1.
Guide to Foreign
Investment in India
Wisdomsmith Advisors LLP

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Foreign Investment in India - Primer
Jan-17 Wisdomsmith Advisors LLP 2
EXECUTIVE SUMMARY
Why India?
We recently closed a joint venture for a
Japanese company in India. Outside of Japan,
the company is present in USA (since 1989),
China (2003), Thailand (2009) and Vietnam
(2013). India was the 5 country where it
established an equity linked presence.
In case you are not already here, and are
actively looking to expand outside your
home country, chances are, India may figure
in the discussion.
There are some very good reasons to be in
India, lets look at a few:
1. India is now the fastest growing major
economy in the world, having overtaken
China in 2015.
2. India is now expected to grow faster than
China going forward. China’s
‘demographic dividend’ profile, as
measured by proportion of working age
population within total population,
peaked in 2015. For India, it will peak in
2040. In other words, till 2040, this ratio
will continue to rise.
3. India will become the world’s most
populous nation around 2022, overtaking
China. It is already the world’s largest
democracy.
A stable democracy, growing faster than
most other nations on earth – you have to be
here sooner or later.
Why now?
The promise of India has existed for a long
time, given its sheer size. Every one in six
persons on this planet is an Indian. However,
poverty was what India was about in its
initial years.
India opened its economy in 1991, and
started growing faster. By 2001, when the
terms BRIC was coined, India was being
talked about with China, Russia and Brazil as
the top 4 emerging economies in the world.
After 2 decades of good growth, India is no
longer so poor. Indian economy crossed
USD2 trillion mark in 2014. It is now a
middle income economy. Segments of
population are quite rich.
India's growth rate is expected to accelerate
to 8 per cent in the current financial year
and the economy will surpass USD 3 trillion
mark in less than five years.
The present government is aggressively
courting foreign investment. The Indian PM
Narendra Modi wants India to become “the
most open economy in the world for FDI”.
He has launched an ambitious ‘Make in
India’ initiative, which seeks to promote FDI
in 25 sectors. As part of this, ‘Invest India’,
an official investment promotion and
facilitation agency of the Government of
India was set up. It is mandated to facilitate
investments into India and is envisaged to
be the first point of reference for potential
investors.

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Foreign Investment in India - Primer
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EXECUTIVE SUMMARY
Foreign investment is rising
The world is beginning to take note of India’s
increasing attractiveness as an investment
destination. In several global surveys, India is
beginning to get rated as the world’s top
investment destination.
In the annual survey by Japan Bank for
International Cooperation (JBIC), India
replaced China as the top investment
destination in 2013; and has held the
position ever since.
A global survey by consulting firm E&Y in
2015 also placed India as the top investment
destination, well ahead of second placed
China as a market to invest in.
Similarly, the 2016 Best Countries rankings,
conducted in partnership with brand strategy
firm BAV Consulting and the Wharton School
of the University of Pennsylvania, ranked
India at No 1.
A consequence of government’s steps, and
India’s rising rating on global investment
surveys, is the actual rise of foreign
investment. FDI crossed USD50B in FY16;
consider this in the context that FDI crossed
USD10B for the first time only in FY04.
Cumulatively, over 2000-16, India has
recorded USD 292 billion of equity FDI, or
about USD 18B per year on an average.
About Wisdomsmith
Wisdomsmith Advisors LLP is a young
corporate transaction advisory firm with
strong reach across India. Our partners have
cumulative experience of over 150 years,
have worked in a variety of roles, bringing in
complementary skill sets.
Over the course of their professional
careers, our partners have handled
multitude of clients and business situations.
Our strengths:
• Strong network for connections: We can
reach out to most people in India
• Diverse skill sets: Our partners have
worked across corporate banking,
investment banking, buy side investing,
equity research, strategy consulting and
business media.
• Research focus: We understand business
models across various sectors. We don’t
merely execute, we can add value to your
India plans.

4.
Foreign Investment in India - Primer
1 India at a Glance 5 3.3 Incorporating a company 21
1.1 World’s largest democracy 6
1.2 Fastest growing large economy 6 4 Tax, Labour and IPR Framework 22
1.3 Most populous nation by 2022 7 4.1 Tax 23
1.4 Largest working age population
by 2025
7 4.2 Labour laws 25
1.5 India’s job creation challenge 8 4.3 IPR regime 25
1.6 India’s GDP composition 8
1.7 Federal structure 9 5 Where to Invest 27
5.1 Opportunities galore 28
2 Foreign Investment 11 5.2 Make in India 28
2.1 FDI and FPI 12 5.3 India’s global FDI rating is rising 30
2.2 Sources of Inbound FDI 13
2.3 Among top 10 destinations 14 7 About Wisdomsmith 32
2.4 Legal Framework for FDI 15 7.1 A research focussed firm 33
2.5 FIPB 17 7.2 Key People 34
2.6 Sector Specific Conditions on FDI 17
3 Corporate Framework 19
3.1 Types of business enterprises 20
3.2 New Companies Act 2013 20
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CONTENTS

5.
1
India at a Glance

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1.1 World’s largest democracy
India is the world’s largest and most vibrant democracy, with a six decade record
of peaceful elections, something rare outside the developed world.
 1.3 B people, 17.5% of world’s population
 Will surpass China by 2022, to become world’s most populous country
 29 states, 640 districts
 53 cities with population over 1m
1.2 Fastest growing large economy
With a nominal GDP of USD 2.3 trillion, India is the world’s 7th largest economy
currently, trailing USA, China, Japan, Germany, UK and France. India’s economy is
now bigger than Italy, Brazil, Canada, Korea, Russia, Australia and Spain.
India is also the world’s fastest growing large economy, having overtaken China’s
GDP growth rate in 2015. India is set to maintain growth leadership going forward,
as per projections of World Bank.
10.6%
9.5%
7.7% 7.7%
7.3%
6.9%
6.5% 6.2% 6.0% 6.0% 6.0% 6.0%
10.3%
6.6%
5.6%
6.6%
7.2% 7.3% 7.5% 7.5% 7.6% 7.7% 7.7% 7.8%
2.5%
1.6%
2.2%
1.5%
2.4% 2.4% 2.4% 2.5% 2.4% 2.1% 2.0% 2.0%
4.7%
-0.5%
1.7% 1.4%
0.0%
0.5% 0.5%
-0.1%
0.4% 0.7% 0.7% 0.7%
2010 2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P 2020P 2021P
China India USA Japan

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1.3 Will become world’s most populous nation by 2022
India has 17.5% of the world’s population. It is expected to surpass China by 2022.
-
200
400
600
800
1,000
1,200
1,400
1,600
POPULATION (million)
1.4 Will have world’s largest working age population by 2025
Working age population in India increased by 300 million between 1991 and 2013.
In the same period, working age population in China increased by 241 million.
India is not doing too well in generating jobs though. China generated 144 million
jobs, while India generated 140 million jobs in the 1991-2013 phase.
Year of maximum share of working age population

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China’s working age population as a share of total workforce started declining
from 2015, while India will hit a peak in share of working population only by 2040.
By 2025, India should exceed China and become the country with the world’s
largest working age population.
1.5 India’s job creation challenge
By 2050, more than 280 million more people will enter the job market in India.
According to labour ministry data, around 1 million people enter the workforce in
India every month. There is also the challenge of finding jobs for the backlog,
which reached 60 million by 2014.
Job creation capacity of the formal sector is woefully inadequate. Estimates
suggest the formal sector creates less than 2 million jobs every year. The rest drift
away into informal sector with irregular earnings. Finding employment for rapidly
expanding workforce is the biggest challenge facing India.
1.6 India’s GDP composition
Part of the challenge of job creation comes from the composition of Indian GDP.
Agriculture, which is only about 14% of GDP, supports almost 50% of population.
The challenge is to migrate people from agri to industry or services, which then
need to create sufficient job opportunities
13.7%,
Agriculture
27.0%,
Industry59.3%,
Services
Composition of Indian GDP

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1.7 Federal structure
India is a federal union comprising twenty-nine states and seven union territories.
The states and union territories are further subdivided into districts and further
into smaller administrative divisions. The following table shows basic data on
Indian states
State When formed Capital Largest City
State Population
(mn)
Area
(sq.km)
Andhra Pradesh 01-Oct-53 Hyderabad Visakhapatnam 50 1,60,205
Arunachal Pradesh 20-Feb-87 Itanagar Itanagar 1 83,743
Assam 26-Jan-50 Dispur Guwahati 31 78,550
Bihar 26-Jan-50 Patna Patna 104 99,200
Chhattisgarh 01-Nov-00 Naya Raipur Raipur 26 1,35,194
Goa 30-May-87 Panaji Vasco da Gama 1 3,702
Gujarat 01-May-60 Gandhinagar Ahmedabad 60 1,96,024
Haryana 01-Nov-66 Chandigarh Faridabad 25 44,212
Himachal Pradesh 25-Jan-71 Shimla Shimla 7 55,673
Jammu and Kashmir 26-Jan-50 Srinagar (Summer) Srinagar 13 2,22,236
Jammu (Winter)
Jharkhand 15-Nov-00 Ranchi Jamshedpur 33 74,677
Karnataka 01-Nov-56 Bengaluru Bengaluru 61 1,91,791
Kerala 01-Nov-56 Thiruvananthapuram Kochi 33 38,863
Madhya Pradesh 01-Nov-56 Bhopal Indore 73 3,08,252
Maharashtra 01-May-60 Mumbai Mumbai 112 3,07,713
Manipur 21-Jan-72 Imphal Imphal 3 22,347
Meghalaya 21-Jan-72 Shillong Shillong 3 22,720
Mizoram 20-Feb-87 Aizawl Aizawl 1 21,081
Nagaland 01-Dec-63 Kohima Dimapur 2 16,579
Odisha 26-Jan-50 Bhubaneswar Bhubaneswar 42 1,55,820
Punjab 01-Nov-66 Chandigarh Ludhiana 28 50,362
Rajasthan 01-Nov-56 Jaipur Jaipur 69 3,42,269
Sikkim 16-May-75 Gangtok Gangtok 1 7,096
Tamil Nadu 26-Jan-50 Chennai Chennai 72 1,30,058
Telangana 02-Jun-14 Hyderabad Hyderabad 35 1,14,840
Tripura 21-Jan-72 Agartala Agartala 4 10,492
Uttar Pradesh 26-Jan-50 Lucknow Kanpur 200 2,43,286
Uttarakhand 09-Nov-00 Dehradun Dehradun 10 53,483
West Bengal 26-Jan-50 Kolkata Kolkata 91 88,752

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As is often said, India is not one market, but a multitude of markets. This is
because most states have their own language, food and customs. As a
consequence, media industry is also vastly fragmented along language lines.
Building a business plan and a media budget can be a complicated exercise.
Political situation can be vastly different across states, and there are several states
which are ruled by local parties. As a result, there is big difference in development
between states.
The following table shows top states by their contribution to GDP, and their annual
per capita income. As can be seen, amongst top 15 states, per capital income can
range from as low as ~$600 for Bihar, to ~$2300 for Maharashtra, the largest state
economy in India. This is a difference of 4x! Bihar has a population almost similar
to Maharashtra, so one can imagine the drag Bihar causes to overall economic
averages in India. Bihar has been ruled by inefficient local parties for more than 2
decades, this has stymied local development.
State Contribution to GDP Per Capital GDP (Rs)
Maharashtra 13.4% 1,49,500
Tamil Nadu 7.8% 1,35,279
Uttar Pradesh 7.8% 48,846
Gujarat 7.0% 1,44,938
West Bengal 6.4% 87,646
Karnataka 5.6% 1,14,902
Rajasthan 4.5% 83,153
Andhra Pradesh 4.1% 1,05,036
Madhya Pradesh 4.1% 69,947
Delhi 3.6% 2,05,000
Telangana 3.4% 1,22,857
Bihar 3.2% 38,617
Kerala 3.2% 1,18,541
Haryana 3.1% 1,53,443
Punjab 2.5% 1,14,262

11.
2
Foreign Investment

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2.1 FDI and FPI
Both foreign direct investment (FDI) and foreign portfolio investment (FPI) have
seen robust growth. This report will concentrate more on FDI.
FDI reached an all time high of US$ 56B in 2015-16, 6x more than the figure a
decade ago.
FPI flows, chiefly into listed traded securities, both equtiy and debt, have been far
more volatile
0
10000
20000
30000
40000
50000
60000 Gross FDI (US$ m)
Source: Reserve Bank of India
-20000
-10000
0
10000
20000
30000
40000
50000
Net Portfolio Investment (US$ m)
Source: Reserve Bank of India

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Country-wise Inflows of Foreign Direct Investment (FDI) in India
(2014 to 2016-upto March, 2016)
(Amount in INR Million)
Country 2,014 2,015 2016-upto Mar. 2016
Cumulative Total
(from Jan. 2000 to Mar. 2016)
(In Rs.) (In US$)
Mauritius 4,29,457 5,90,309 1,52,000 48,11,694 96,097
Singapore 4,32,861 8,62,991 1,83,150 25,66,715 45,881
United Kingdom 65,855 58,795 26,577 11,56,497 23,122
Japan 1,42,684 1,10,844 1,02,879 11,10,158 21,046
U.S.A 1,01,476 2,52,420 45,923 9,51,763 18,083
Netherlands 1,98,193 1,92,549 33,499 9,46,192 17,334
Germany 70,662 72,409 13,210 4,49,154 8,640
Cyprus 39,935 33,187 7,283 4,26,816 8,553
France 37,389 27,549 15,647 2,65,635 5,120
Uae 17,013 33,473 39,283 2,16,507 4,030
Switzerland 22,485 17,185 5,646 1,69,434 3,320
Luxembourg 39,074 50,724 6,742 1,22,075 2,046
Spain 15,621 8,943 2,558 1,15,505 2,209
Italy 14,112 15,151 9,568 1,04,460 2,026
Hongkong 5,499 36,585 2,146 1,01,629 1,888
South Korea 8,289 15,877 2,447 93,932 1,798
China 8,667 54,875 2,408 82,370 1,358
Caymen Islands 7,532 15,194 17,372 78,937 1,518
Russia 28,661 6,889 7,794 68,431 1,230
Sweden 3,174 6,870 3,488 62,304 1,238
British Virginia 1,258 4,300 9,647 51,697 1,033
Belgium 15,106 4,430 2,011 48,107 901
Malaysia 5,656 3,942 1,373 43,155 808
Australia 4,053 8,862 1,997 42,564 815
Poland 2,744 248 369 33,381 625
Canada 5,002 5,322 2,202 32,688 634
Indonesia 630 145 24 29,123 625
The Bermudas - - - 22,522 502
Others 30,049 35,548 15,348 7,84,371 16,834
Grand Total 17,53,133 25,25,615 7,12,589 149,87,819 2,89,314
2.2 Sources of Inbound FDI
Mauritius and Singapore are top FDI investors in India; this is due to tax regime.
India has double tax avoidance treaties, and lower local tax rates in those
countries mean that investors are routing FDI through them. Also, several investors
prefer Singapore as a legal jurisdiction as well.
Source : Ministry of Commerce & Industry, Govt. of India.

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2.3 Among top 10 destinations globally
India has become an important destination for inbound FDI in a global context. In
2015, for ex, it was the seventh significant nation, behind the likes of USA, China,
Brazil, Canada, UK and Germany.
We are ignoring some of the other nations higher up on the list, like Ireland, Hong
Kong, Switzerland etc, since these are routing destinations. Often, what is shown
as inbound FDI here, is actually meant for other countries, but is routed through
these countries as an intermediate step. This is often for tax reasons, and
sometimes for better legal jurisdiction.
On the other hand, the FDI coming to countries like India is actual investment
going in the country.
Country Name 2007 2008 2009 2010 2011 2012 2013 2014 2015
World 30,65,354 24,43,685 13,60,736 18,58,943 22,85,754 21,10,881 20,86,334 17,71,462 21,64,659
United States 3,40,065 3,32,734 1,53,788 2,59,344 2,57,410 2,43,011 2,76,978 2,07,367 3,79,434
China 1,56,249 1,71,535 1,31,057 2,43,703 2,80,072 2,41,214 2,90,928 2,68,097 2,49,859
Ireland 59,941 23,259 53,935 37,764 23,665 40,962 49,960 86,766 2,03,463
Hong Kong SAR, China 62,121 67,035 54,276 82,709 96,135 74,887 76,857 1,29,847 1,80,844
Switzerland 48,688 2,991 47,659 17,671 23,198 26,288 (24,898) 18,375 1,19,714
Netherlands 7,34,010 1,95,192 95,931 1,15,730 3,31,838 2,39,755 3,28,684 1,01,394 1,01,789
Brazil 44,579 50,716 31,481 88,452 1,01,158 86,607 69,181 96,895 75,075
Singapore 47,733 12,201 23,821 55,076 48,329 57,150 66,067 68,496 65,263
Canada 1,20,423 70,117 20,931 29,713 38,318 49,378 69,428 65,441 55,685
British Virgin Islands 37,140 52,583 41,590 51,226 57,576 74,502 1,12,128 49,986 51,606
United Kingdom 2,09,515 2,53,454 14,547 66,735 27,012 46,751 54,473 71,364 50,439
Germany 50,845 30,926 56,669 86,054 97,481 65,464 62,712 9,445 46,227
India 25,228 43,406 35,581 27,397 36,499 23,996 28,153 34,577 44,009
Australia 44,440 45,160 28,683 35,211 65,555 57,550 53,997 45,979 38,639
France 83,781 67,999 18,380 38,900 44,192 32,950 31,589 (1,048) 34,969
Mexico 32,419 29,352 18,054 26,455 24,552 20,548 46,903 26,948 32,056
Spain 73,773 79,558 13,479 41,020 31,782 24,915 52,288 35,776 25,299
Luxembourg (29,679) 7,117 27,255 39,129 8,843 1,43,003 15,371 12,073 24,596
Chile 12,534 15,150 12,887 15,725 23,444 28,457 19,362 22,342 20,457
Source: World Bank
Foreign direct investment, net inflows (BoP, current US$)

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2.4 Legal Framework for FDI
The Government has put in place a policy framework on FDI. This framework is
embodied in the Circular on Consolidated FDI Policy, which may be updated every
year, to capture and keep pace with the regulatory changes, effected in the
interregnum.
The Department of Industrial Policy and Promotion (DIPP), Ministry of
Commerce & Industry, Government of India makes policy pronouncements on FDI
through Press Notes/Press Releases which are notified by the Reserve Bank of
India as amendments to the Foreign Exchange Management (Transfer or Issue of
Security by Persons Resident Outside India) Regulations, 2000 (notification No.
FEMA 20/2000-RB dated May 3, 2000).
These notifications take effect from the date of issue of Press Notes/ Press
Releases, unless specified otherwise therein. In case of any conflict, the relevant
FEMA Notification will prevail. The procedural instructions are issued by the
Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework,
over a period of time, thus, consists of Acts, Regulations, Press Notes, Press
Releases, Clarifications, etc.
2.4.1 Consolidated FDI Policy 2016
In Jun’2016, DIPP released its annual Consolidated FDI Policy circular. The present
consolidation subsumes and supersedes all Press Notes/Press
Releases/Clarifications/Circulars issued by DIPP, which were in force as on June 06,
2016 and reflects the FDI Policy as on June 07, 2016.T
This Circular accordingly will take effect from June 07, 2016 and will remain in
force until superseded in totality or in part thereof. Reference to any statute or
legislation made in this Circular shall include modifications, amendments or re-
enactments thereof.
2.4.2 Eligible Investor
A non-resident entity can invest in India, subject to the FDI Policy except in those
sectors/activities which are prohibited. There are certain country specific
restrictions as well, for entities or persons from countries like Pakistan, where
India does not have particularly friendly relations.

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Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) may in
terms of Schedule 2 and 2A of FEMA Regulations, as the case may be, respectively,
invest in the capital of an Indian company under the Portfolio Investment Scheme
which limits the individual holding of an FII/FPI below 10% of the capital of the
company and the aggregate limit for FII/FPI investment to 24% of the capital of the
company.
This aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling,
as applicable, by the Indian company concerned through a resolution by its Board
of Directors followed by a special resolution to that effect by its General Body and
subject to prior intimation to RBI. The aggregate FII/FPI investment, individually or
in conjunction with other kinds of foreign investment, will not exceed
sectoral/statutory cap.
A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to
100% of the capital of an Indian company engaged in any activity mentioned in
Schedule 6 of Notification No. FEMA 20/2000, including startups irrespective of
the sector in which it is engaged, under the automatic route. A SEBI registered
FVCI can invest in a domestic venture capital fund
There are more details to definition of Eligible Entity; Wisdomsmith can help you
understand the fine print.
2.4.3 Eligible Investee Entities
Indian companies can issue capital against FDI. FDI is not permitted in Trusts other
than in ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle’. FDI in LLPs
is permitted subject to the certain conditions, but the policy is not significantly
different from the policy for limited companies.
2.4.4 Investment Vehicle
An entity being ‘investment vehicle’ registered and regulated under relevant
regulations framed by SEBI or any other authority designated for the purpose
including Real Estate Investment Trusts (REITs) governed by the SEBI (REITs)
Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI
(InvIts) Regulations, 2014, Alternative Investment Funds (AIFs) governed by the
SEBI (AIFs) Regulations, 2012 and notified under Schedule 11 of Foreign Exchange

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Management (Transfer or Issue of Security by a Person Resident outside India)
Regulations, 2000 is permitted to receive foreign investment from a person
resident outside India (other than an individual who is citizen of or any other
entity which is registered / incorporated in Pakistan or Bangladesh), including an
Registered Foreign Portfolio Investor (RFPI) or a non-resident Indian (NRI).
2.4.5 Entry route for investment
Investments can be made by non-residents in the equity shares/fully, compulsorily
and mandatorily convertible debentures/fully, compulsorily and mandatorily
convertible preference shares of an Indian company – essentially no debt like
instrument, through the Automatic Route (no government approval needed, but
cap of percentage of shareholding may be applicable) or the Government Route
(which requires approval). Proposals for foreign investment under Government
route, are considered by Foreign Investment Promotion Board or FIPB. There is
an application process involved in such cases, once FIPB approval comes through,
FDI can be made.
2.4.6 Caps on investment
Investments can be made by non-residents in the capital of a resident entity only
to the extent of the percentage of the total capital as specified in the FDI policy.
2.5 Foreign Investment Promotion Board or FIPB
The Foreign Investment Promotion Board (FIPB) offers a single window clearance
for applications on Foreign Direct Investment (FDI) in India that are under the
approval route. The sectors under automatic route do not require any prior
approval from FIPB and are subject to only sectoral laws.
Guidelines for e-filing of applications, filing of amendment applications and
instructions to applicants are available at FIPB’s website (http://finmin.nic.in/) and
(http://fipb.gov.in).
2.6 Sector Specific Conditions on FDI
FDI is prohibited in very sectors. Some are ‘sin’ setors like lottery, gambling and
casinos, and tobacco. Others are strategic like atomic energy and railway
operations.

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2.6.1 Permitted Sectors
Sectoral cap i.e. the maximum amount which can be invested by foreign investors
in an entity, unless provided otherwise, is composite and includes all types of
foreign investments, direct and indirect. Info on key sectors and guidelines is in the
table below:
Sector Name FDI Limit Approval Route
Agriculture & Animal Husbandry 100% Automatic
Plantation Sector 100% Automatic
Mining 100% Automatic
Petroleum & Natural Gas 100% Automatic
Defence 49% Automatic
Broadcasting 100% Automatic up to 49%, Govt
approval beyond 49%
Broadcasting Content Services 49% Government
Print Media 26% Government
Civil Aviation - Greenfield Airports 100% Automatic
Civil Aviation - Existing Airports 100% Automatic up to 74%, Govt
approval beyond 74%
Scheduled Air Transport Service 49% Automatic
Non-Scheduled Air Transport Service 100% Automatic
Construction Development 100% Automatic
Industrial Parks 100% Automatic
Satellites- establishment and operation 100% Government
Private Security Agencies 49% Government
Telecom Services 100% Automatic up to 49%, Govt
approval beyond 49%
Trading 100% Automatic
E-commerce activities 100% Automatic
Single Brand product retail trading 100% Automatic up to 49%, Govt
approval beyond 49%
Multi Brand Retail Trading 51% Government
Duty Free Shops 100% Automatic
Railway Infrastructure 100% Automatic
Financial Services 100% Automatic
Banking- Private Sector 74% Automatic up to 49%, Govt
approval beyond 49% upto
74%
Banking- Public Sector 20% Government
Credit Information Companies 100% Automatic
Infrastructure Company in the Securities
Market
49% Automatic
Insurance 49% Automatic
Pension Sector 49% Automatic
Power Exchanges 49% Automatic
White Label ATM Operations 100% Automatic
Non-Banking Finance Companies 100% Automatic
Pharmaceuticals - Greenfield 100% Automatic
Pharmaceuticals - Brownfield 100% Government

19.
3
Corporate Framework

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3.1 Types of business enterprises in India
While there are several types of business enterprises, the common ones are
1. Private limited company: Needs a minimum paid up capital of Rs 0.5m, and 7
shareholders.
2. Public limited company: Needs a minimum paid up capital of Rs 0.1m, and can
have between 2-200 shareholders. If number of shareholders exceeds 50, then
the company becomes a deemed public limited company.
3. LLP: These are allowed since 2009, under LLP Act 2008. Need minimum 2
partners, can take foreign investment.
4. Partnership
5. Sole proprietorship
The first 3 are more important from foreign investment perspective
3.2 New Companies Act 2013
The Companies Act 1956 had undergone several amendments over the years, but
was still felt to be outdated. The new act comprises 29 chapters, 470 sections and
7 schedules. NCA 2013 introduced several new concepts to the Indian corporate
framework. Some of these are:
• One person company, Small compay, Dormant Company and Inactive company
• Women Directors
• Corporate Social Responsibility
• Registered Valuers
• Rotation of Auditors
• Class Action
• Fast Track Mergers
• Serious Fraud Investigation Office

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3.3 Procedure for incorporating a company
A new limited company can be set up in less than a month, and at negligible cost,
less than Rs 10,000. The key steps are as follows:
• Identify persons who will be directors of the new company
• Apply for Digital Signature Certificate. A licensed Certifying Authority (CA) issues
the digital signature.
• Apply for Director Identification Number (DIN). It is only after the DIN is
approved, the incorporation documents can be filed with the Registrar Form
No.-DIR-3. However, the name approval can be obtained prior to approval of
DIN. It takes about 7 days for getting the DIN approved, provided all proper
documents are furnished.
• Filing the Proposed Name of Company For Approval to The Registrarof
Companies (ROC)
• Drafting of Memorandum of Association (MoA)
• Drafting of Articles of Association (AoA)
• Application for Incorporation of Company
• Commencement of Business
• Registered Office. The company on and from the 15 days of its incorporation
and at all times thereafter, have a registered office capable of receiving and
acknowledging all communications and notices as may be addressed to it

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4
Tax, Labour and IPR Framework

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4.1 Tax
India has a well-developed tax structure with clearly demarcated authority
between Central and State Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural income,
which the State Governments can levy), customs duties, central excise and service
tax.
Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax
are levied by the State Governments.
Local bodies are empowered to levy tax on properties, octroi and for utilities like
water supply, drainage etc.
4.1.2 Tax Resident
This is relevant for expats living in India. An individual is treated as resident in a
year if present in India:
• For 182 days during the year or
• For 60 days during the year and 365 days during the preceding four years.
4.1.3 Corporate Taxation (Direct)
Foreign companies are taxable on income that arises out of their Indian
operations, or, in certain cases, income that is deemed to arise in India. Royalty,
interest, gains from sale of capital assets located in India (including gains from sale
of shares in an Indian company), dividends from Indian companies and fees for
technical services are all treated as income arising in India.
The rate at which Corporates are taxed in India is 30% plus a 3% cess. Thus the
total comes to 30.9%.
Other direct taxes applicable to corporates:
Dividend Distribution Tax (DDT)
Under Section 115-O of the Income Tax Act, any amount declared, distributed or
paid by a domestic company by way of dividend shall be chargeable to dividend
tax. So if a company declares divided, it has to pay an effective rate of 16.995% on
the dividends declared. This is apart from the 30.9 % taxes mentioned above.
Minimum Alternative Tax (MAT)
When a company has a positive book profit, no tax liability due to depreciation
benefits, or other tax reliefs, then it liable to pay MAT. The present rate of MAT is
19.05%. MAT paid can be credited against regular taxes paid in later years.

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Tax Deduction at Source (TDS)
This point is being specifically mentioned because the penalties of non-compliance
are very stringent. As per the provisions of the Indian tax laws, certain payments
are covered under tax withholding norms.
Areas where TDS is applicable are: salaries, payment to contractors, professional
services etc.
4.1.4 Double taxation relief
India has Double Taxation Avoidance Agreements (DTAA) signed with 88 countries,
out of which 85 have entered into force. Under the Income Tax Act 1961 of India,
there are two provisions, Section 90 and Section 91, which provide specific relief
to taxpayers to save them from double taxation. Section 90 is for taxpayers who
have paid the tax to a country with which India has signed DTAA, while Section 91
provides relief to tax payers who have paid tax to a country with which India has
not signed a DTAA. Thus, India gives relief to both kinds of taxpayers.
A large number of foreign institutional investors who trade on the Indian stock
markets operate from Singapore and the second being Mauritius. According to the
tax treaty between India and Mauritius, capital gains arising from the sale of
shares are taxable in the country of residence of the shareholder and not in the
country of residence of the company whose shares have been sold. Therefore, a
company resident in Mauritius selling shares of an Indian company will not pay tax
in India. Since there is no capital gains tax in Mauritius, the gain will escape tax
altogether. The Indian and Cypriot tax treaty is the only other such Indian treaty to
provide for the same beneficial treatment of capital gains.
4.1.5 Indirect Tax Regime
The big event happening in indirect taxes, is the planned introduction of a
common Goods and Services Tax (GST), which will make it possible for companies
to set off input taxes paid against output taxes for both goods and services.
The Constitution Amendment Bill for Goods and Services Tax (GST) has been
approved by The President of India post its passage in the Parliament (Rajya Sabha
on 3 August 2016 and Lok Sabha on 8 August 2016) and ratification by more than
50 percent of state legislatures. The Government of India is committed to replace
all the indirect taxes levied on goods and services by the Centre and States and
implement GST by April 2017. With GST, it is anticipated that the tax base will be
comprehensive, as virtually all goods and services will be taxable, with minimum
exemptions.

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GST will be a game changing reform for the Indian economy by creating a common
Indian market and reducing the cascading effect of tax on the cost of goods and
services. It will impact the tax structure, tax incidence, tax computation, tax
payment, compliance, credit utilization and reporting, leading to a complete
overhaul of the current indirect tax system.
GST will have a far-reaching impact on almost all the aspects of the business
operations in the country, for instance, pricing of products and services, supply
chain optimization, IT, accounting, and tax compliance systems.
4.2. Labour Regime
India is a federal form of government and because labour is a subject in the
concurrent list of the Indian Constitution, labour matters are in the jurisdiction of
both central and state governments; both central and state governments have
enacted laws on labour relations and employment issues.
The Industrial Employment (Standing Orders) Act 1946 requires that employers
have terms including working hours, leave, productivity goals, dismissal
procedures or worker classifications, approved by a government body.
The Minimum Wages Act 1948 sets wages for the different economic sectors that
it states it will cover. It leaves a large number of workers unregulated. Central and
state governments have discretion to set wages according to kind of work and
location, and they range between as much as ₹ 143 to 1120 per day for work in
the so-called central sphere. State governments have their own minimum wage
schedules.
The Employees' Provident Fund and Miscellaneous Provisions Act 1952 created
the Employees' Provident Fund Organisation of India. This functions as a pension
fund for old age security for the organised workforce sector.
4.3 IPR Regime
India is committed to a number of international treaties and conventions relating
to Intellectual Property Rights. During the last few years, Indian IP offices have
undergone major improvements in terms of upgradation of IP legislation,
infrastructure facilities, human resources, processing of IP applications,
computerization of the IP offices, IP databases, quality services to stakeholders,
transparency in functioning and free access to IP-data through a dynamic website.

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Ministry/Office administering the IPR:
• Department of Industrial Policy and Promotion, Ministry of Commerce &
Industry
• Controller General of Patents, Designs and Trade Marks
Concerned IP Act:
• The Patents Act, 1970 (as amended in 2005)
State of the art, integrated and IT- enabled office buildings have been setup in the
last few years in Delhi, Kolkata, Chennai, Mumbai and Ahmedabad, housing offices
of Patents, Designs, Trademarks and Geographical Indications. The Patent Office is
headquartered in Kolkata with branches in Delhi, Chennai, and Mumbai. The Trade
Marks Registry, headquartered at Mumbai has branches in Ahmedabad, Chennai,
Delhi, and Kolkata. The Design Office is located in Kolkata and the GI Registry is in
Chennai. Separate facilities house the International Searching Authority (ISA) /
International Preliminary Examining Authority (IPEA) in Delhi; an Intellectual
Property Office Archives center has been setup at Ahmedabad.

27.
5
Where to invest

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5.1 Opportunities galore
India is a sizeable, high growth economy. Hence there are opportunities across the
board. Several large global companies have already established presence in India,
some have been around for decades. Others came in after 1990, when India
started opening its economy by easing investment guidelines.
A good way to see where the action is to check sectoral flows of FDI (see table
‘Sector-wise Foreign Direct Investment (FDI) Equity Inflows in India’ on next page).
As can be seen, FDI has grown sharply, and several sectors are witnessing
meaningful investments. Given services contribute a large part of Indian GDP, FDI
composition shows a tilt towards services, as compared to manufacturing or basic
sectors like mining.
According to Department of Industrial Policy and Promotion (DIPP), the total FDI
investments India received during April - September 2016 rose 30 per cent year-
on-year to US$ 21.6 billion, indicating that government's effort to improve ease of
doing business and relaxation in FDI norms is yielding results.
The current government is strongly focussed on increasing FDI. Their efforts have
bore results. "During October 2014 to May 2016, FDI equity inflow has increased
by 46% from $42.31 billion to $61.58 billion in comparison to previous 20 months”
Commerce and Industry Minister Nirmala Sitharaman was quoted saying recently.
5.2 Make in India
Make in India is a big initiative of the Narendra Modi government. The initiative
was launched by the Prime Minister in September 2014 as part of a wider set of
nation-building initiatives to transform India into a global design and
manufacturing hub.
The Make in India initiative has been built on layers of collaborative effort. DIPP
initiated this process by inviting participation from Union Ministers, Secretaries to
the Government of India, state governments, industry leaders, and various
knowledge partners. These exercises resulted in a road map for the single largest
manufacturing initiative undertaken by a nation in recent history.
Make in India thus aims to boost investment and industrial production to increase
the GDP share of manufacturing from the current 16 percent to 25 percent. To
achieve this, the government has identified 25 focus sectors for development.

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Sectors 2012-2013 2013-2014 2014-2015 2015-2016
Services Sector (Fin., Banking, Insurance, R&D,
Outsourcing, Courier, others)
4,833 2,225 4,443 6,889
Computer Software and Hardware 486 1,126 2,296 5,904
Construction (Infrastructure) Activities 284 485 870 4,511
Trading 718 1,343 2,728 3,845
Automobile Industry 1,537 1,517 2,726 2,527
Chemicals (Other Than Fertilizers) 292 787 763 1,470
Hotel and Tourism 3,259 486 777 1,333
Telecommunications 304 1,307 2,895 1,324
Information and Broadcasting (including Print Media) 404 429 255 1,009
Power 536 1,066 707 869
Non-Conventional Energy 1,107 414 616 777
Drugs and Pharmaceuticals 1,123 1,279 1,498 754
Hospital and Diagnostic Centres 257 685 568 742
Miscellaneous Industries 229 469 766 669
Industrial Machinery 504 477 717 568
Mining 58 13 684 521
Consultancy Services 142 286 458 517
Food Processing Industries 401 3,983 516 506
Metallurgical Industries 1,466 568 359 456
Electrical Equipments 196 134 575 445
Sea Transport 65 20 333 429
Air Transport (Including Air Freight) 16 46 75 361
Rubber Goods 642 371 285 296
Miscellaneous Mechanical and Engineering 89 288 187 275
Retail Trading 22 11 169 262
Education 172 262 79 231
Textiles (Including Dyed,Printed) 104 199 197 230
Electronics 38 133 97 208
Fermentation Industries 107 815 225 202
Soaps, Cosmetics and Toilet Preparations 160 108 177 193
Medical and Surgical Appliances 83 173 146 173
Prime Mover (Other Than Electrical Generators) 185 213 231 159
Machine Tools 101 65 24 126
Printing of Books 14 114 73 123
Construction Development : Real Estate 1,332 1,226 769 113
Sugar 12 3 28 106
Petroleum and Natural Gas 215 112 1,079 103
Others 921 1,051 1,536 771
Total 22,424 24,299 30,931 40,001
Sector-wise Foreign Direct Investment (FDI) Equity Inflows in India
(In US$Million)

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5.3 India’s global FDI rating is rising
India is way behind China and Brazil in FDI, this shows India is under-invested by
foreign companies. Going forward, we expect India’s FDI to continue to grow
strongly. The government’s efforts, coupled with the strong showing of the
economy, are increasing India’s ratings as an FDI destination. This has come out in
several recent surveys
A global survey by consulting firm E&Y in 2015 placed India well ahead of China as
a market to invest in. A leading 32% of the investors ranked India as the most
attractive market, while 60% placed the country among the top three investment
destinations.
India’s ranking has been steadily improving in Japan’s key investment survey
‘Report on Overseas Business Operations by Japanese Manufacturing
Companies’, conducted annually by Japan Bank for International Cooperation
(JBIC).
In fact, in 2013, India overtook China as the No 1 destination for FDI in the eyes of
Japanese companies. Actual flows may take some time coming, but this result was
a huge positive for India. India has held on the top rank in 2014, and 2015, the last
available survey. The table on the next page shows results of the 2015 survey.

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It must be noted that China was the number 1 destination for well more than a
decade, before India displaced China.
Source. JBIC
The 2016 Best Countries rankings, conducted in partnership with brand strategy
firm BAV Consulting and the Wharton School of the University of Pennsylvania,
ranked India at No 1. The top rankings were:
1. India
2. Singapore
3. Vietnam
4. Indonesia
5. Ireland

32.
6

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6.1 A research focused corporate transaction advisory firm
Wisdomsmith Advisors LLP is a young corporate transaction advisory firm with
strong reach across India. Our partners have cumulative experience of over 150
years, have worked in a variety of roles, bringing in complementary skill sets.
Over the course of their professional careers, our partners have handled multitude
of clients and business situations.
6.1.1 Our strengths
• Strong network for connections: We can reach out to most people in India
• Diverse skill sets: Our partners have worked across corporate banking,
investment banking, buy side investing, equity research, strategy consulting and
business media.
• Research focus: We understand business models across various sectors. We
don’t merely execute, we can add value to your India plans.
6.1.2 Select MNC client experience
Consumer Health growth strategy
Joint venture to help enter India market
Helped rationalise business for a local business they acquired
India entry strategy for Consumer Health business

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6.2 Key People
Sanjay Kumar Maheshka: Sanjay is a graduate from IIT Kanpur and post graduate in
business management from XLRI, Jamshedpur. He has over 20 years of experience in
financial services sector including more than 14 years with India’s second largest bank
ICICI Bank. During his stint at the bank, he was instrumental in setting up and running
Treasury, was heading Financial Restructuring group, was responsible for setting up
and running Commercial Banking subsidiary in Russia, was the Global Head of Treasury
Mid-Office and lastly was Global Head of Trading Operations and Balance Sheet
Management Group. Subsequently, he worked as senior management with a financial
services group where he was responsible for setting up of retail network for
distribution of financial products besides being involved in the strategy for the Group.
Ajay Jindal,CFA: Ajay has two decades of equity research, investment banking and PE
investing, with over 10 years in leadership roles. With The Times of India group he set
up their research division; led several transactions for their proprietary investment
arm, and also worked with their corporate strategy team. Earlier, he worked an
institutional equity analyst Caspian Securities, ranked in top 5 in India by both
Euromoney and Institutional Investor. He started his career with investment banking
firm Lazard India.
Ajay is an MBA from IIM Bangalore, B. Tech from IIT Kanpur, and CFA from AIMR USA
sanjay@wisdomsmith.com
ajay@wisdomsmith.com
Anil Khanna: With over 20 years of experience, Anil is among India’s foremost
strategic marketing experts in Pharma and Healthcare. He has led multiple strategic
consulting assignments for leading MNC and Indian pharma companies in areas like
India entry strategies, category entry strategies, brand portfolio analysis, identifying
M&A opportunities. He supplemented domain expertise with deal making with the PE
arm of of The Times of India Group, wherein he was instrumental in investments to the
tune of $75 mn across companies in Pharma / Healthcare, education and IT sectors.
A post graduate business management, Anil in the past, has been part of the OTC
(Over the Counter medicines) Committee of OPPI (Organisation of Pharma Producers
of India).
Nirjhar Gupta: Nirjhar has two decades of experience with Indian Equity Markets. His
experience varies from broking research to marketing equities, investment banking and
money management. Nirjhar has worked with diverse organisations like SBI Mutual
Fund, Tata TD Waterhouse, Motilal Oswal, Lehman, Nomura and also headed equities
at Alchemy Securities. Nirjhar has extensive reach in Indian and Asian equity markets,
with all top fund managers.
Nirjhar has a management degree from XLRI, Jamshedpur after doing his BTech from
IIT Kanpur in Chemical Engineering.
anil@wisdomsmith.com
nirjhar@wisdomsmith.com

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Wisdomsmith Advisors LLP is a limited liability partner, registered in India with the
registration number LLP no: AAA-1067. The information cited in this document is from public
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