise wholesale cash-and-carry to attract investments in backend infrastructure and cold chains.

The government allows 100% FDI in wholesale cash-and-carry. After years of consultations it agreed to allow 51% FDI in multi-brand retail but backed down after facing stiff opposition from political parties, including allies, and traders.

A liberal definition of group company would have implications for wholesale cash-and-carry ventures such as Bharti Wal-Mart, Tata-Tesco and Future group-Carrefour.

"We have not seen any official notification to this effect and, therefore, are not in a position to comment, " said a spokeswoman for Bharti Walmart, the equal joint venture of India's Bharti Enterprises and the world's biggest retailer Walmart.

Experts say the current framework imposes significant restrictions on conducting wholesale trading business. "This move will provide the much-needed clarity and promote FDI in the sector," said Punit Shah, partner, tax and regulatory services, KPMG.

In many countries it is common for foreign companies to have singlebrand retail joint ventures and wholly owned wholesale companies.

A company that operates in the wholesale sector imports in bulk and sells to various franchisees, retailers and the single-brand JVs.

The 25% limit on group company sales and a further rider of internal use makes this business impractical.

The earlier thinking in the DIPP was to base the group company given in the foreign trade policy or the Competition Act. The definition in these policies says a company with more than 26% investment by another company will be considered a group company of the latter Foreign Institutional Investors | | Last Updated: October 2011 | | | | FII – Brief IntroductionThe term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies

India is witnessing intense activities from foreign institutional investors (FIIs), on account of the country's positive investment environment and high growth potential. FIIs, convinced about India's economic progress, are increasingly looking forward for investment options in India, be it in the form of private equity (PE), mergers & acquisitions (M&As) or investment in equities and debt instruments.Quenching its thirst for foreign assets, India Inc announced 177 M&A deals worth US$ 26.8 billion in the first nine months of 2011. For the quarter July-September 2011, inbound deals worth US$ 7.32 billion were registered as against the deals worth US$ 2.65 billion in the previous quarter; total value being largely accounted for by two mega deals – British Petroleum's (BP) US$ 7.2 billion acquisition of stake in Reliance Industries' oil and gas properties and Vodafone Group's purchase of partner Essar's 33 per cent stake in Vodafone Essar Limited for US$ 5.46 billion.The FII scenario has witnessed significant developments and investments in 2011, some of them being discussed hereafter.FII – Recent Developments * FIIs' net investment for the month of September 2011 stood at US$ 6.97 million and their injections from January–August 2011 stood at over US$ 2 billion. * According to latest data released by Securities and Exchange Board of India (SEBI), 21 institutions registered as FIIs with the market regulator in 2011-12 (till September), enhancing the presence of registered FIIs to 1,743. Moreover, the number of registered sub-accounts has increased by 342, taking the count to 6,028 in September 2011. Both figures are all-time highs. * According to the data available at Bombay Stock Exchange (BSE), FIIs have increased their stake in ten out of 100 companies in quarter ended September 2011. * FIIs' holdings through participatory notes or P-notes increased by 1.4 per cent in equities and debt instruments, including the derivatives, in August 2011. FII P-note position was noted at 15.4 per cent in August, as against 14 per cent in July 2011, according to the SEBI data. * India's foreign exchange reserves marked a new high at US$ 319 billion as on July 29, 2011, as per the data by the Reserve Bank of India (RBI). Growth in foreign currency assets and appreciation in gold reserves contributed to the reserves' increment. While the gold reserves recorded an all-time high of US$ 25,349 million, foreign currency assets were valued at US$ 286 billion on that date. | Foreign Institutional Investors | | Last Updated: October 2011 | | | | FII- Key Investments * In order to tap more foreign funds, Cox and Kings has got the nod from Foreign Investment Promotion Board (FIPB) to increase its foreign equity by 10 per cent to 53.94 per cent, from the previous 43.81 per cent. Currently, foreign promoters have a stake of 19.87 per cent and FIIs hold 22.72 per cent. FIPB has granted its approval to the travel company to raise Rs 750 crore (US$ 152.67 million) from foreign markets. Government InitiativesThe RBI supervises the ceilings on investments pertaining to FIIs/ non-resident Indians (NRIs) / persons of Indian origin (PIO) on a daily basis. For effective scrutiny of foreign investment ceiling limits, RBI has fixed cut-off points that are two percentage points lower than the actual ceiling. The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per cent for NRIs/PIOs. * In a bid to enhance the transparency of foreign funds, lower liquidity risks and curb volatility, SEBI has asked the foreign investors to have at least one ‘broad-based sub-account' for retaining their licences and has given them a year (until January 2012), to comply with the norms. Broad-based sub-accounts of FIIs are meant for large overseas wealth funds and have a wide investor base. * To attract more FII investments in India, the Government has reduced the residual maturity limit and the lock-in period for investment in infrastructure bonds. As of current policy, FIIs are allowed to invest up-to US$ 25 billion long-term infrastructure bonds that have a minimum residual maturity of five years and a lock-in period of at least three years. The modifications would be made to both the clauses of the scheme. * Moreover, the Government is considering allowing foreign individuals or Qualified Foreign Investors (QFIs), to buy equities directly in stock markets, a senior Finance Ministry official has revealed. In an initiative to highlight India as a major investment hub and attract higher foreign equity, the government has already allowed QFIs to invest up to US$ 13 billion in equity and debt schemes of mutual funds in the infrastructure sector. Road AheadInstitutional dealers bet big on Indian FII ecosystem for the years to come and anticipate 2012 to be a period when the scenario would improve to a greater extent. On the back of increased FII activity, CRISIL expects rupee to strengthen to Rs 45-46 per dollar by March 2012.Industry analysts believe that strong domestic consumption-driven growth in India would lure significant positive cash inflow in near future.Exchange Rate Used: INR 1 = US$ 0.0204, as on October 2011What is an ADR / GDR?ADR stands for American Depository Receipt. Similarly, GDR stands for Global Depository Receipt. Let’s understand these better.Every publicly traded company issues shares – and these shares are listed and traded on various stock exchanges. Thus, companies in India issue shares which are traded on Indian stock exchanges like BSE (The Stock Exchange, Mumbai), NSE (National Stock Exchange), etc.These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation).But to list on a foreign stock exchange, the company has to comply with the policies of those stock exchanges. Many times, the policies of these exchanges in US or Europe are much more stringent than the policies of the exchanges in India. This deters these companies from listing on foreign stock exchanges directly.But many good companies get listed on these stock exchanges indirectly – using ADRs and GDRs.This is what happens: The company deposits a large number of its shares with a bank located in the country where it wants to list indirectly. The bank issues receipts against these shares, each receipt having a fixed number of shares as an underlying (Usually 2 or 4).These receipts are then sold to the people of this foreign country (and anyone who is allowed to buy shares in that country). These receipts are listed on the stock exchanges. They behave exactly like regular stocks – their prices fluctuate depending on their demand and supply, and depending on the fundamentals of the underlying company.These receipts, which are traded like ordinary stocks, are called Depository Receipts. Each receipt amounts to a claim on the predefined number of shares of that company. The issuing bank acts as a depository for these shares – that is, it stores the shares on behalf of the receipt holders.If the depository receipt is traded in the United States of America (USA), it is called an American Depository Receipt, or an ADR.If the depository receipt is traded in a country other than USA, it is called a Global Depository Receipt, or a GDR. | Last Updated: November 2011 | | | | Highlights of EXIM Policy, 2002 - 2007I- Special Economic Zones (SEZs)
Offshore Banking Units (OBUs) shall be permitted in SEZs. Detailed guidelines are being worked out by RBI. This should help some of our cities emerge as financial nerve centres of Asia.

Units in SEZ would be permitted to undertake hedging of commodity price risks, provided such transactions are undertaken by the units on stand-alone basis. This will impart security to the returns of the unit.

It has also been decided to permit External Commercial Borrowings (ECBs) for a tenure of less than three years in SEZs. The detailed guidelines will be worked out by RBI. This will provide opportunities for accessing working capital loan for these units at internationally competitive rates.

II- Employment oriented

Agriculture
Export restrictions like registration and packaging requirement are being removed today on Butter, Wheat and Wheat products, Coarse Grains, Groundnut Oil and Cashew to Russia . Quantitative and packaging restrictions on wheat and its products, Butter, Pulses, grain and flour of Barley, Maize, Bajra, Ragi and Jowar have already been removed on 5th March, 2002.

Restrictions on export of all cultivated (other than wild) varieties of seed, except Jute and Onion, removed.

To promote export of agro and agro based products, 20 Agri export zones have been notified.

In order to promote diversification of agriculture, transport subsidy shall be available for export of fruits, vegetables, floriculture, poultry and dairy products. The details shall be worked out in three months.

3% special DEPB rate for primary & processed foods exported in retail packaging of 1 kg or less.

b) Cottage Sector and Handicrafts (i) | An amount of Rs. 5 crore under Market Access Initiative (MAI) has been earmarked for promoting cottage sector exports coming under the KVIC. | (ii) | The units in the handicrafts sector can also access funds from MAI scheme for development of website for virtual exhibition of their product. | (iii) | Under the Export Promotion Capital Goods (EPCG) scheme, these units will not be required to maintain average level of exports, while calculating the Export Obligation. | (iv) | These units shall be entitled to the benefit of Export House status on achieving lower average export performance of Rs.5 crore as against Rs. 15 crore for others; and | (v) | The units in handicraft sector shall be entitled to duty free imports of an enlarged list of items as embellishments upto 3% of FOB value of their exports. |

(c) Small Scale Industry
With a view to encouraging further development of centres of economic and export excellence such as Tirupur for hosiery, woollen blanket in Panipat, woollen knitwear in Ludhiana, following benefits shall be available to small scale sector: i. Common service providers in these areas shall be entitled for facility of EPCG scheme. ii. The recognised associations of units in these areas will be able to access the funds under the Market Access Initiative scheme for creating focused technological services and marketing abroad. iii. Such areas will receive priority for assistance for identified critical infrastructure gaps from the scheme on Central Assistance to States iv. Entitlement for Export House status at Rs. 5 crore instead of Rs. 15 crore for others.
(d) Leather
Duty free imports of trimmings and embellishments upto 3% of the FOB value hitherto confined to leather garments extended to all leather products.

(e) Textiles i. Sample fabrics permitted duty free within the 3% limit for trimmings and embellishments. ii. 10% variation in GSM be allowed for fabrics under Advance Licence. iii. Additional items such as zip fasteners, inlay cards, eyelets, rivets, eyes, toggles, velcro tape, cord and cord stopper included in input output norms. iv. Duty Entitlement Passbook (DEPB) rates for all kinds of blended fabrics permitted. Such blended fabrics to have the lowest rate as applicable to different constituent fabrics. (f) Gem & Jewellery i. Customs duty on import of rough diamonds is being reduced to 0%. Import of rough diamonds is already freely allowed. Licensing regime for rough diamond is being abolished. This should help the country emerge as a major international centre for diamonds. ii. Value addition norms for export of plain jewellery reduced from 10% to 7%. Export of all mechanised unstudded jewellery allowed at a value addition of 3 % only. Having already achieved leadership position in diamonds, now efforts will be made for achieving quantum jump on jewellery exports as well. iii. Personal carriage of jewellery allowed through Hyderabad and Jaipur airport as well.
(III) Technology oriented
(a) Electronic hardware

The Electronic Hardware Technology Park (EHTP) scheme is being modified to enable the sector to face the zero duty regime under ITA(Information Technology Agreement)-1. The units shall be entitled to following facility: * Net Foreign Exchange as a Percentage of Exports (NFEP) positive in 5 years. * No other export obligation for units in EHTP. * Supplies of ITA I items having zero duty in the domestic market to be eligible for counting of export obligation. (b) Chemicals and Pharmaceuticals
All pesticides formulations to have 65% of DEPB rate of such pesticides.

Free export of samples without any limit.

Reimbursement of 50% of registration fees for registration of drugs.

(c) Projects
Free import of equipment and other goods used abroad for more than one year.

(IV) Growth Oriented
a) Strategic Package for Status Holders

The status holders shall be eligible for the following new/ special facilities: i. Licence/Certificate/Permissions and Customs clearances for both imports and exports on self-declaration basis. ii. Fixation of Input-Output norms on priority; iii. Priority Finance for medium and long term capital requirement as per conditions notified by RBI; iv. Exemption from compulsory negotiation of documents through banks. The remittance, however, would continue to be received through banking channels; v. 100% retention of foreign exchange in Exchange Earners’ Foreign Currency (EEFC) account; vi. Enhancement in normal repatriation period from 180 days to 360 days. (b) Neutralising high fuel costs
I. Fuel costs to be rebated by it in Standard Input Output Norms (SIONs) for all export products. This would enhance the cost competitiveness of our export products. The value of fuel to be permitted as a percentage of FOB value of exports for various product groups is as under:
(c) Diversification of markets
Setting up of "Business Centre" in Indian missions abroad for visiting Indian exporters/businessmen.

ITPO portal to host a permanent virtual exhibition of Indian export product.

iii) Focus LAC (Latin American Countries) was launched in November, 1997 in order to accelerate our trade with Latin American countries. This has been a great success. To consolidate the gains of this programme, we are extending this upto March, 2003.

Focus Africa is being launched today. There is tremendous potential for trade with the Sub Saharan African region. During 2000-01, India’s total trade with Sub Saharan African region was US$ 3.3 billion. Out of this, our exports accounted for US$ 1.8 billion and our imports were US$ 1.5 billion. The first phase of the Focus Africa programme shall include 7 countries namely, Nigeria, South Africa, Mauritius , Kenya, Ethiopia, Tanzania and Ghana. The exporters exporting to these markets shall be given Export House Status on export of Rs.5 crore.

v) Links with CIS countries to be revived. We have traditional trade ties with these countries . In the year 2000-01, our exports to these countries were to the extent of US$ 1082 million. In this group, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Ukraine and Azerbaijan to be in special focus in the first phase.

d) North Eastern States, Sikkim and Jammu & Kashmir
Transport subsidy for exports to be given to units located in North East, Sikkim and Jammu & Kashmir so as to offset the disadvantage of being far from ports.

(e) Re-location of industries
To encourage re-location of industries to India, plant and machineries would be permitted to be imported without a licence, where the depreciated value of such relocating plants exceeds Rs. 50 crores.

(V) Reduction in transaction time & cost
With a view to reducing transaction cost, various procedural simplifications have been introduced. These include:

DGFT i. A new 8 digit commodity classification for imports is being adopted from today. This classification shall also be adopted by Customs and DGCI&S shortly. The common classification to be used by DGFT and Customs will eliminate the classification disputes and hence reduce transaction costs and time. Similarly, Ministry of Environment and Forests is in the process of finalisation of guidelines to regulate the import of hazardous waste. ii. Further simplification of all schemes. iii. Reduction of the maximum fee limit for electronic application under various schemes from Rs. 1.5 lakh to Rs. 1.00 lakh. iv. Same day licensing introduced in all regional offices. Customs
Adoption and harmonisation of the 8 digit ITC(HS) code.

The percentage of physical examination of export cargo has already been reduced to less than 10 percent except for few sensitive destinations.

The application for fixation of brand rate of drawback shall be finalised within 15 days.

Banks

Direct negotiation of export documents to be permitted. This will help the exporters to save bank charges.

100% retention in EEFC accounts.

The repatriation period for realisation of export proceeds extended from 180 days to 360 days. The facility is already available to units in SEZ and exporters exporting to Latin American countries.

These facilities are being made available to status holders only for the present.

(VI) Trust Based

Import/ Export of samples to be liberalised for encouraging product upgradation.

Penal interest rate for bonafide defaults to be brought down from 24% to 15%.

No penalty for non-realisation of export proceeds in respect of cases covered by ECGC insurance package.

No seizure of stock in trade so as to disrupt the manufacturing process affecting delivery schedule of exporters. i. Foreign Inward Remittance Certificate (FIRC) to be accepted in lieu of Bank Realisation Certificate for documents negotiated directly. ii. Optional facility to convert from one scheme to another scheme. In case the exporter is denied the benefit under one scheme, he shall be entitled to claim benefit under some other scheme. iii. Newcomers to be entitled for licences without any verification against execution of Bank Guarantee. (VII) Duty neutralisation instruments
(a) Advance Licence

Duty Exemption Entitlement Certificate (DEEC) book to be abolished. Redemption on the basis of Shipping bills and Bank Realisation Certificates.

Withdrawal of Advance Licence for Annual Requirement (AAL) scheme as problems were encountered in closure of AAL and the significance of scheme considerably reduced due to dispensation of DEEC. The exporters can avail Advance Licence for any value.

Mandatory spares to be allowed in the Advance Licence upto 10% of the CIF value.

(b) Duty Free Replenishment Certificate (DFRC)
Technical characteristics to be dispensed with for audit purpose.

(c) Duty Entitlement Passbook (DEPB)
Value cap exemption granted on 429 items to continue.
No Present Market Value (PMV) verification except on specific intelligence.
Same DEPB rate for exports whether as CBUs or in CKD/SKD form,
Reduction in rates only after due notice.
DEPB for transport vehicles to Nepal in free foreign exchange.
DEPB rates for composite items to have lowest rate applicable for such constituent.

(d) Export Promotion Capital Goods (EPCG)
EPCG licences of Rs.100 crore or more to have 12 year export obligation (EO) period with 5 year moratorium period.
EO fulfilment period extended from 8 years to 12 years in respect of units in agri-export zones and in respect of companies under the revival plan of BIFR.
Supplies under Deemed Exports to be eligible for export obligation fulfilment along with deemed export benefit. | | |

Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system.[1] This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed economies, where the price system is under some state control or at least heavily regulated. In mixed economies, state-directed economic planning is not as extensive as in a planned economy.
In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.[2][3] The term free-market economy is sometimes used synonymously with market economy,[4] but, as Ludwig Erhard once pointed out, this does not preclude an economy from having social attributes opposed to a laissez-faire system.

A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency.[1][2] The justification for central planning is that the consolidation of economic resources can allow for the economy to take advantage of more perfect information when making decisions regarding investment and production. In an entirely centralized economy, a universal survey of human needs and consumer wants is required before a comprehensive plan for production can be formulated. The state would require the power to allocate the workforce for production, for setting production values and for overseeing the distribution system of the economy. The most extensive form of a planned economy is referred to as a command economy,[3] centrally planned economy, or command and control economy.
Key Highlights Eleventh Five-Year Plan (2007–2012)
The eleventh plan has the following objectives: 1. Income & Poverty * Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17 * Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits * Create 70 million new work opportunities. * Reduce educated unemployment to below 5%. * Raise real wage rate of unskilled workers by 20 percent. * Reduce the headcount ratio of consumption poverty by 10 percentage points. 2. Education * Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12 * Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality * Increase literacy rate for persons of age 7 years or above to 85% * Lower gender gap in literacy to 10 percentage point * Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan 3. Health * Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births * Reduce Total Fertility Rate to 2.1 * Provide clean drinking water for all by 2009 and ensure that there are no slip-backs * Reduce malnutrition among children of age group 0-3 to half its present level * Reduce anaemia among women and girls by 50% by the end of the plan 4. Women and Children * Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17 * Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children * Ensure that all children enjoy a safe childhood, without any compulsion to work 5. Infrastructure * Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power. * Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015 * Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012 * Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17 6. Environment * Increase forest and tree cover by 5 percentage points. * Attain WHO standards of air quality in all major cities by 2011-12. * Treat all urban waste water by 2011-12 to clean river waters. * Increase energy efficiency by 20 percentage points by 2016-17.