Development in Indian Ecoomy

7/29/2019 Development in Indian Ecoomy

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Institutional Structure in Indian Financial Markets

Operations Name Activity

All India FIs ICICI Lend ing to corporate sectorIDBI

IFCI

SIDB I Small scale industries

IIBI Com panies referred to BIFR

Banks Lending to households and Corporate Sector

EXIM Bank Export-Import financing

Specialized FIs IL& FS Infrastructure, financial services

HUD CO Housing and Urban Infrastructure

IDFC Infrastructure development and financing

Refinance FIs NAB ARD Agriculture Sector

NHB Housing sector

Investment FIs UTI Mutual funds

LIC Insurance

GIC Non-life insurance

State Level FIs SFCs Lending to medium and small scale companies

SIDC Industrial and infrastructure development



1. Evolution of the financial system towards a more universal type

2. Maximize economies of scale and scope

3. Address unregulated areas and activities

4. Address other weaknesses in regulation and supervision

5. Need for operational restructuring of regulatory agencies (in

particular, after a financial crisis)

6. Poor communication and cooperation among existing regulatory

agencies.



Set licensing requirements.

Approve and revoke license to a financial intermediary.

Set accounting and disclosure rules.

Set rules on the composition of capital.

Set minimum capital requirements.

Set prudential regulations on market, credit, and liquidity risks.

Impose sanctions and fines.

Consumer protection



4

• Planned Industrial Development

• Industry Licensing and Quotas

• Dominance of Public Sector

• Restriction on Private Investment

• Socialism

• Mixed Economy

India Pre - Liberalization



5

• Liberalization of Industrial Licensing

De-licensing

De-control

De-regulation

Broad banding

Abolition of registration

•

FERA Liberalization

Liberalization of foreign investment

Liberalization of Technology Import

The New Industrial Policy for liberalization-1991



6

• MRTP Liberalization

Abolition of threshold assets limit

No MRTP clearance needed for expansions, mergers

• Curtailment of PublicSector

Several industries hitherto reservedfor public sector opened up to privatesector

Only eight core industries remainreserved for the public sector

Purview of Board for Industrial andFinancial Reconstruction (BIFR)

extended to Public sector

The New Industrial Policy for liberalization - 1991



• Government’s role changed to Regulator from Licensor

• All Licenses Rationalized

• Active participation of private sector

• FDI being Welcomed (100%) - Automatic Route

• Barriers Dismantled & Procedures Simplified

• Indian Industries Actively Investing Abroad

• Bureaucracy - Less Government is Good Governance

• Allowing Market Forces to Govern the Efficient Allocation of Resources with Minimum State Intervention

• Reducing and rationalising foreign trade barriers

India Liberalization Stage - Strategies Developed



Policy and Regulation

The National

Stock Exchange

Players

Asset Classes

Rating Agencies

Accounting Standards

SEBI, RBI

Electronic Trading,

Settlement systems

MFs, FIIs, Hedge Funds,Pvt Equity investors, Prof Fund

Mgr, Pvt Bkg arms of Banks

Private equity, debt,

Equities, derivatives

ICRA, CARE, CRISIL



◦ Primary markets◦ Extent of Participation of Institutional

Players

◦ Introduction and progress ofDerivatives

◦ Settlement and monitoring systems



As per a study conductedby AT Kearney, India ranksamong the top 3 in globalFDI Confidence Index

Growth opportunities inIndia have attracted globalinvestors including VCfunds and private equityinvestors

Source: RBI

Source: A T Kearney

FDI Confidence Index

India ranks 3rd in global FDI Confidence Index

Cumulative FDI InflowIndia has witnessed a strong inflow of FDI in the last 5 years, USD mn

0 0.5 1 1.5 2 2.5

Japan

Italy

HK

Aus

France

Ger

UK

India

USA

China

0

2000

4000

6000

8000

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03 (R)

2003-

04 (P)

2004-

05 (P)

-5000

15000

35000

55000

75000

Cumulat ive FDI FDI



Significant milestones in infrastructure developments over last 5 years

New Telecom Policy of 1999 led to rapid penetration of telephony

Government initiated NHD at a cost of US$13.2bn (Phase 1&2) until2008

◦ Phase 3 to add another 10,000km by 2012◦ Plans to extend further by another 26,000km

Electricity Act 2003 improves investment scenario in power sector◦ US$ 62bn of investments only in generation until 2012◦ Additional investments in T&D and generation could push total to

US$150bn

Development of new airports and upgradation of major airports Private sector participation in ports Increased investments in mining (oil & gas, coal, minerals)

◦ Private / Foreign participation in iron ore, coal into last lap ofevolution



• Companies are tapping primary equity markets

for financing a large number of expansion

projects

– A record USD 4.9 bn of equity raised in FY

2010 demonstrating the depth of markets

– Virtuous cycle of larger IPOs leading to

increasing inflows by FIIs

– Primary markets remain active with a total of

USD 1.7 bn equity raised by 35 companies in

first 6 months of 2009-10

– The primary market will continue to remain

active with a strong pipeline of issues expected

to hit the market



Private Equity boom in emerging markets – India’s phenomenal investment

opportunities are attracting the FIIs

– Well entrenched capital markets and ease of

transactions ensure smooth exits for PE

players

Buyouts driven by private equity funds

expected to gain ground

… and overseas capital raising …… raising

options – GDR/ADR and FCCB gaining

significant popularity

Private Equity Investments in India ( US$ mn)



Portfolio Investment by institutional investors through Securities andExchange Board of India Regulations

◦ Requires registration with SEBI

Foreign Direct Investment is freely allowed in all sectors including theservices sector, except a few sectors where the existing and notifiedsectoral policy does not permit FDI beyond a ceiling

FDI for virtually all items allowed through the automatic route under powers delegated to the Reserve Bank of India (RBI) and for the remainingitems through Government approval

◦

Government approvals are accorded on the recommendation of theForeign Investment Promotion Board (FIPB)

Approval Route – ThroughFIPB

Automatic Route – ThroughRBI

Foreign Direct Investment

Foreign Direct Investment

Portfolio Investment

Investment In India byForeigners



If the investment is made in a listed entity, theAcquirer needs to comply with various provisionsof Securities and Exchange Board of India(Substantial Acquisition of Shares and Takeovers)Regulations, 1997

Listed entity

Unlisted entity

• Fair valuation of shares to be performed by a chartered

accountant as per the Guidelines issued by the Controller of

Capital Issues

Listed entity

Unlisted entityInvestment in Existing Company



FDI limits being eased up

◦ 100% in all infrastructure projects, drugs and pharmaceuticals,

hotels and tourism, etc

◦ Currently at 74% in banking, telecom services, exploration and

mining

◦ 49% in civil aviation

◦

26% in insurance◦ Foreign investment approval through FIPB route do not require any

further clearance from RBI for the purpose of receiving inward

remittance and issue of shares to foreign investors

◦ RBI Notification:

◦ Notification by the company to the RBI within 30 days of

receipt of inward remittances

Filing the required documentation within 30 days after issue

of shares



The borders in a global economy are becoming seamless

◦ India occupies a favorable place for foreign investment

◦ Indian corporates are looking at opportunities abroad

◦ Financial innovation has spawned a host of products

The Regulatory and the Tax framework

◦ Foreign Investment in the form of FII/FDI

◦ FII Investment requires SEBI registration

◦ FDI Investment through (a) approval and (b) automatic route

◦ Indian and Foreign corporates taxed differently

◦ Tax structure needs to be streamlined to facilitate cross border transactions



18

10th largest economy in the world -

Will overtake Japan by 2015, to be 3rd largest in the world

Large entrepreneurial base and diversified manufacturing structure

Large reservoir of skilled labour at internationally competitive cost

Vast pool of scientifically and technically qualified manpower of 20m

A large domestic market - 300 m + strong middle class populationhaving substantial purchasing power

Largest democratic set - up

A broad based and transparent legal framework including arbitration

India - Economic Enablers



19

Vast network of bank branches, financial institutions and well-organizedcapital and money markets

A network of technical and management institutes of highest

international standards for development of human resources

India has a record of meeting its international financial obligations as

per schedule and has never been a defaulter

No communication barrier, as English is the most prevalent businesslanguage

Strong and vibrant small scale sector that is keen to establishstrategic alliances with their foreign counterparts




20

Supportive infrastructure base

Strategic location for third country markets, particularly in the rapidlygrowing south and south-east Asian countries

The strategic location of India and its easy and efficient access to theMiddle East, East European countries, CIS countries, Africa, South East Asiaand Asia-Pacific countries places it in a unique position as a sourcing groundfor entering into strategic alliances in export-oriented industries

Foreign companies can take advantage of India’s strategic location and tap

the markets of these countries.India is slowly but surely emerging as an attractive destination for foreigninvestment

Liberalized industrial and foreign investment policies




21

Recognising the need and the potential in certain areas, the Governmenthas also come out with specialised packages of incentives for setting upprojects in the fields of power, roads and highways, telecommunications,mining, drugs and pharmaceuticals,hydrocarbons, shipping and ports,tourism, electronics, food processing, etc

The Government is vigorously promoting and approving foreign directinvestment keeping in view the objective of attracting at least US $ 10 bper annum

The Government is very keen to attract sizeable foreign investment into

infrastructural projects like roads, power, ports, telecommunications, etc.as the demand for infrastructural services is expected to rise severaltimes to match the projected economic growth of around 8 % per annumin the next ten years




22

Indian Brains Abroad

• Though foreign multinational have dominated the research agenda in India

to date, a growing number of Indians who have worked abroad are

returning home with cash, contacts and confidence to set up companies

of their own

• These are people who have the experience and exposure to best practices

abroad• For the first time, Indians who have been exposed to the world, realize they

can do something just as good and they can be world-class

• They have an attitude to meet challenges and succeed and also give back

something to their country

• 35 % of Doctors in USA

• 36 % of NASA Scientists in USA

• 35 % of Silicon Valley Start-Ups are by Indians

• India emerging as outsourcing hub

Documents

Development in Indian Ecoomy