Investment Climate Statement - India · ・Medicines, daily goods, bricks for construction, coal ・Textiles (1,000 rupees or less), etc. 5% ・Construction services, transfer of

Copyright (c) Mizuho Bank, Ltd. All Rights Reserved.

Investment Climate Statement - India

October 2018

Mizuho Bank, Ltd.Global Strategic Advisory Department

Economic Structure (Industry/Trade) (1) Industrial Structure

1

GDP Contribution by Industry (Comparison of 2000 and 2017)

Primary industry's GDP ratio is 17%, which is higher than in China and ASEAN countries. Of the population, 70% lives in rural areas, and so primary industry has a large impact on the economy and consumption.

The manufacturing industry’s GDP ratio is also 17%, which is lower than in China and ASEAN countries. The Modi Administration is promoting the manufacturing industry and developing its “Make in India” campaign to increase the manufacturing industry’s GDP ratio to 25%.

Tertiary industry’s GDP ratio exceeds 50%, which is higher than in other countries with the same level of development. India is strong in industries such as IT service due to the high level of education in science and mathematics and the large number of English-speaking human resources.

Source: Compiled by Mizuho Research Institute Ltd., based on ADB Key Indicators

2000 2017

Agriculture

23%

Mining

2%

Manufacturing

15%

Electricity, gas,

water supply and

sewerage, etc.

3%

Construction

6%

Wholesale, retail,

accommodation,

food services,

transportation,

storage,

information and

communication

22%

Financial,

insurance, real

estate, etc.

14%

Other services

15%

Service industry: 51%

Industry： 26%

Agriculture： 23%

Agriculture

17%Mining

2%

Manufacturing

17%

Electricity, gas,

water supply and

sewerage, etc.

3%Construction

7%

Wholesale, retail,

accommodation, food

services, transportation,

storage, information and

communication

19%

Financial,

insurance, real

estate, etc.

21%

Other services

14%

Agriculture： 17%

Industry： 29%

Service industry： 54%

Economic Structure (Industry/Trade） (2) Export Structure

2

% of Exports by Item (2017)

The largest export items are jewelry and precious metals. Due to the availability of cheap labor, there is a flourishing business in importing raw gemstones and then re-exporting polished and processed products.

The next-largest exports are textiles as well as agricultural and fishery products

Regarding petroleum, crude oil is imported, refined domestically, and the products are re-exported.

By country, the U.S. and the United Arab Emirates (UAE) stand out as the top export destinations. The UAE is the export destination of a large amount of jewelry and precious metals.

% of Exports by Destination Country (2017)

Source: Compiled by Mizuho Research Institute Ltd., based on material from India’s Ministry of Statistics and Programme Implementation

U.S.

15%

UAE

10% Hong Kong

5%

China

4%

Singapore

4%

U.K.

3%

Germany

3%Bangladesh

3%Vietnam

3%

Belgium

2%

Other

48%

Jewelry and

precious metals

14%

Textiles

12%

Agriculture and

fishery

12%

Oil

12%

Chemicals

12%

Metals

10%

Transport

equipment

8%

General

machinery

8%

Electronic

equipment

2% Other

10%

Economic Structure (Industry/Trade） (3) Import Structure

3

The largest import item is petroleum. In addition to domestic consumption, it is also refined and re-exported to third countries.

The next-largest import item is jewelry and precious metals. There is a large domestic demand for gold as a hedge against inflation, and it is also re-exported to third countries after processing and polishing.

The third-largest import item, electronic equipment, is often imported from China.

% of Imports by Item (2017) % of Imports by Source Country (2017)

Source: Compiled by Mizuho Research Institute Ltd., based on material from India’s Ministry of Statistics and Programme Implementation

China

16%

U.S.

5%UAE

5%

Saudi Arabia

5%

Switzerland

5%

Indonesia

4%

South Korea

4%Iraq

3%Australia

3%

Germany

3%

Other

47%

Oil

24%

Jewelry and

precious metals

18%

Electronic

equipment

12%Chemicals

9%

General

machinery

9%

Minerals

7%

Metals

6%

Agriculture and

fisheries

6%

Transport

equipment

4%Other

5%

Direct Investment Trends : Inward Investment

4

Foreign Direct Investment Flow (by country) Breakdown of Flow by Industry (2017)

Inward direct investment is on the rise, and it especially accelerated after the Modi Administration took office in 2014.

Looking at investor countries, many investments come via Mauritius or Singapore, which grant exemptions from capital gains tax on investments in India under certain conditions due to bilateral tax treaties.

However, the tax treaty with Mauritius was revised in May 2016, and since April 2017, a capital gains tax has been gradually applied. Since the India-Singapore tax treaty is premised on the India-Mauritius tax treaty, there is a possibility that these changes will have an impact on inward direct investment not only from Mauritius but also from Singapore.

Source: Compiled by Mizuho Research Institute Ltd., based on materials from India’s Department of Industrial Policy and Promotion.

0

50

100

150

200

250

300

350

400

450

500

04 05 06 07 08 09 10 11 12 13 14 15 16 17

Other

Japan

U.S.

Netherlands

Singapore

Mauritius

(USD 100 million)

(Year)

Communications

25%

Service

24%Tradingﾞ

11%Chemicals

7%

Pharmaceuticals

4%

Hotels/Tourism

4%

Food

processing

3%

Electric

equipment

3%

Consulting

services

3%

Rubber

products

2%

Other

14%

Information on Taxation (1)

Source: Compiled by the Global Strategic Advisory Department, Mizuho Bank, Ltd. based on various materials

Main Taxes in India (as of end of March 2017; Please note that the tax rates should be reconfirmed each time as they change frequently.)

Corporate income tax

Minimum alternative tax

Dividend tax

Individual income tax

Central Sales Tax

State VAT

Fringe benefit tax

Transfer price tax

Local corporations: Effective tax rate 34.61% (taxable income of more than 100 million rupees)

Foreign corporations: Effective tax rate 43.26% (taxable income of more than 100 million rupees)

In terms of accounting, if 18.5% of the profit is more than the corporate income tax amount, then it is necessary to pay the alternative minimum taxLocal corporations：21.34%Foreign corporations：20.0077% (taxable income of more than 100 million rupees)

Levied on companies that pay dividends at the rate below on the amount of dividend determined by the company

Effective tax rate: 20.357%

Differs for residents, non-regular residents, and non-residents; tax rates are progressive

Tax rates: 0%-30%

Applies to interstate sales

Tax rate: 2%

Applies to transactions with a single state;

Basic tax rate: 12.5% (varies depending on the item)

For expenses related to benefits, services, and facilities provided by companies to employees

Local corporation: 33.99%; Foreign corporations: 31.673%

Transactions with foreign-affiliated companies are investigated by tax authorities to seeif there is any difference between the actual transaction price and the third-party price

Service TaxLevied on certain services (advertising agencies, parcel delivery services, chartered

accountants, etc.); Effective tax rate: 14%

Excise DutyLevied on the domestic manufacture of products; Applies to most goods and products

Basic tax rate:12.50% (varies depending on item)

Custom DutyTotal of basic custom duty (BCD), additional (countervailing) custom duty (CVD), special

additional custom duty (ACD), and education surcharge

Entry tax and Octroi

taxEntry taxes and Octroi taxes vary depending on the state and region

Repealed in 2009

Dir

ect

Taxes

Ind

irec

t T

axes

Cen

tral

Gover

nm

ent

Taxes

Loca

l

Taxes

R&D tax Levied on imports of technology, etc.

Revised due to

introduction of

GST in July 2017

Companies established in or after March 2016 are eligible for a mitigated rate of 25% if they meet certain conditions

5



India’s GST

Intrastate transactions*

DUAL GST

Interstate

transactions

CGSTSGST/

UTGSTIGST

Import

transactions

(Goods)

IGST+BCD

(Services)

IGST

CGST: Central GST

SGST: States GST

UTGST: Union Territory GST

IGST: Integrated GST

BCD: Basic Custom Duty

*In intrastate transactions, CGST and SGST/UTGST are split in half.

6



India’s GST

Main Integrated Indirect Taxes

・Basic custom duty

・Export tax

・Terminal tax on goods and passengers on railways,

ships, and air transport. etc.

・Taxes other than stamp duties on securities trading and

futures transactions

Central TaxesCentral Taxes

・Excise duty

・Excise duty for healthcare and toilet maintenance

・Countervailing custom duty

・Special additional custom duty

・Service tax

・Central surcharges and special-purpose taxes on goods

and services

Main Non-integrated Indirect Taxes

・Stamp duty

・Tax on land, buildings, and consumption and sale of

electricity

・Tax on transport of goods and passengers by road or

inland waterways

State TaxesState Taxes

・VAT

・Entry tax, etc.

・Luxury tax

・Entertainment tax (except when locally taxed)

・Gambling tax, etc.

・State surcharges and special-purpose taxes on goods and

services

7



India’s GST

・Export of services

・Services offered for SEZ (special economic zones)

Taxable Items (Services)Taxable Items (Goods)

・Daily necessities including food

・Products for export, etc. 0%

Tax Rate

-・Processed metal gold products

・Precious gems, etc.3%

・Most transportation services (economy class flight

tickets, taxis, etc.), printing services, etc.

・Medicines, daily goods, bricks for construction, coal

・Textiles (1,000 rupees or less), etc.5%

・Construction services, transfer of temporary right to

use copyrights

・Business class flight tickets, etc.

・Non-essential food items, industrial products

・Mobile telephones, etc.12%

・General services (restaurants, etc.)

・Contract services, etc.

・Most products such as rubber products,

communications equipment and stationery products

・Capital goods, intermediate industrial goods

18%

・Theme park entry fees

・Lease fees on items

・Auto parts, office furniture

・Indulgences such as tobacco, etc., and luxury goods

28%

(+ special-

purpose tax)

・Education, healthcare, etc.・Duty-free itemsExempt

8

Restrictions on Foreign Investment (1)

Aside from industries on the negative list, investment of 100% foreign capital is possible, as a rule. Direct investment is automatically approved for investments in industries other than those on the negative list if they are registered

with the Reserve Bank of India (RBI) . Investment of foreign capital up to 100% is possible

The negative list specifies regulated industries where licenses require compliance with guidelines, together with specifying prohibited industries.

The negative list stipulates types of industries and forms of business where direct investment is prohibited or regulated, the industries where there are restrictions on investment ratio, and the industries where individual authorization by the Foreign InvestmentPromotion Board (FIPB) is required.

Negative List


Prohibited Industries Regulated Industries and Cases

Specific industries reserved for SOEs

[Specific industries reserved for SOEs]

e.g., nuclear power, railways

[Industries where foreign investment is prohibited]

e.g., gambling, lotteries, etc.

Industries and Cases Requiring a License Industries with Investment Restrictions

[Specific industries where a compulsory

license is required]

Tobacco, industrial explosives, electronic

equipment for aviation, dangerous

chemical products, and some

pharmaceuticals, etc.

From the standpoint of protection of

domestic companies, there are restrictions

and guidelines on the investment ratio for

each industry in the key industrial sectors

[Investment in specified company sizes]

Cases where investment exceeds 24% in

small-sized industries

[Investment in specified regions]

Cases of plant construction within 25 km

of urban centers with population over one

million

e.g., banking, aviation, communications

service, broadcasting, etc.

9

Restrictions on Foreign Investment (2)

Negative List (prohibited industries/industries where foreign investment is prohibited)


Lotteries

Gambling and betting

Chit funds (*1)

Nidhi Company (*2)

Trading of transferable development rights

Real estate business or construction of farms

Manufacture of cigars or cigarettes, etc.

Activities/industrial sectors not open to private investment (including nuclear

power and rail transport (except for high-speed mass transport systems))

(*1) A fund which a set number of people pay into under contract; the winner of a drawing, etc., receives distribution of the funds as a prize.

(*2) Mutual aid finance company under India’s Companies Act.

Negative List (regulated industries and cases/industries with guidelines on maximum investment ratio on a case-by-case basis)

1. Agriculture and stock raising2. Tea plantations3. Mining4. Oil and natural gas sector5. Manufacture of items reserved for manufacture by micro

and small-sized companies6. Defense industry7. Broadcasting8. Printing and publishing9. Private aviation sector10. Courier service11. Development of townships, housing, built-up,

infrastructure, and construction/development-related projects

12. Industrial parks (including both established industrial parks and establishment of new industrial parks)

13. Set up and operation of satellite facilities

14. Private security company

15. Electronic communications business

16. Trading

17. Asset management company

18. Private banking business

19. Public banking business

20. Commodity exchange business

21. Credit information company

22. Infrastructure company business in the securities market

23. Insurance business

24. Non-bank finance company business

25. Pharmaceutical industry* (*In the pharmaceutical industry, only investment in a “green field” does

not require advance authorization. Investment in a “brown field” requires

advance authorization from the government.)

10

The Companies Act (1)

Under India’s Companies Act, the forms of companies are the limited company, company limited by guarantee, and unlimited company.

Among these, the most common form when Japanese companies establish local corporations is a limited company.

The limited company is classified as either a public company or a private company, but the usual form of a Japanese company is a private company.


Selection of Form (public company/private company)

Limited Company

Company Limited by

Guarantee

Unlimited Company

A company in which investors (shareholders) are liable up to the limit of their contribution; equivalent to

a corporation under Japanese law. A limited company must have capital of 100,000 rupees or more, even

if it is a private company.

In principle, the company is limited liability, and the shareholders are liable up to the limit of their

contribution. However, in the event that the company liquidates or dissolves, the shareholders are liable

for the company's obligations up to the amount prescribed in advance.

A company whose employees (investors) have infinite joint responsibility with the company for the

company's obligations with the company’s creditors. In Japanese law, this called a partnership company.

Public company

Private company

Companies with a certain amount of capital that can freely transfer shares

A company whose stock transfer is restricted by the Articles of Association. It is necessary to include the following four provisions in the Articles of Association. (1) Restrictions on share transfer, (2) Restriction on the maximum number of shareholders to 50 or fewer, (3) Prohibition against public issuance of shares or corporate bonds, and (4) Prohibition against borrowing from individuals. These companies are partially exempt from procedures/compliance provisions applicable to public companies.

Classifications of the Limited Company

Classification Based on Shareholders’ Liability

11


According to India’s Companies Act, the minimum number of shareholders of a private company is 2 or more, and the minimum number of shareholders of a public company is 7 or more.

Shareholders' rights can also be classified as personal rights and common rights under the India’s Companies Act.

It is also possible to issue classified shares with restricted rights (Sections 85 and 86).


Minimum Number of Shareholders and Types of Issuable Shares

Shareholders’ Rights under India’s Companies Act Types of Issuable Shares

Common RightsPersonal Rights

Personal rights involve the

distribution of profit

dividends, distribution of

residual assets and other

profit from the company

=> There is no large

difference from Japanese

Companies Act

Common rights are related

to operation of the

company. They are

realized by voting on

resolutions at the general

meeting of shareholders or

the exercising of minority

shareholders' rights

=> In terms of

requirements and targets

for exercising rights, there

are major differences with

Japanese Companies Act.

Preferred StockCapital Stock

Regarding the types of stock, the only provisions are for the

above two types in the Companies Act. However, private

companies can also issue shares other than the above two types

by prescribing them in their Articles of Association.

In addition to common

stock like in Japan, it is

possible to issue classes of

shares with different

voting rights and

dividends

For shares to be recognized as preferred shares, recognition of voting rights for items (1) through (4) is required. It is not possible to issue preferred stock that does not allow these voting rights.

(1) Profit dividends(2) Capital reduction(3) Company dissolution(4) Residual property

distribution

12


Sections 171 through 186 regulate the operation of the general meeting of shareholders; however, private companies may create their own regulations.

There are three types of general meetings of shareholders: Statutory Meeting, Annual General Meeting and Extraordinary General Meeting.

Company directors convene the general meetings of shareholders.

The chairperson is appointed in the manner prescribed by the Articles of Association. (Although it is usually the chairpersonof the Board of Directors, exceptions can be prescribed.)

Because the voting is basically conducted by a show of hands, the number of attendees is important, not the number of shares held.


General Meetings of ShareholdersT

yp

es o

f gen

eral

mee

tin

gs

of

share

hold

ers

A Statutory Meeting must be held within six months after a company's establishment, and the number of subscribed shares and the directors’ information, etc., are reported in a report called a statutory report. Private companies are not required to hold a statutory meeting.

Held as necessary. Voting is conducted on the resolutions for which the meeting was called.

In principle, held once a year within 15 months of the previous Annual General Meeting (the first Annual General Meeting will be held within 18 months from the establishment of the company). Voting is conducted on resolutions regarding settlement reports and election of directors, etc.

Statutory Meeting

(Section 165)

Extraordinary General Meeting (Section 169)

Annual General Meeting

(Section 166)

Convocation

All general meeting of shareholders are convened by resolutions of the Board of Directors (Section 165, Section 169). No clear provisions regarding the Annual General Meeting. A notice of convocation will be sent to shareholders at least 21 days in advance, in principle). Shareholders with 10% or more of the shares have the right to call an Extraordinary General Meeting (Section 169).

Chairperson

If there are provisions in the Articles of Association, they shall be followed. If there are no provisions, the chairperson shall be selected by majority vote of the attending shareholders. The chairperson is not appointed but rather is basically selected by majority vote based on a show of hands. In addition, the chairperson has more authority than in Japanese Companies Act, such as having right to decide in the case of a tied vote.

Quorum

A quorum consists of 5 shareholders or more for public companies and 2 shareholders or more for private companies. However, if the number of persons stipulated in the Articles of Association is larger, that number shall prevail (Section 174). Companies must be aware that, unlike in Japanese Companies Act, a quorum is determined by the number of shareholders, not the number of voting rights held.

13

Address

Level 17 TOWER–A Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai

400013. India

Telephone 91-22-4911-2000

Business

Days

Monday through Saturday (closed 2nd and 4th

Saturday)

Operations

Deposit/lending operations

Issuance, acceptance, and confirmation of

import/export letters of credit

Underwriting and trading of trade notes

Remittances, foreign exchange contracts, and

guarantees

Mumbai Branch New Delhi Branch

About Mizuho Bank Branches in India (1)

Address

1st Floor, DLF Capitol Point, Baba Kharag Singh

Marg, Connaught Place,

New Delhi, 110001, India

Telephone 91-11-3041-0900

Business

Days


Saturday)

Operations






guarantees

14

Access from the airportApproximately 45 minutes by taxi


Address

#462/440/339, 2nd Floor, Near Jain Temple,

N.H.7/4–207, B.B. Road, Vijayapura Cross,

Devanahalli Town, Bangalore Rural District–562

110, Karnataka, India

Telephone 91-80-4968-2000

Business

Days


Saturday)

Operations






guarantees

Bangalore Branch Chennai Branch


Address

Unit No. 11B, 11th Floor, Prestige Palladium Bayan,

Nos. 129 to 140, Greams Road, Chennai–600 006,

Tamil Nadu, India

Telephone 91-44-4928-6600

Business

Days


Saturday)

Operations






guarantees

15

Access from the airportApproximately 15 minutes by car


Address

Office No.402, 4th Floor, Commerce House–5, Nr.

Vodafone House, Prahladnagar Corporate Road,

Prahladnagar Satellite, Ahmedabad–380 051, India

Telephone 91-79-4014-4666

Business

Days


Saturday)

Operations






guarantees

Ahmedabad Branch


16

Access from the airportApproximately 45 minutes by taxi (Sardar Vallabhbhai Patel International Airport)

Address

Level 18, TOWER–A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel,

Mumbai 400013, India

Company

Overview

Established and started operations in August

2010

Operations Intermediary and referrer for foreign fund

procurement and M&A, etc.

Mizuho Securities India Private Limited

About Mizuho Financial Group Affiliates in India

17


Business tie-ups with local leading financial institutions and state government agencies

Business Cooperation

Mumbai Branch

New Delhi Branch

January 2008: Mizuho signed comprehensive business tie-up with the State Bank of India, the largest bank in India.

Mizuho utilizes that bank’s branch network (over 14,000 branches in India), and Mizuho utilizes its information network to support business development in India.

July 2008: Mizuho entered a strategic tie-up with TATA CAPITAL, part of the Indian company syndicate, Tata Group.

February 2008: Mizuho Securities entered a tie-up with the same company.

August 2012: Mizuho entered a business tie-up with Century Tokyo Leasing.

Bangalore Branch

Chennai Branch

is developing a comprehensive industrial park jointly

with Ascendas-Singbridge, IREO, and JGC Corporation.

Business tie-ups with

local leading financial institutions

Industrial Extension Bureau of Gujarat

November 2009: Signed (first Japanese bank)

Tamil Nadu Industrial Guidance and Export Promotion Bureau

February 2010: Signed (first Japanese bank)

Karnataka Udyog Mitra

April 2012: Signed (first Japanese bank)

Business cooperation MoUs on support for

entry of Japanese companies signed with

state government agencies

Andhra Pradesh State Investment Promotion Board

July 2015: Signed (first Japanese bank)

Maharashtra Industrial Development Corporation

September 2015: Signed (first Japanese bank)

Haryana State Industrial & Infrastructure Development Corporation

January 2016: Signed (first Japanese bank)

Ahmedabad Branch

Mizuho Securities

India Private Limited

18

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19

©2018 Mizuho Financial Group, Inc.

This document was prepared for informational purposes only and is not intended to solicit transactions. Although this material has been

prepared based on information deemed by Mizuho Financial Group to be reliable and accurate, Mizuho Financial Group does not

guarantee its accuracy and reliability. This material is to be used at your own discretion. Please consult with attorneys, company

accountants, or tax accountants, etc., as necessary before taking any action.

This material, in part or in whole, may not be (1) copied, photocopied, or reproduced by any other means or (2) redistributed without

the written permission of Mizuho Financial Group.

Documents

Investment Climate Statement - India · ・Medicines, daily goods, bricks for construction, coal ・Textiles (1,000 rupees or less), etc. 5% ・Construction services, transfer of