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perspective a quar terly repor t by Volume 02 / 2009 | Volume 02 » Prior Government Approval Route (for both foreign investment and foreign technical collaboration): In the limited category of sectors requiring prior government approval, proposals are considered in a time-bound and transparent manner by the Foreign Investment Promotion Board (FIPB). • FDI in Special Economic Zones (SEZ)/Export Oriented Units (EOU)/Industrial Parks: FDI up to 100% is permitted under the automatic route for the establishment of SEZ. Proposals not covered under the automatic route require approval by FIPB. FDI up to 100% is permitted under the automatic route for setting up 100% EOU, subject to sectoral policies. FDI up to 100% is permitted under the automatic route for the establishment of industrial parks. • Repatriation of Investment Capital and Profits: All foreign investments are freely repatriable except for cases where NRIs choose to invest specifically under non-repatriable schemes. •Important Labor Rules/Regulations Applicable in India: Under the Constitution of India, labor is a subject in the “concurrent list”, under which both the central and state governments are competent to enact legislation subject to certain matters being reserved for the centre. There are several important Labor Acts since 1952, which are highly protective of labor. • Policy on Intellectual Property Rights: India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organization. • Taxation Policy in India and Tax Incentives: India is moving towards a reform of its tax policies and systems to facilitate the globalization of economic activities. Tax holidays are available in SEZs set up to make industry globally competitive. Infrastructure sector projects enjoy special tax treatment and holidays. Since 31st March, 2004, a user-friendly tax administration has been introduced with round-theclock electronic filing of customs documents. Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. India has entered into Double Taxation Avoidance Agreements with 65 countries including the U.S., U.K., Japan, Germany, and Mauritius. Though the Indian government gives different kinds of investment incentives, major incentives are given in the form of tax exemptions on profit from the development and operation of infrastructure projects including power. Overall, FDI in India is allowed in all sectors except the following four: retail trading (except for single brand product retailing), atomic energy, lotteries, gambling and betting. In all other sectors, it is allowed with different equity limits ranging from 26% to 100%. The FDI environment in India has undergone a sea change since the inception of economic reforms in 1991. India’s strengths as an investment destination rest on strong fundamentals, including a large and growing market; world-class scientific, technical and managerial manpower, cost-effective and highly skilled labor, an abundance of natural resources, a large English-speaking population and an independent judiciary. Key Imperatives for Future India is well placed in the global map, right behind China which undoubtedly is the best destination for FDI as of today. However, there are still a lot of measures which can be undertaken by the Government of India to improve its’ position even further. Some of these measures are: • Improved Marketing: India needs to approach investors with better marketing plans in terms of projecting India as a major hub for investment. Road shows/conferences should be held in various countries to highlight India’s strengths and investment attractiveness. Emphasis on the fast growing and evolving domestic market, industrial growth and key benefits for textile and apparel industry in India need to be communicated clearly as part of marketing efforts. Considering that the western markets are maturing, India is still one of the very few countries with untapped potential for entry and expansion of leading global brands and retailers. 37 | FDI : A Catalyst for Growth of the Textile & Apparel Industry
perspective a quar terly repor t by Volume 02 / 2009 | Volume 02 • Increased Scale: India should develop large scale industrial zones (area > 100-200 sq. kms.) with all the facilities and business friendly environment in place. Although many SEZ’s and Integrated Textile Parks (ITPs) have been planned on similar line, there needs to be faster development on these areas and scale needs to be increased for these zones so as to establish entire supply chain for various textile activities. • Ready Made Infrastructure: Industrial zones in India should approach foreign investors only after establishment of all support infrastructures and with proper homework in terms of incentives / benefits, well laid out and definite plans and offerings to the investors. • Single Window Clearance: At the implementation level, the government needs to devise a mechanism to have single window clearance and single approval for all aspects of starting a business. This would go a long way in reducing the time taken for starting business in India and encourage investors to look at India as a favorable investment destination. • Clearance of Applications: Application clearance under the Incentive schemes like Technology Upgradation Fund Scheme and speeding up the process of establishing Free Trade Agreements with European Union would also help in attracting European investors to invest in India. • Investor Friendly Environment: There needs to be a major drive undertaken to reduce red-tape and bureaucracy in the system. A more investor friendly environment needs to be built to add to all the existing inherent strengths of the Indian textile industry. On the annual Corruption Perception Index, India’s score has remained the same for two consecutive years at 2.7. In the same period Pakistan improved from 2.3 to 2.6 and China from 3.1 to 3.5. The higher the score, the less corrupt is the country. Conclusion India is poised to become an even bigger participant on the global front, both as a consumer and as a producer. The large domestic market is very attractive and as a base for the low cost production is a combination not offered by many nations at this point of time. However, in order to become a leading FDI destination in the textile and apparel sector, a lot needs to be done. The Government needs to work on a focused ‘Pull Strategy’. The way ahead is to identify and highlight the key strengths, the available resources and the large growing domestic market through focused marketing efforts. Authors Prashant Agarwal, Vice President I prashant.agarwal@technopak.com Luv Jasuja, Principal Consultant I luv.jasuja@technopak.com Rohit Nasa, Senior Consultant I rohit.nasa@technopak.com FDI : A Catalyst for Growth of the Textile & Apparel Industry | 38
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