Trade policy review report by the secretariat



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Foreign Direct Investment


          1. India has benefited from large inflows of capital during the period under review, both in the form of portfolio investment and as foreign direct investment (FDI). Annual FDI inflows grew from US$34.8 billion in 2010-11 to US$36.0 billion in 2013-14, although these are lower than a recent peak of US$46.6 billion in 2011-12.

          2. FDI inflows have been strong in services including financial, banking, insurance, business, outsourcing, R&D, courier, and technical services, and the automobile industry and telecommunications (Table 1.5).

Table 1.5 Foreign direct investment inflows/outflows, by economic activity, 2010-15a

(US$ million)






2010-11

2011-12

2012-13

2013-14

2014-15 (up to December 2014)

Total FDI inflows

34,847

46,556

34,298

36,046

31,853




(% of FDI equity inflows)

Servicesb

15.4

14.9

21.6

9.2

10.9

Automobile industry

6.1

2.6

6.9

6.2

7.5

Telecommunications

7.8

5.7

1.4

5.4

12.7

Drugs and pharmaceuticals

1.0

9.2

5.0

5.3

5.8

Construction

7.8

9.0

6.0

5.0

3.4

Computer software and hardware

3.7

2.3

2.2

4.6

4.6

Power

6.0

4.7

2.4

4.4

2.7

Chemicals (other than fertilizers)

11.0

11.5

1.3

3.6

2.6

Metallurgical industries

5.1

5.1

6.5

2.3

1.2

Hotel and tourism

1.4

2.8

14.5

2.0

2.8

Total outflows, net

17,195

10,892

7,134

9,199

..

.. Not available.

a Financial years.

b Including financial, banking, insurance, business, outsourcing, R&D, courier, technical

Note: Percentages are based FDI equity inflows only, taken from the Department of Industrial Policy and Promotion.

Source: Reserve Bank of India and Department of Industrial Policy and Promotion online information, and information provided by the Indian authorities.


              1. Between 2010-11 and 2013-14, Mauritius was the largest source of FDI, followed by Singapore, except in 2013-14 (Table 1.6). It would appear that part of these large flows may result from the advantages of the tax treaty between Mauritius and India, which may make it attractive for investors to route their investment through Mauritius to take advantage of the preferential provisions, which include exemption from capital gains tax. Other major sources during the period under review are the United Kingdom, the Netherlands, and Japan.

              2. India's total net FDI outflows decreased from US$17.2 billion in 2010-11 to US$9.2 billion in 2013-14.

Table 1.6 Foreign direct investment inflows/outflows (country-wise), 2010-15a

(US$ million)






2010-11

2011-12

2012-13

2013-14

2014-15 (up to December 2014)

Total inflows, net

34,847

46,556

34,298

36,046

31,853

FDI equity inflow

21,383

35,120

22,424

24,299

21,045




(% of FDI equity inflows only)

Singapore

8.0

15.0

10.3

24.6

20.5

Mauritius

32.7

28.3

42.4

20.0

28.0

United Kingdom

12.7

22.4

4.8

13.2

4.9

Netherlands

5.7

4.0

8.3

9.3

12.3

Japan

7.3

8.5

10.0

7.1

6.8

Germany

0.9

4.6

3.8

4.3

3.7

United States

5.5

3.2

2.5

3.3

7.0

Cyprus

4.2

4.5

2.2

2.3

2.3

France

3.4

1.9

2.9

1.3

2.7

Total outflows, net

17,195

10,892

7,134

9,199

..

.. Not available.

a Financial years.

Note: Percentages are based FDI equity inflows only, taken from the Department of Industrial Policy and Promotion.

Source: Reserve Bank of India and Department of Industrial Policy and Promotion online information, and information provided by the Indian authorities.



  1. TRADE AND INVESTMENT REGIME

    1. General Framework


              1. There have been no changes to India's overall institutional and legal framework since the last Review. Under the Constitution of India, which entered into force on 26 January 1950, India is a union of its States and Union Territories. It has a Parliamentary system of Government with a bicameral Parliament, an independent Executive and Judiciary. Parliament comprises the President, the Council of States (Rajya Sabha or Upper House) and the People's House (Lok Sabha or Lower House). The Lower House is re-elected every five years through universal suffrage. The Upper House is not subject to dissolution but every two years one-third of its members shall retire. It has a federal system of Government with each State electing its own State legislature. There are currently 29 States and 7 Union Territories, with the most recent State of Telangana created on 2 June 2014.1

              2. The Head of State is the President of India who is elected for five years by the members of an electoral college comprising members of both houses of Parliament and the state legislative assemblies.2 The President appoints the Prime Minister and, on the advice of the Prime Minister, the other Ministers in the Council of Ministers. All members of the Council of Ministers must be members of Parliament.3 The role of the Council of Ministers is to aid and advise the President but in practice executive power is vested in the Council of Ministers.

              3. In addition to the Centre, each State elects a legislative assembly which, along with the State Government, enacts legislation as empowered to do so under the Constitution. The Seventh Schedule of the Constitution determines the division of legislative powers between the Centre, the States and issues for which both have concurrent power.4 The President appoints a Governor for each State, who is the Head of the State and exercises executive authority in that State.

              4. With the exception of money bills, a bill may originate in either House of Parliament. They must be passed by a simple majority of both Houses. Once a bill is passed by one House, it is transmitted to the other, which, subject to any amendments, is passed by the other House. Once it has been adopted by both Houses, the bill is sent to the President for approval. If both Houses are unable to agree on the bill within six months, the President may summon both Houses to meet, discuss and vote on the bill. If the bill is passed by a majority of members of both houses present at the joint session, it is deemed to have been passed by Parliament.

              5. Money bills may only be introduced in the House of the People (Lower House).5 Once they are passed by the Lower House, they are transmitted to the Council of States for any recommendations. If the bill is not returned within 14 days of receipt to the House of the People with any recommendations, it is deemed to have been passed by both Houses of Parliament. The recommendations of the Council of States may or may not be accepted by the House of the People. In both cases, once the House of the People passes the bill, it is deemed to have been passed by both Houses.

              6. Once a bill is passed by both houses of Parliament it must be signed by the President to become law. Except for money bills, the President may amend the bill and return it to either house for consideration. However, if the bill is approved by both houses with or without the amendments suggested, the President may not withhold assent a second time. The Act is then published in the Gazette of India and, unless a date of entry into force is indicated, becomes law on the date of assent by the President.

              7. Under Chapter III of the Constitution, the President also has the authority to promulgate ordinances when Parliament is in recess when it is deemed that it is necessary to do so immediately. The Ordinance shall have the same force and effect as an Act of Parliament but must be laid before both houses of Parliament and approved within six weeks of the reassembly of Parliament. If it is not approved by Parliament during this period, it ceases to exist. The Ordinance may also be withdrawn by the President at any time.

              8. The Indian legal system is based on common law. The Judiciary is headed by the Supreme Court of India, comprising a Chief Justice and 30 other judges appointed by the President in consultation with the Chief Justice. It is the highest appellate court with the power to take up appeals against decisions by the High Courts of the States and Union Territories, and has sole jurisdiction over disputes between the Government of India and the States, and between two or more States. Any law passed by the Supreme Court is binding on all other courts in India. The highest court in each State and Union Territory is the High Court. There are currently 24 High Courts with five having jurisdiction over more than one State. The States are further divided into districts, with district courts and subordinate courts of civil and criminal jurisdiction. Decisions taken by district courts may be appealed with the High Court with jurisdiction over that particular state or union territory.
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