15 years before India's Budget 2007, the prospect of India becoming a major player in the global economy seemed a distant dream, only a theoretical possibility. During the recent past, there has been a change not only in the world's perception about India's future, but in India's own perception of itself.

Today, India is a US $ 1 trillion Dollar economy, being the 12 th country in the world to have achieved this. With consistent high growth performance at 9%, and one of the youngest highly skilled working populations in the world, India now provides enormous opportunities for foreign investment. The recent updating of Goldman Sach's BRIC report, predicts India's catching up with the North American, and European economies much before 2050, and highlights the growing attractiveness of India as an investment destination.

Continuous liberalization of foreign investment policy, and simplification of procedures are contributing immensely to attracting increased foreign investment into India. The fact that the government is now annually conducting a review of the foreign investment policy and procedures, provides added confidence to foreign investors, that their concerns are being addressed on a continuous basis.

Equity based foreign direct investment ( “FDI” ) in the country, for the current fiscal, has crossed US$ 16 billion. Including foreign institutional investors ( “FII's” ), and re-invested earnings, net capital inflows are overall expected to exceed US$ 20 billion. The government's target for 2007-2008 is US$ 30 billion. India's foreign exchange reserves now exceed US$ 200 billion.

The booming economy, robust stock and commodity markets, with a stock market capitalization of US $ 1 trillion Dollars, growing consumer class, and rising incomes have attracted foreign investment in automobiles, manufacturing, financial services and banking.

In recent years, the government has expanded the list of sectors and activities eligible for automatic foreign investment approvals, which involves only post-incorporation regulatory compliance, and, in certain cases, has raised the upper level of foreign ownership up to 100%.

In Budget 2007, the Finance Minister announced the government's commitment to a maximum 4-6 weeks period for approving all foreign investment proposals.

Unlisted companies, with a good 3-year track record, have been permitted to raise funds in international markets through the issue of Global Depository Receipts ( “GDRs” ) and American Depository Receipts ( “ADRs” ). Other changes facilitated by Budget 2007, include the following :-

• 100% FDI is permitted in the coal sector, and railway infrastructure, except train operations.

• Foreign Education Providers (Regulation) Bill has been introduced in Parliament, the objective being to facilitate FDI in higher education.

• FDI allowed in stock exchanges, depositories and clearing corporations, with prior approval of the Foreign Investment Promotion Board ( “FIPB” ), including for FII's.

• The Securities and Exchange Board of India ( “SEBI” ) has formulated guidelines to facilitate the operations of foreign brokers in India, on behalf of registered FII's. These brokers can now open foreign currency-denominated, or Rupee accounts, for crediting inward remittances, commissions and brokerage fees.

• Even without a registered office, foreign companies are allowed to start multimodal transport services in India.

• The Reserve Bank of India ( “RBI” ) now permits 100% foreign investment in the construction of roads and bridges.

• Import regime changes include enhancement of the scope of Special Import License ( “SIL” ) programs, and the expansion of freely importable items, on the Open General License ( “OGL” ) list, to include consumer goods.

• 51% foreign equity has been permitted in single brand retail.

• The healthcare industry is expected to increase in size from its current US$ 17.2 billion, to US$ 40 billion by 2012.

• Huge investment potential exists in the Media and Entertainment industry, which is set to more than double its revenues.

• The Indian real estate sector is also poised to emerge as one of the most preferred investment options, for global realty and investment firms. The Cabinet Committee on Economic Affairs ( “CCEA” ), has allowed a US$ 1 billion venture fund, in the real estate sector.

Shivanshi Gupta & Vikrant Singh Jafa
Jafa & Javali
Delhi, INDIA