Trade policy review report by the secretariat

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  1. Financial services

    1. Banking

      1. Overview

          1. India's banking sector comprises a small number of commercial banks compared with other types of financial institution (Table A4.2). The sector also consists of a wide variety of "non‑banking financial institutions" (NBFIs). It continues to be dominated by public sector banks (PSBs), which account for around 72.7% of the sector's total assets.

          2. The RBI regulates the banking sector (including NBFIs) in accordance, inter alia, with the Reserve Bank of India Act 1934 and the Banking Regulation Act 1949, and a number of other acts governing banks, banking operations, specific functions, or individual financial institutions.48

          3. Foreign participation is allowed in both public and private sector banks; in private banks 74% for all forms of foreign investment (i.e. FDI and FII) and 20% in State Bank of India (SBI) and its Associate Banks or nationalised banks is permitted.

          4. The main changes to India's legislation concerning banking since 2011 include the adoption of the Banking Laws (Amendment) Act 2012; the 2012 Act, inter alia, confers power on the RBI to specify approved securities and raises restrictions on voting rights of investors in the private sector banks to 26% (from 10%).49 Other legislative changes include amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 198050, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, the Recovery of Debts Due to Banks and Financial Institutions Act 1993 and the Prevention of Money-Laundering Act 2005 and the Prevention of Money-Laundering (Maintenance of Records) Rules 2005.

          5. During the review period, assets in the sector increased, while the net non-performing assets (NPAs) to net advances ratio of scheduled commercial banks increased from 0.93% in 2011 to 2.24% in 2014 (Table 4.4); this mainly reflects a growing NPAs in public sector banks.51

Table 4.41 Trends in the banking sector's gross loans and deposits and prudential indicators, 2010-14

(Rs million and %)












Return on assets (%)






Capital to risk weighted assets ratio (CRAR) (%)






Net NPA to gross advances (%)






Total loans (gross advances)






Loans by economic sector (% of total loans)







Real estate






Total deposits






Source: WTO Secretariat, based on information provided by the Indian authorities (off-site returns as reported by banks, domestic operations).

              1. On 20 July 2012, the RBI revised its guidelines on priority sector lending. In the revised guidelines, foreign commercial banks with 20 or more branches must achieve overall priority sector target of 40% of adjusted net bank credit (ANBC) or a credit equivalent amount of off balance sheet exposure (OBSE), whichever is higher, along with the sub-targets for agriculture and weaker sections category within a maximum period of five years ending on 31 March 2018, as per the action plans submitted by them as approved by RBI.52 Other foreign banks must achieve overall priority sector target of 32% of their ANBC/credit equivalent of OBSE,

              2. Banking companies in respect of which the Government has issued a notification under section 45 of the Banking Regulation Act 1949 are exempt from the application of Section 5 and 6 of the Competition Act 2002 for a period of 5 years from 8 January 2013.53

              3. The RBI has paid particular attention to fostering financial inclusion to overcome the still low and deepening levels of financial penetration in India. To this end, the RBI, inter alia, requires that banks open at least 25% of their branches in unbanked rural centres. The RBI issued guidelines for licensing of new banks in the private sector on 22 February 2013, and two applicants (IDFC Limited and Bandhan Financial Services Private Limited) were granted 'in-principle' approval in April 2014 for the establishment of private banks. On 27 November 2014, final guidelines with regard to licensing of small finance banks in the private sector and payment banks were issued by the RBI. 72 applications were received for small finance banks and 41 applications for payment banks. The Financial Stability and Development Council, established in 2010, has an exclusive mandate for financial inclusion and financial literacy.
          1. Commercial banks

              1. The RBI, as regulator and supervisor, prescribes broad parameters of banking operations within which India's banking system functions. The RBI also acts as banker to the Government and lender of last resort, performing merchant banking functions for the central and the State Governments. The RBI has three fully-owned subsidiaries: the National Housing Bank (NHB), the Deposit Insurance and Credit Guarantee Corporation of India (DICGC), and the Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL). The RBI holds 0.4% of the total shares of the National Bank for Agriculture and Rural Development (NABARD); the remaining 99.6% is held by the Government.

              2. In recent years, a number of regulatory changes have been introduced. Recent guidelines issued by the RBI specify that in the case of both payment banks and small finance banks, foreign shareholding in the payments bank will be as per the FDI policy for private sector banks. As per the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed up to 74% of the paid-up capital of the bank (automatic up to 49% and approval route beyond 49% to 74%). At all times, at least 26% of the paid-up capital must be held by residents.

              3. Domestic and foreign banks require a licence from the RBI to undertake banking operations in India. An authorization is required for the opening of new branches by banks and for changes in the location of existing branches, in accordance with the Branch Authorization Policy. Domestic banks may open branches anywhere if: (i) 25% of the branches in a year are in unbanked rural areas in tier 5 and tier 6 centres, and (ii) the total number of branches opened in tier 1 centres in a year does not exceed the total number of branches opened in tier 2 to tier 6 centres in the same year. Foreign bank branches operating under the wholly owned subsidiary (WOS) route are also governed by the same guidelines.

              4. Scheduled commercial banks are required to maintain a certain portion of their net demand and time liabilities (NDTL) in the form of cash (including cash reserves with the RBI), gold, or investment in approved securities (statutory liquidity ratio). The RBI monitors compliance with these requirements in the banks' day‑to‑day operations. The cash reserve ratio (CRR) is fixed by the RBI and used as a tool to inject/subtract excess liquidity.

              5. Interest rates on all categories of rupee deposits are deregulated and banks are free to determine the interest rates as per the policy approved by their board. While interest rates on term deposits are already deregulated, interest rates on savings deposits were also deregulated on 25 October 2011 subject to certain conditions. On 16 December 2011, interest rates on non‑resident (External) rupee (NRE) and non-resident ordinary (NRO) deposits were deregulated subject to certain conditions. Interest rates on foreign currency non-resident accounts (banks) (FCNR) (B) deposits, however, continued to be subject to a prescribed ceiling rate. Interest rates on rupee advances are deregulated. With the introduction of the Base Rate from 1 July 2010, all categories of loans are priced only with reference to the Base Rate, except (i) differential rate of interest (DRI), (ii) loans to banks' own employees (iii) loans to banks' depositors against their own deposits, and (iv) short-term crop loans by the Government. According to the authorities, with the introduction of the Base Rate, interest rates on rupee export credit have also been fully deregulated and are determined by the banks as per the policy approved by their board. Interest rates on export credit in foreign currencies have been deregulated since 5 May 2012; banks are free to determine the interest rates approved by their board.

              6. The RBI requires that banks maintain a capital- risk weighted assets ratio (CRAR) of 9%.54 This includes capital for credit risk, market risk, operational risk, and other risks. Also, in order to maintain the quality of loans and advances, the RBI requires banks to classify their loan assets as performing and non‑performing assets (NPAs), primarily based on the record of recovery from the borrowers. NPAs are further categorized into sub‑standard, doubtful, and loss assets, depending upon the age of the NPAs, and value of available securities. Banks are also required to make appropriate provisions against each category of NPA and to disclose their exposure to the 20 largest depositors/borrowers, apart from disclosing information on sector‑wise NPAs (percentage of NPAs to total advances in that sector) and on changes in NPAs. Banks are required to have exposure limits, to prevent credit concentration risk and to limit exposure to sensitive sectors such as capital markets and real estate. The RBI also requires banks to classify their investment portfolios into three categories: held to maturity (HTM), available for sale (AFS), and held for trading (HFT). There are mandates as to what securities are allowed to be kept under HTM category with overall limit for HTM category (25% of total investments) as well as statutory liquidity ratio (SLR) holdings in the HTM category. Further, while profit or loss on sale of investments in HFT and AFS categories will be taken to the profit and loss account, profit on sale of investments in the HTM category must first be taken to the profit and loss account, and thereafter be appropriated to the capital reserve account.

              7. During the period under review, the RBI further reformed its prudential regulations, mainly in the context of the adoption of the Basel III reform package. Among various changes in India's prudential regulations, the RBI issued: modified guidelines concerning credit risk capital charge, credit default swaps, and guidelines on derivatives (2011-12); the final guidelines on the implementation of Basel III capital regulations (2012-13); guidelines on: (i) composition of capital disclosure requirements, (ii) restructuring of advances by banks and financial institutions; (iii) management of intra-group transactions and exposures, and (iv) refinancing of project loans and sale of NPAs by banks (2013-14); and "Basel III Framework on Liquidity Standards – Monitoring tools for Intraday Liquidity Management" (2014-15).

              8. India's Deposit Insurance and Credit Guarantee Corporation provides insurance cover to all eligible bank depositors up to Rs 100,000 per depositor per bank.

              9. The RBI supervises banks in order to monitor and ensure their compliance with the regulatory policy framework through on‑site inspection, off‑site surveillance, and periodic meetings with the banks' top management. Banks are allowed to undertake non‑traditional banking activities, also known as para‑banking, which includes asset management, mutual funds business, insurance business, merchant banking activities, factoring services, venture capital, card business, equity participation in venture funds, and leasing. During the period under review, the annual financial inspection (AFI) process was revised to make the process more focused; the supervisory process and the organizational structure of Department of Banking Supervision (DBS) of RBI were reorganized on 1 April 2011 and a new Financial Conglomerate Monitoring Division (FCMD) was established to closely supervise 12 large banking groups.55 During the same period, India also signed memoranda of understanding (MoUs) or exchange of letter (EoL) with overseas supervisors on supervisory cooperation56; engaged in inspection of overseas branches of Indian banks as from 2012-13; set up fora for discussion between the host and home country regulators on major supervisory issues of the regulated entities (supervisory colleges); and shifted from a transaction-testing-based (CAMELS)57 supervisory framework to a risk-based approach with effect from the 2013-14 supervisory cycle.58 Thirty banks have so far been migrated under the new risk-based supervision approach out of a total of 94 banks and 4 All-India Financial Institutions.

              10. On 6 November 2013, the RBI announced the "Scheme for Setting-Up of Wholly-Owned Subsidiaries (WOS) by Foreign Banks in India" based on the principles of reciprocity and single mode of presence. A WOS may open branches anywhere in the country at par with domestic banks (except in certain sensitive areas where the RBI's prior approval is required). A foreign bank that has inter alia complex structures, or does not provide adequate disclosure in its home jurisdiction may only enter India as a WOS. A foreign bank opting for the branch form of presence must convert into a WOS when such conditions become applicable to it, or when it becomes systemically important on account of its balance-sheet size in India.59 With a view to preventing domination by foreign banks, restrictions will be placed on further entry of new WOSs of foreign banks or further capital infusion of WOSs of foreign banks, when the capital and reserves of the WOSs and foreign bank branches in India exceed 20% of the capital and reserves of the banking system. The initial minimum paid-up voting equity capital for a WOS is Rs 5 billion for new entrants. Existing branches of foreign banks desiring to convert to WOSs must have a minimum net worth of Rs 5 billion. The parent company of the WOS is required to issue a letter of comfort to the RBI for meeting the liabilities of the WOS.

              11. In terms of corporate governance, a minimum of one-third of the directors must be independent of the management of the subsidiary in India, its parent or associates; not less than 50% of the directors must be Indian nationals60, and not less than one-third of the directors must be Indian nationals resident in India. The branch expansion guidelines as applicable to domestic scheduled commercial banks will generally be applicable to WOSs, except that they will require RBI prior approval for opening branches at certain locations that are sensitive from the perspective of national security. The "priority sector lending requirement" will be 40% for a WOS, like domestic‑scheduled commercial banks, with an adequate transition period provided for existing foreign bank branches converting into WOS. On an arm's length basis, WOSs will be allowed to use parental guarantee/credit rating only for the purpose of providing custodial services and for their international operations. The issue of permitting WOSs to enter into mergers and acquisitions (M&A) transactions with any private sector bank in India subject to the overall investment limit of 74% is to be considered after a review is made with regard to the extent of penetration of foreign investment in Indian banks and functioning of foreign banks (branch mode and WOS).

              12. New private‑sector banks must maintain minimum capital, initially of Rs 5 billion, as per the new bank licensing guidelines dated 22 February 2013. In the case of payments banks and small finance banks, the minimum capital requirement is Rs 1 billion. Currently, voting rights of any individual is capped at 10%. However, the RBI is empowered to increase, in a phased manner, the ceiling on voting rights to 26%.

              13. Banks operating in India (including public‑sector banks, privately-owned banks, and foreign‑invested banks) authorized to deal with foreign exchange, are eligible to set up offshore banking units (OBUs) in special economic zones (SEZs). Eligible banks are allowed to establish only one OBU per SEZ, essentially for wholesale banking operations. As a start‑up contribution, the parent bank must provide a minimum of US$10 million to the OBU. OBUs are exempt from the cash reserve requirement, and on request a statutory liquidity ratio exemption may be considered for a specified period. OBUs are expected to provide loans at international rates to companies located in SEZs. They are also permitted to lend to corporations in the domestic tariff area, under external commercial borrowing guidelines and subject to the Foreign Exchange Management Act regulations. This latter type of lending may not exceed 25% of total liabilities. OBUs are not allowed to accept or solicit deposits or investments from Indian residents, or open accounts for them. The Government has proposed to set up an International Financial Services Centre (IFSC) at Gandhinagar, Gujarat as a part of a SEZ. The entities to be established in the IFSC will be regulated by the respective sectoral regulators; the IFSC Banking Units (IBUs) are regulated by RBI. The authorities state that draft guidelines in this regard are being finalized.
          2. Urban cooperative banks (UCBs) and other financial institutions

              1. UCBs are registered under the respective State Co-operative Societies Act or Multi-State Cooperative Societies Act 2002, and governed by the provisions of the respective acts for non‑banking issues such as registration, management, administration, recruitment, and amalgamation and liquidation. On 1 March 2012, a revised supervisory action framework was introduced for UCBs; this was revised on 27 November 2014. The framework envisages self‑corrective action by the UCBs; if the financial position of the bank does not improve, the RBI will take supervisory action. In August 2011, the RBI allowed certain scheduled UCBs61 to offer internet banking facilities to their customers with the approval of the RBI.

              2. There are also rural cooperative banks, state cooperative banks, so‑called "financial institutions" that provide medium‑ to long‑term finance to specific sectors of the economy, regional rural banks (RRBs) established under the Regional Rural Banks Act 1976, and Local Area Banks.62

              3. Non-banking financial companies (NBFCs), which engage in: (i) lending; (ii) acquisition inter alia of shares, stocks, bonds; (iii) financial leasing or hire purchase; or (iv) acceptance of deposits are regulated by the RBI and are open to foreign investment up to 100% of their capital. On 10 October 2012, the RBI issued a circular (No. 41) to relax conditions for foreign-owned NBFCs to establish step-down subsidiaries.63 As per the Circular, NBFCs whose share of foreign‑owned paid-up capital account for more than 75% and up to 100% (previously only 100%) and with a minimum capitalization of US$50 million can set up step-down subsidiaries for specific NBFC activities without any restriction on the number of operating subsidiaries and without bringing in additional capital.
        1. Insurance

              1. Insurance and re-insurance in India are regulated by the Insurance Act 1938, the Insurance Regulatory and Development Authority Act 1999 (which amended the Insurance Act 1938), the Life Insurance Corporation Act 1956, and the General Insurance Business Act 1972. The Micro‑Insurance Regulations 2005 aim to promote the use of insurance by people in the lower income brackets.

              2. The insurance sector's regulator is the Insurance Regulatory and Development Authority of India (IRDAI). Its functions include supervising the development of the sector, granting licences to insurance intermediaries, and specifying the percentage of insurance business to be undertaken in rural areas and the social sector.64

              3. At end-March 2014, there were 53 insurance companies in India; foreign participation was 21.6% of total equity (Table 4.5). In addition, there were 20,057 micro-insurance agents.65

Table 4.42 Insurance and reinsurance market, end-March 2014





FDI (Rs billion)

% of FDI to total equity


Equity (Rs billion)


Equity (Rs billion)


Equity (Rs billion)



















Special Govt insurance









Health insurer



























Source: WTO Secretariat, based on information provided by the Indian authorities.

              1. As in the case of the banking sector, the insurance industry continues to be dominated by state-owned enterprises. For example, the market share of Life Insurance Corporation (LIC) of India was around 75.4% in 2013-14, compared with 68.7% in 2010-11. The four non-specialized public non-life insurance companies (National, New India, Oriental and United) accounted for around 54.7% of gross premium income (compared with 53.2% in 2010-11). The micro-insurance market is also dominated by the LIC, which contributed 89.4% of total micro-insurance premiums in 2013‑14.

              2. In accordance with the 1938 Insurance Act, as amended, insurance services may only be carried out by an Indian insurance company, meaning any insurer formed and registered in India under the Companies Act 2013, whose sole purpose is to carry out life insurance business or general insurance business or re‑insurance business.

              3. There is no tariff control for any class of non‑life insurance business, except motor third‑party cover.66

              4. In accordance with the Insurance Regulatory and Development Authority (Obligations of Insurers to Rural and Social Sectors) Regulations 2002, insurers must place a certain percentage of their policies with the rural and social sectors. This restriction has remained unchanged since 2011.67 All 23 life insurance companies in the private sector fulfilled their rural sector obligations; the LIC was also compliant with its obligations, underwriting a percentage of policies in the rural sector above its prescribed 25% for 2013-14. Out of 23 private life insurance companies, 21 fulfilled their social sector obligations during 2013-14, and the IRDA initiated penal action against the two non‑compliant insurers.68 The LIC also complied with its social‑sector requirements in 2013-14. All non‑life private insurance companies and one public sector insurer complied with their rural and social sector obligations in 2013-14.

              5. There has been no change in the solvency margin requirement of 150% since India's previous Review. At end‑March 2014, all 24 life and 28 non-life insurers and one re-insurer were in compliance with the minimum solvency margin requirement.

              6. Tariff restrictions exist only for the premium rates for motor third-party liability cover; such rates must be adjusted every year in accordance with a specific formula. On 27 March 2014, the authorities moderated the rate increase in some of the classes of motor insurance and notified the revised premium rates for 2014-15.69

              7. Insurance companies must maintain a required solvency margin, which has remained unchanged since 2011.

              8. The insurance penetration rate as a percentage of GDP declined slightly for life insurance from 4.6% in 2009 to 3.1% in 2013 (the latest year for which data were made available); insurance density decreased for life insurance from US$47.7 in 2009 to US$41 in 2013. The penetration rate for general (non-life) insurance increased from 0.6% in 2009 to 0.8% in 2013; its density increased from US$6.7 in 2009 to US$11 in 2013.70

              9. The Micro-Insurance Regulations 2005 provide a platform to promote insurance penetration among rural and urban populations. The Regulations define micro‑insurance as policies of up to Rs 30,000 or Rs 50,000, depending on the type of insurance contract. The Regulations promote the creation of specific micro‑insurance products and allow non‑governmental organizations and self‑help groups to act as agents to insurance companies in marketing these micro‑insurance products. Agents may charge a commission of 10% of the premium for single‑premium life insurance policies, and 20% for non‑single‑premium policies; for non‑life insurance business, agents may charge a commission of 15% of the premium.

              10. Grievances with respect to insurance issues may be addressed to the Insurance Ombudsman. There are 12 Ombudsmen across India. The Insurance Ombudsman may engage in conciliation, and award‑making; the Ombudsman's powers are restricted to insurance contracts of a value not exceeding Rs 2 million. Insurance companies are required to honour awards passed by an Insurance Ombudsman within three months.

              11. The Insurance Laws (Amendment) Ordinance 2014, issued on 26 December 2014, adopted a number of regulatory changes including (a) raising the foreign equity limit in an Indian insurance company from 26% to 49%; (b) allowing foreign re‑insurers to open branches only for re‑insurance business in India; (c) making the underwriting of third‑party risks of motor vehicles obligatory; (d) shifting the responsibility of appointing insurance agents from the IRDA to the insurers; and (e) introducing flexibility to raise capital through other forms instead of through equity alone.
        1. Securities

              1. The securities sector in India is regulated by the Securities and Exchange Board of India (SEBI), inter alia, under the Securities and Exchange Board of India Act 1992, as amended.71 SEBI's responsibility is to regulate and promote the development of the securities market, and protect the interests of investors in securities.

              2. Since its previous Review, India adopted new legislation including the Securities Laws (Amendment) Act 201472, which amended the SEBI Act 1992, the Securities Contracts (Regulation) Act 1957 and the Depositories Act, 1996. Under the Securities Laws (Amendment) Act 2014, SEBI is empowered to: (i) call for information from any person in relation to any investigation or inquiry by SEBI in respect of any transactions in securities; (ii) obtain or furnish information to other securities regulators abroad; (iii) settle administrative and civil proceedings on terms determined by SEBI in accordance with procedures specified in the relevant regulations; (iv) review (by the SEBI Board) on its own initiative any order passed by an adjudicating officer if the order is considered to be erroneous and not in the interest of the securities market; and (v) strengthen enforcement.73 The Act also enlarged the scope of the collective investment scheme, and stipulates the establishment of Special Courts for prosecution of offences under the Act for speedy trials.

              3. As at 16 February 2015, there were 15 stock exchanges in India74, all regulated by SEBI under the Securities Contract (Regulation) Act 1956 and the SEBI Act 1992.75 During the review period, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations 201276 was adopted to provide a separate regulatory framework for regulation of stock exchanges and clearing corporations, and repealed the previous SCR R (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations 2006, although some aspects of the latter are incorporated in the new Regulations (e.g. shareholding restriction and fit and proper criteria) with minor modifications (Table 4.6).

Table 4.43 Securities market, 2012-15

Registered market participants





Stock exchanges

Cash market





Derivatives market





Currency derivatives





Foreign institutional investors










Venture capital funds





Foreign venture capital investors





Alternative Investment Funds





Mutual funds









Primary securities market

Capital raised (US$ billion)

Equity securities

Public and rights issues





Qualified institutions placements (QIPs)





Preferential allotments





Debt securities

Public issues





Private placements










Secondary securities market

Number of listed companiesd





Equity market capitalization (US$ billion)d





Equity market turnover (US$ billion) (NSE + BSE Ltd.)c





Number of trades (million) (NSE + BSE Ltd.)









Daily average turnover (US$ billion) (NSE + BSE Ltd.)





Derivatives market

Turnover (US$ billion)

Equity derivativese





Currency derivativesf





Interest rate futuresg





Average daily turnover (US$ billion)

Equity derivativese





Currency derivatives





Investment by foreign institutional investors (FIIs)

Investment during the year (US$ billion)





Cumulative net investment by the FIIs (US$ billion)





Market value of assets (US$ billion)h





% of equity market capitalization held by the FIIsi





Investments by venture capital funds and foreign venture capital investors (cumulative investments (US$ billion))

Venture capital funds





Foreign venture capital investors





a As at 31 March of each year.

b As at 31 October 2014.

c With the commencement of the FPI Regime from 1 June 1 2014, the FIIs, Sub-Accounts and QFIs were merged into a new investor class termed as "Foreign Portfolio Investors (FPIs)". As at 19 November 2014, the number of FPIs was 467, and the number of deemed FPIs (previous FIIs, deemed FPIs (previous sub-accounts), and deemed FPIs (previous QFIs)) were 1,500, 5,603 and 68, respectively.

d BSE only.

e BSE and NSE.


g NSE only.

h Equity and Debt.

i AUC of FII in equity as a percentage of BSE market cap.

J The corresponding data for 16 Feb 2015 is 15.

k USE merged with BSE in December 2014. As of February 2015, the number of exchanges offering currency derivatives was 3.

Note: All conversions in US$ billion have been based on the reference rate published by RBI.

Source: Securities and Exchange Board of India; and information provided by the Indian authorities.

              1. Other policy initiatives since India's previous Review in 2011 include: allowing registered mutual funds to accept subscriptions from foreign investors that meet the know-your-client (KYC) requirements for equity schemes since 2011-12; reviewing corporate governance norms for listed companies77; raising the FII limit for investment in corporate bonds to US$51 billion, including a sub‑limit of US$25 billion each for bonds of the infrastructure and non-infrastructure sectors, and US$1 billion for qualified foreign investors (QFIs) in non-infrastructure sector; establishing a registration requirement with SEBI for alternative investment funds under SEBI (Alternative Investment Funds) Regulations 201278; providing a framework for registration and regulation of investment advisors79, research analysts80, real estate investment trusts81, and infrastructure investment trusts82; and streamlining the regulation of schemes by companies for the benefit of their employees involving dealing in shares through the SEBI (Share Based Employee Benefits) Regulations 2014. SEBI also notified the SEBI (Prohibition of Insider-Trading) Regulations, 2015 in order to put in place a framework for prohibition of insider trading in securities and to strengthen the legal framework, which replaced the regulations notified in 1992.

              2. An additional regulatory step has been to converge accounting standards in India with International Financial Reporting Standards (IFRS). In February 2011, the Ministry of Corporate Affairs (MCA) notified that accounting standards in India would converge with IFRS, and a new Companies Act 2013 was adopted. The Act introduced various new provisions including requirement for preparation of consolidated financial statements by companies. In the Budget 2014-15, the Minister for Finance proposed for national standards to be converged with IFRS voluntarily from 2015-16, and mandatorily from 2016-17. Subsequently, the Institute of Chartered Accountants of India (ICAI) prepared a revised roadmap for implementation of the Indian Accounting Standards (Ind-AS) and submitted it to the MCA for taking up with the National Advisory Committee on Accounting Standards (NACAS) to decide on its implementation. On 16 February 2015, the Ind-AS was notified by MCA. With the implementation of Ind-AS, India will have two sets of accounting standards, i.e. existing accounting standards under Companies (Accounting Standard) Rules 2006 and Ind-AS.

              3. Foreign investment is allowed, either under the FDI route or the portfolio investment scheme (Table 4.7). Foreign investment under the latter has been reformed since India's previous Review, while overall foreign-ownership restrictions remain largely unchanged. As per SEBI (Foreign Portfolio Investors) Regulations 2014, existing FIIs, Sub‑Accounts and QFI are merged into a new investor class called Foreign Portfolio Investors (FPIs).83 FPIs require no direct registration with SEBI; instead newly-defined Designated Depository Participants (DDPs) that are approved by SEBI register FPIs on behalf of SEBI subject to compliance with KYC requirements.84 FPIs require registration under any of the following categories: (i) Category I FPI, which include government-related foreign investors; (ii) Category II FPI, which include broad‑based funds and other entities appropriately regulated, and unregulated broad based funds (whose investment manager is appropriately regulated), and university funds, pension funds, and university-related endowments already registered with SEBI as FII/Sub‑Account; and (iii) Category III FPI, which includes all others such as foreign individuals and foreign corporations. Category I and Category II FPIs (except unregulated broad-based funds) are allowed to issue or deal in offshore derivative instruments (ODIs) directly or indirectly. Category I and II FPIs have been exempted from furnishing the financial details of the investor, proof of address, proof of identity and photographs of senior management personnel, authorised signatories and ultimate beneficial owners (UBOs). Further, Category II FPIs are exempted from furnishing lists of UBOs, where no UBO is holding more than 25%.

              4. Restrictions on FPIs/FIIs investment in debt have been modified since India's previous Review. These include: (i) allowing FPIs to invest in Government debt and corporate debt without purchasing debt limit until the overall investment reaches 90%, respectively, after which the auction mechanism is initiated for allocation of the remaining limits (in 2013); (ii) allowing FPIs to invest in credit-enhanced rupee denominated bonds up to an equivalent of US$5 billion within the overall corporate bond limit of US$51 billion (November 2013); (iii) creating a separate additional limit of US$5 billion for long-term investors allowing FPIs to invest only in dated Government securities having residual maturity of one year or above (April 2014). This was being subsequently revised in respect of the Government debt limit (other than the sub-limit of US$5 billion for long term investors) of US$25 billion requiring FPIs to invest in Government bonds with a minimum residual maturity of three years (July 2014). In addition, FPIs have recently been permitted to: (i) invest in corporate bonds with a minimum residual maturity of three years and prohibiting FPIs from investing in liquid and money-market mutual-fund schemes (since February 2015); (ii) invest, on a repatriation basis, in non‑convertible/redeemable preference shares or debentures issued by an Indian company as per terms and conditions specified by RBI; (iii) invest in Government securities. Such investments shall be kept outside the applicable limit (currently US$30 billion) for investments by FPIs in Government securities.

Table 4.44 Market access and national treatment conditions for foreign investment in the securities market, 2014


Limitation on market access

Limitation on national treatment

Venture capital

Domestic venture capital funds and foreign venture capital investors are regulated by SEBI. A venture capital fund may raise moneys from any investor, Indian, foreign or NRI, by way of issue of units.

Same rules apply to Indian and foreign investors within relevant SEBI Regulations.

Asset management (mutual funds)

Mutual funds in India must register with SEBI. The requirement & procedure to be followed for registration of a mutual fund in India are provided in SEBI (Mutual Fund), Regulations, 1996.

Overseas investors may invest either through offshore funds or can directly invest in units of mutual fund schemes through FPI route. FPIs are not permitted to invest in liquid and money market mutual fund schemes.

Same rules apply to Indian and foreign investors with regard to registration of mutual funds.

Portfolio management

FPIs (and previous FIIs and sub-accounts) may avail portfolio management service.

Same rules apply to Indian and foreign investors within relevant SEBI Regulations.

Custodial services

Foreign banks may carry out activities, subject to RBI approval and SEBI Regulations. Foreign banks are allowed to register as Custodian with SEBI. SEBI (Custodian of Securities) Regulations, 1996 (Custodian Regulations) does not impose any restrictions on custodians with respect to foreign ownership.

Same rules apply to Indian and foreign custodians under the Custodian Regulations.


A depository must be a company incorporated under the Companies Act and needs to obtain a Certificate of Registration and Certificate of commencement of business from SEBI before operating as a depository. No person other than a sponsor, whether Indian or foreign, can hold more than 5% of equity share capital of a depository. The entities that can be a sponsor of a depository are provided in the SEBI (Depositories and Participant) Regulations. These can be a bank referred in the second schedule to RBI Act, a foreign bank operating in India with the permission of RBI, or a recognised stock exchange. A foreign corporation providing custodial, clearing or settlement services in the securities, and any institution engaged in providing financial services established outside India can also sponsor a depository if approved by the Government. There is a composite ceiling of 49% for foreign investment (FDI 26% and FII 23%) in Depository.

Foreign institutional investors are allowed to acquire shares in the secondary market only. Foreign institutional investors are also precluded from having representation in the board of the depository.

Participation in issues of all kinds of securities, including underwriting and placement as agent

Foreign entities may subscribe to issues as FPIs. Foreign companies may issue IDR to raise money; they may act as intermediaries subject to setting up a company in India.

Same rules apply to Indian and foreign entities in relevant SEBI Regulations.

Investment in stock exchange

No persons resident in India and resident outside India directly or indirectly, either individually or together with persons acting in concert, must acquire or hold more than 5% of the paid-up equity share capital in a recognized stock exchange. The only exception to this is granted to some domestic players like a stock exchange, a depository, a banking company, an insurance company, and a public financial institution, which may acquire or hold, either directly or indirectly, either individually or together, with persons acting in concert, up to 15% in Indian stock exchanges. There is a composite ceiling of 49% for foreign investment in stock exchanges (FDI 26% and FII 23%).

Foreign institutional investors are allowed to acquire shares in the secondary market only.

Foreign institutional investors are also precluded from having representation in the board of stock exchanges.

Source: WTO Secretariat, based on information provided by the Indian authorities.

              1. A Securities Transaction Tax (STT) is applied on the sale and purchase of various securities at the rates of 0.017%, 0.025%, 0.125%, and 0.25% of the value of the transaction, depending on its nature. The same tax treatment that had been applied to FIIs is extended to all FPIs.

              2. Regulations on takeovers in the securities sector were modified by the adoption of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, notified on 23 September 201185; takeovers in the securities' sector had previously been regulated by SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997. Regulations with respect to trigger-points for making an open offer by an acquirer have been modified: under the 2011 Regulations, acquirers who intend to acquire shares that, along with their existing shareholding, would entitle them to exercise 25% (previously 15%) or more of the voting rights, may acquire such additional shares only after making a public announcement of an open offer to acquire at least an additional 26% (previously 20%) of the voting capital of the target company from shareholders. The 2011 Regulations also introduced, inter alia: voluntary offers (subject to certain conditions), and a mandatory recommendation on the open offer by the committee of independent directors of the target company. The new Regulations provide for disclosure obligations pursuant to an acquisition that leads to the acquirer owning 5% of the shares of the company. Any investor that owns 5% or more of the shares must disclose the purchase or sale of any further stock representing at least 2% of the total shares. Every person that holds more than 25% of shares and the promotors must submit yearly declarations stating the amount of ownership both in terms of number of shares and as a percentage of the total voting capital of the company. Acquirers that hold between 25% and 75% of shares must not acquire more than 5% of shares in any financial year without triggering an open offer. The SEBI cooperates with the CCI with respect to regulations of takeovers and open offers with a view to ensuring smooth functioning of the capital market. Consultations between the two bodies are held on a needs basis for specific cases.
      1. Telecommunications

              1. The telecommunications sector is regulated by the Indian Telegraph Act 1885 (as amended), the Indian Wireless Telegraphy Act 1933, the Indian Telegraph Rules 1951 (as amended), the Telecom Regulatory Authority of India Act 1997, and the directions, orders, and regulations issued by the Telecom Regulatory Authority of India. The Indian Telegraph Rules were amended on 28 January 2010, 28 March 2012 and 8 February 2014.86

              2. Since its previous Review, various changes to the regulatory environment regarding telecommunications in India have been adopted. These include the adoption of: (i) Standards of Quality of Service for Mobile Data Services Regulations 2012, which aim to protect the interests of consumers by requiring mobile-data service-providers to provide certain information about the quality of services, and assess the quality of services; (ii) Registration of Consumer Organisations Regulations 2012 as a revision to the Regulation on Guidelines for Registration of Consumer Organisations 2001; (iii) International Telecommunication Cable Landing Stations Access Facilitation Charges and Co-location Charges Regulations 2012 to regulate Cable Landing Station Reference Interconnection Offer (CLSRIO); (iv) Short Message Services (SMS) Termination Charges Regulations 2013 to apply the framework of Interconnection Usage Charges (IUC) on SMS termination charges; (v) International Calling Card Services (Access Charges) Regulations 2014 to introduce more competition in the long-distance communications market; (vi) Guidelines for the Reporting System on Accounting Separation Regulations 2012 to facilitate the availability of more detailed and disaggregated information on revenues and costs on a regular basis; and (vii) Telecommunication Interconnection (Port Charges) (Second Amendment) Regulations 2012.87

              3. The Department of Telecommunications (DoT) at the Ministry of Communications and Information Technology is in charge of formulating the telecommunications policy and granting licences. The DoT also controls four central public-sector undertakings, including India's main fixed‑lines operators, Bharat Sanchar Nigam Ltd. (BSNL), and Mahanagar Telephone Nigam Ltd. (MTNL).88 The Telecom Regulatory Authority of India (TRAI), created in 1997 as an independent body, regulates tariffs, inter‑connectivity, and quality standards, and ensures that the universal service obligation is met. TRAI also makes recommendations regarding the procedures to grant licences. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) resolves disputes between the Government and licensees, service-providers, and service-providers and consumers; and deals with appeals against TRAI's decisions. Over 2011-14, 2,516 disputes and 50 appeals were filed.89

              4. The National Telecom Policy 2012, among others, establishes the main guidelines for the development of the telecom sector in India. The policy aims, inter alia to: simplify the licensing framework to further extend converged high-quality services across the nation, including rural and remote areas; increase rural teledensity to 70 by 2017 and 100 by 2020 (teledensity was around 46 in 2014); provide affordable and reliable broadband-on-demand by 2015 and achieve 175 million broadband connections by 2017 and 600 million by 2020 at minimum 2 Mbps download speed and make available higher speeds of at least 100 Mbps on demand; de-link spectrum in respect of all future licences; enhance number-portability; and put in place a simplified merger and acquisition regime in the telecom sector, while assuring competition.

              5. During the period under review, while rural teledensity increased, major gaps remained between urban and rural teledensity (Table 4.8). BSNL and MTNL hold around 77% of the fixed telephony market as at 30 June 2014.90

Table 4.45 Selected telecom indicators, 2011-14

(Calendar year)





Total telephone subscribers (million)

Fixed lines





















Internet subscribers (million)





Broadband subscribers (million)





Local fixed telephony providers





Mobile telephony providers





National long‑distance telephony providers





International long‑distance telephony providers





Internet service providers





Infrastructure service providers





Fixed telephony ratesc (Rs)

Cost of local call per 3 minutes (to other fixed network)





Cost of national long distance call per 3 minutes (to other fixed network)





Cost per minute of international long distance call to the United States





Mobile telephony rated (Rs)

Cost of local call per minute





Cost of national long distance call per minute





Cost per minute of international long distance call to the United States





a As at 30 June 2014.

b As at 30 September 2014.

c Per BSNL (leading fixed‑line telephony provider)

d Per Airtel (leading service provider of mobile telephony).

Source: TRAI online information. Viewed at:; and information provided by the Indian authorities.

              1. Under the Telecom Regulatory Authority of India Act 1997, TRAI is in charge of setting tariffs for all telecom services.91 TRAI consults with all stakeholders92, including consumer associations, on all issues related to the development of telecom regulations including tariffs.93 The Telecommunications Tariff Order 1999 had been amended 59 times by November 2014 (and 10 times between 2011 and 2014).94

              2. Concerning interconnection charges, in accordance with the Telecommunication Interconnection (Port Charges) (Second Amendment) Regulations 2012, issued on 18 September 2012, the TRAI set a ceiling for providing port in Tandem/TAX Switch at Rs 10,000 per port per year and for providing port in a mobile-switching centre (MSC), the ceiling was specified as Rs 4,000 per port per year. The TRAI also issued International Telecommunication Access to Essential Facilities at Cable Landing Stations (Amendment) Regulations 2012 (No. 21 of 2012) on 19 October 2012. Under the International Telecommunication Cable Landing Stations Access-Facilitation Charges and Co‑location Charges Regulations 2012 (No. 27 of 2012), issued on 21 October 2012, access facilitation charges have been specified.95 The Short Message Services (SMS) Termination Charges Regulations 2013 prescribes an SMS termination charge as Rs 0.02 per SMS, based on cost. In addition, the Regulations on International Calling Card (Access Charges) Regulations 2014, issued on 19 August 2014, prescribe access charges payable by international long-distance operator (ILDO) to the access service-provider where the access service-provider customer avails of the calling-card service of ILDO at Rs 0.4 per minute for wireless services and Rs 1.2 per minute for wireline services.

              3. India is divided into 22 telecom service areas. For providing telecom services, the Government grants Unified Licences (ULs). The basic features of ULs are as follows: (i) the allocation of spectrum is de-linked from the licences and must be obtained separately as per prescribed procedures. At present, spectrum in 800/900/1800/2100/2300/2500 MHz band is allocated through a bidding process. For all other services and usages like Public Mobile Radio Trunking Service (PMRTS), the allocation of spectrum and charges thereof is prescribed by the Wireless and Planning and Co-ordination wing of Department of Telecommunications from time to time; (ii) authorisation under UL comprises any one or more services among: unified license (All services); access service (per service area); internet service (Category-A with all India jurisdiction); internet service (Category-B with jurisdiction in a service area); internet service (Category-C with jurisdiction in a secondary switching-area); national long-distance (NLD) service; international long-distance (ILD) service; global mobile personal communication by satellite (GMPCS) service; public mobile radio trunking (PMRTS) service; very small aperture terminal (VSAT) closed-user group (CUG) service; INSAT MSS-reporting (MSS-R) service; and resale of international private-leased circuit (IPLC) service. To deliver these services, domestic and foreign operators must be licensed by the DoT (Table A4.3). To apply for a licence, operators must register as an Indian company under the Indian Companies Act 1956. A maximum of 100% foreign equity participation is allowed. In the event of holding/obtaining access spectrum, no licensee or its promoter(s) directly or indirectly shall have any beneficial interest in another licensee company holding access spectrum in the same service area.

              4. The Mobile Number Portability (MNP) Policy was launched on a trial basis across India in January 2011; full number portability was recommended by the Authority in 2013-14; this is planned to be implemented on 3 May 2015.96

              5. Development and maintenance of rural fixed‑line and mobile telecom and broadband services are subsidized to allow affordable prices for customers.97 All service-providers, except providers of value‑added services (e.g. internet, voice‑mail, and e‑mail services), are subject to a universal service levy of 5% of adjusted gross revenue.98 Funds from the Universal Service Obligation Fund (USOF) are allocated to "eligible operators" from the public and the private sectors99, through a bidding process, for telecom and broadband infrastructure development projects in rural areas (e.g. provisions of village public telephones, household telephones, and infrastructure for mobile and broadband services).100 In 2012, the Government amended the Indian Telegraph Rules 1951 to provide funds from the USOF to create a national optical fibre network (NOFN) to extend broadband connectivity to all villages.

              6. In addition to the Competition Act 2002, the Department of Telecommunications issues guidelines for mergers and acquisitions in telecommunications. On 20 February 2014, revised guidelines were issued. Under these guidelines mergers will be allowed where the market share of the combined entity in the respective service area is up to 50% (compared with 35% previously).101
      1. Transport

        1. Maritime transport

          1. Shipping

              1. Some 95% of India's merchandise trade by volume and 68% in terms of value is transported by sea.102 India's fleet comprises 1,205 commercial Indian-flag vessels with a gross tonnage of 10.3 million tonnes; around 32% of the tonnage is held by the state‑owned national flag‑carrier, the Shipping Corporation of India (SCI) (December 2014). Foreign‑flag vessels dominate maritime transport for international trade; Indian-flag vessels carried only 9.1% of India's merchandise trade in 2012-13.103 The Ministry of Shipping controls eight shipping enterprises, including the SCI. According to the authorities, there is no reservation policy for SCI. Bids are awarded to the lowest price and that match the technical requirements.

              2. The shipping sector is governed by various laws and regulations including the Merchant Shipping Act 1958. Main changes in regulations concerning maritime transport since 2011 reflect decisions made at the International Maritime Organization (IMO). In line with the amendments to the International Convention on Standards of Training, Certification and Watch-Keeping for Seafarers (STCW Convention) of the IMO in 2010, at Manila (Manila Amendments), the Merchant Shipping (STCW) Rules 2014 incorporated such changes into India's national legislation, as notified on 30 July 2014. These pertain to seafarers' training, certification and watch-keeping standards.

              3. The registration of Indian vessels is governed by the Merchant Shipping Act 1958 (Part V) and the Merchant Shipping (Registration of Ships) Rules 1960, as amended. Indian vessels must register at designated port registries. A central register is kept by the Directorate General of Shipping (DGS). Foreign ships may not be registered in India. Under the Act, vessels (Indian or foreign) must be licensed by the DGS. The DGS issues general licences (for Indian vessels and vessels chartered by a citizen of India or a company, or a cooperative society), licences for the whole or any part of the coastal trade, and licences for a specified period/voyage (i.e. specified period licence (SPL)), granted to foreign flag vessels for coastal trade.

              4. The Merchant Shipping Act 1958, as amended, reserves, in principle, cabotage to Indian‑flag vessels (Part XIV). Nonetheless, the Act, in Sections 406 and 407, enables applications to be considered for relaxation from cabotage on a case-by-case basis, subject to the guidelines prescribed for the purpose. The latter stipulates, inter alia, obtaining a no-objection certificate (NOC) from the INSA as to the availability or non‑availability of Indian-flag vessels for the carriage of such cargo domestically along the coast of India. Technical specifications of the vessels are examined in addition to the consideration of the first right of refusal to Indian-flag vessels to match, on price points, the offers made by foreign-flag vessels. On the receipt of the NOCs from the INSA, the Director General of Shipping may grant licenses to foreign flag vessels. In fiscal years 2012/13, 2013/14, and 2014/15 (up to 14 October), the Director General of Shipping granted exemption from cabotage restrictions to 740, 742, and 291 foreign‑flag vessels, respectively. According to the authorities, applications for cabotage are rarely declined. In addition, foreign cruise-ships are allowed to visit more than one Indian port. At the same time, the Government aims to develop coastal shipping by enhancing modal shift in domestic transportation.

              5. A policy of controlled Indian tonnage has been introduced, recently through DGS Order No. 10 of 2014 on 23 July 2014. This policy enables Indian shipping companies, registered in India, to register ships abroad, subject to certain conditions stipulated in the Order.

              6. There have been no changes to foreign ownership by way of any restriction in the maritime transport sector since 2011. The policy of 100% foreign direct investment through the automatic route, in the Indian shipping sector, continues to be in force.

              7. On repatriation of capital and dividends, the provisions of the Foreign Exchange Management Act (FEMA) 1999, as amended, and the rules framed thereunder, remain applicable.

              8. On the issue of compliance with instruments of the International Maritime Organization such as its Conventions/Protocols/Agreements, India has ratified 32 such IMO instruments (out of 55) (Table A4.4). Currently, 6 others are being considered.104

              9. A service tax is charged on the transport of goods on inland waterways and on coastal shipping.105 The change in taxation introduced in 2005, through which shipping companies were given the option of applying a tax based on total tonnage (tonnage tax) instead of the corporate tax, is estimated to have reduced the tax burden on the shipping sector and encouraged investment.106

              10. Imports of repair materials by ship‑repair units registered with the DGS, are exempt from customs duties, and domestic goods are exempt from excise duties.107 The recent budget extended some of the incentives, including duty‑free imports of spare parts and other items used for repairs, provided for ocean-going vessels owned by ship‑owners registered in India.

              11. Vessel-sharing agreements of the liner-shipping industry are exempted from Section 3 of the Competition Act 2002, initially for a period of one year as from 11 December 2013. The exemption has been extended several times; currently, it is valid until 4 February 2016 (Section Registration is required for such agreements; 47 such agreements have been registered.108 During the first exemption period (from 11 December 2013 to 10 December 2014), 30 vessel-sharing agreements were filed with the Directorate General of Shipping.
          2. Ports

              1. India has around 200 ports including 12 major ports, which handle around 57% of total cargo.109 The major ports are mainly administered by the central Government through the Ministry of Shipping and managed by "port trusts" under the Major Port Trust Act 1963.110 The Maritime Agenda 2010-20 identified various areas for capacity-building in ports and shipping. The National Maritime Development Programme (NMDP), a part of the Maritime Agenda, is aimed at modernizing infrastructure both at major and minor ports.111

              2. The Indian Ports Act and the Major Port Trusts Act 1963112 are the main laws governing ports. All ports are owned by the Government; specific berths and activities may be publicly or privately administered and operated. Infrastructure at major and non-major ports is developed through public and private partnerships. Tax holidays of 10 years are available for development of infrastructure in ports. Foreign direct investment of up to 100% under automatic route is permitted for port development projects. Projects involving investment of around Rs 110 billion have been awarded to foreign companies since 2012; these include the development of the fourth container terminal at Jawaharlal Nehru Port involving an investment of around Rs 79.2 billion.

              3. On 20 April 2012, the Merchant Shipping (Regulation of Entry of Ships into Ports, Anchorages and Off-Shore Facilities) Rules 2012 were notified and promulgated with a view to mitigating the adverse effects of potential marine environmental pollution from the entry of sub‑standard ships into India.113

              4. Tariffs for services and facilities at major ports are regulated by the Tariff Authority for Major Ports (TAMP)114, constituted in April 1997 as an independent authority. Tariff Regulation at Major Ports 1997 specifies conditions governing tariffs for major ports; under its 2005 guidelines, as revised in February 2008, a tariff cap based on a cost-plus approach with an assured return on gross capital deployed has become a basic norm for the setting of port tariffs. In 2013, the Ministry of Shipping issued Guidelines for Determination of Tariffs for Projects at Major Ports 2013, with a view to liberalizing certain aspects of tariff regulations in order to invite more private investment in the port sector.115

              5. Non-major ports are regulated by States' maritime boards/departments. Non-major ports are allowed to fix their own tariffs, and in order to attract cargo from major ports, they often fix their tariffs at levels lower than the regulated tariffs.

              6. The Policy for Preventing Private Sector Monopoly in Major Ports 2010 continues to promote competition in the award of contracts. If there is one private terminal/berth-operator in a major port for a specific cargo, the operator is not allowed to bid for the next terminal/berth for handling the same cargo in the same port.116
        2. Air transport

              1. The Ministry of Civil Aviation is in charge of policy formulation for, and regulation of civil aviation in India. Within the Ministry, the Directorate General of Civil Aviation (DGCA) regulates air transport services to/from India; enforces civil air regulations and standards, registers aircraft and licenses pilots, air engineers, and traffic controllers. The Bureau of Civil Aviation Security (BCAS), also within the Ministry, is in charge of formulating security standards. The Ministry controls: Air India Ltd., which operates Air India flights; the Airports Authority of India (AAI), which manages and operates some of India's civil airports and surveys India's airspace; and Pawan Hans Helicopters Ltd., which operates helicopter services for the oil and tourism industries.

              2. The AAI manages 126 of India's 454 airports. The remaining airports are managed by private operators. AAI is responsible for slot allocation at AAI-managed airports. All domestic airlines must file for slots with the DGCA and the respective airport operators. Slots are allocated twice a year, based on grandfathered rights or a "use it or lose it" rule.117 After allocation of slots, new airlines are allotted 50% of the remaining slots. No charge is levied for peak and non‑peak slots.

              3. Permits to operate scheduled and non‑scheduled flights are granted by the DGCA upon a NOC from the Ministry of Civil Aviation118; permits may be renewed within 60 days of expiry.119 Under the Aircraft Rules 1937, passenger-air-carriers must publish airfares for customers' information. In order to increase transparency, carriers must notify their airfares to the DGCA on the first day of every month and any significant changes within 24 hours.120

              4. Foreign investment is allowed in scheduled air-transport services and domestic-scheduled passenger airlines up to 49% (automatic route), and in non‑scheduled air-transport service, non‑scheduled airlines, chartered airlines, and cargo airlines up to 74% (subject to governmental approval beyond 49%). Foreign investment in airport projects is allowed up to 100% under the automatic route for Greenfield projects; and up to 100% for existing projects subject to governmental approval beyond 74%, to sectoral regulations notified by the Ministry of Civil Aviation, and security clearance. Private domestic partners in airport projects are granted full tax‑exemption for ten years.121

              5. Civil aviation construction projects are subject to a 1% cess under the Building and Other Construction Workers' Welfare Cess Act 1996.

              6. Tariffs on aeronautical services account for 70%‑80% of Indian airports revenues.122 Until 2008, the AAI operated airports and regulated tariffs for aeronautical services, which led to a conflict of interest, and users complained about the disparity between tariffs and services provided.123 To address these concerns, the Airports Economic Regulatory Authority (AERA), an independent body, was created in 2009.124 AERA, which began operations in September 2009, is in charge of regulating airports with annual traffic of at least 1.5 million passengers; 13 airports in India exceed this threshold and account for 85% of passenger traffic.125 The central Government is in charge of regulating airports with annual traffic of less than 1.5 million passengers. The AERA is also responsible, inter alia, for fixing aeronautical services charges, the passenger service tax, and airport and user-development fees for major airports; and monitoring the quality and reliability of services rendered at airports.126 Airport operators collect the aeronautical charges and the taxes fixed by AERA.

              7. Ground‑handling services are open for FDI of up to 74%, subject to sectoral regulations notified by the Ministry of Civil Aviation and to security clearance. However, FDI is only allowed up to 49% under the automatic route. Beyond 49%, approval from the Foreign Investment Promotion Board is required. In addition, non‑resident Indians are allowed to invest up to 100% in ground‑handling services.

              8. The foreign travel tax (FTT) is levied at approximately Rs 500 for international journeys and Rs 150 on journeys to Afghanistan, Bangladesh, Bhutan, Myanmar, Nepal, Pakistan, Sri Lanka, and the Maldives; the inland air travel tax (IATT), at 10% of the basic fare, is levied on domestic journeys. The IATT is levied if the airfare is paid in foreign currency.

              9. A passenger service tax, charged on all air tickets, is set at 10% of the gross fare or Rs 100 per journey, whichever is less, for domestic flights (any class)127; and at 10% of the gross fare or Rs 500 per journey, whichever is less, for international economy class flights.128 Since July 2010, passengers in transit in India or embarking/disembarking in the north‑eastern region have been exempt from the service tax.129 VAT on aviation turbine fuel (ATF) varies from 4% to 30% in different states; the average VAT is 24%. Excise tax of 8% and education cess of 3% on the value of excise duty are added to the cost of ATF produced in India. The authorities estimate that due to high rates of taxes, the cost of ATF in India is 40-45% higher than international averages. According to the authorities, steps are being taken in association with the Ministry of Finance and State governments to rationalize relevant taxes.

              10. An airport-development fee and a user-development fee are levied at some of India's major airports on an ad hoc basis to finance projects for the construction and use of upgraded or new infrastructure (Greenfield airports included). Currently, the fees are levied at 13 major airports including Delhi. They are levied on all (international and domestic) departing flights and their rates vary from one airport to another.130

              11. India has signed bilateral air service agreements with 109 of its trading partners; during the period under review, it signed agreements with Azerbaijan (April 2012), Brazil (March 2011), Indonesia (January 2011), Myanmar (May 2012), Trinidad and Tobago (January 2012), United Arab Emirates (January 2014), Viet Nam (November 2013) and Zimbabwe (June 2014) (Table A4.5). Traffic rights accorded under these agreements may differ; for example, India's bilateral air service agreement with the United States contains elements of open-sky arrangements. The operation of charter flights to/from India is liberalized for all "inclusive tour packages".131

              12. India is party to the ICAO 2001 Cape Town Convention and Protocol, and the 1999 Montreal Convention.132
        3. Road and rail transport

              1. The Ministry of Road Transport and Highways (MRTH) is responsible for formulating and implementing road transport policies, and the construction and maintenance of national highways. Development of other roads is under the responsibility of the state or local authorities.133 The National Highways Authority of India (NHAI) is in charge of implementing the seven‑phase National Highways Development Project (NHDP) launched in 1998. Around 55,000 km of national highways are to be upgraded/built at an estimated total cost of US$60 billion.134 One of the NHDP's major goals is to improve access to India's major ports and thus ease freight traffic. The NHDP was scheduled to be completed by 2015 but there have been delays reportedly because of, inter alia, difficulties in acquiring land and contractors' poor performance.135 India is also implementing the National Highways Interconnectivity Improvement Programme, which seeks to improve the entire national highways network by upgrading it to a minimum two‑lane standard by December 2014. FDI in road construction and maintenance is allowed up to 100% under the automatic route.

              2. India's railway network is managed and operated by Indian Railways, an enterprise fully‑owned by the Ministry of Railways. Although railway operations are still reserved for the public sector, foreign and private domestic participation has been encouraged in non‑core activities, e.g. wagon-ownership/leasing, and infrastructure projects.136 Nonetheless, prices for passenger transport are cross-subsidized by higher prices for freight transport, making freight transport uncompetitive compared with road transport. The share of freight carried by the railways has been declining for many years: around 30-35% of freight is transported by rail.

              3. Cross-border services of railway transport between India and its neighbouring countries (Bangladesh, Nepal, and Pakistan) are regulated under bilateral working agreements or rail service agreements signed with these countries. Regulations on cargo are issued by Customs.

              4. Foreign direct investment is permitted in rail transportation. While the Government notification dated 22 August 2014 reserves railway operations only for the public sector, FDI in construction, maintenance and operation is allowed for: (i) suburban corridor projects through public-private partnership; (ii) high-speed train projects; (iii) dedicated freight lines; (iv) rolling stock including train sets, and locomotives or coach manufacturing and maintenance facilities; (v) railway electrification; (vi) signalling systems; (vii) freight terminals; (viii) passenger terminals; (ix) infrastructure in industrial parks pertaining to railway lines or sidings including electrified railway lines and connectivity to main railway lines; and (x) mass rapid transport systems. The Ministry of Railways issued sectoral guidelines for domestic and foreign direct investment in the rail sector in November 2014 as guidelines providing the framework for making investments.

              5. On 1 July 2012, a new service tax regime was introduced in railway transport. The service tax is levied at 12.36%; in addition, an education cess (2%) and a secondary and higher education cess (1%) are levied on railway transport charges. An abatement of 70% is permitted on freight for taxable commodities. Certain commodities (e.g. agricultural produce, foodstuff, chemical fertilizers and oilcakes) are exempt from the service tax. The authorities state that practices of levying terminal charges in case of freight traffic handled at railway-owned goods sheds/terminals have been discontinued. A busy season surcharge is 15% on all commodities except containers and automobiles. Development charges are levied at 5% on normal tariff rates for all types of traffic. A congestion charge is levied at 20% on all traffic to Bangladesh and Pakistan.
      2. Professional services

              1. The regulatory framework concerning the provision of legal services in India has remained largely unchanged over the past decade. The Advocates Act, 1961 and the Bar Council of India Rules, 1975 regulate the legal services sector.137 The sector is administered by the Ministry of Law and Justice. The legal profession is regulated by the Bar Council of India (BCI) (the final regulating body), and state bar councils. The bar councils set the standards for legal qualifications, validate foreign-obtained degrees, and set standards for professional conduct and etiquette. They also admit advocates on their rolls (thus allowing them to appear in court). FDI is not permitted in the legal services sector. Foreign law firms are not permitted to open offices in India and are prohibited from giving legal advice. Legal services can be provided only by natural persons who are citizens of India, and who are on the advocates roll in the State where the service is being provided. The service provider can either be a sole proprietorship or a partnership firm consisting of persons similarly qualified to practice law. To be eligible for enrolment as an advocate, a candidate must be a citizen of India or a country that allows Indian nationals to practice on a reciprocal basis; hold a degree in law from an institution/university recognized by the BCI; and be at least 21 years of age.

              2. Accounting services rendered by chartered accountants in India are regulated by the Chartered Accountants Act 1949 and the Chartered Accountants Regulations 1988. Changes in the regulatory framework for accounting services in recent years include those associated with the adoption of the Companies Act 2013. The Institute of Chartered Accountants of India (ICAI) is empowered to regulate accounting services. The ICAI has entered into MOUs/MRAs with foreign accounting bodies of the following trading partners (without audit rights): Australia, Canada, Ireland, New Zealand, and the United Kingdom.

              3. Under the Act, a chartered accountant is entitled to practice either as an individual or in partnership with chartered accountants in practice or in partnership with members of such other recognized profession as may be prescribed. No company, whether incorporated in India or elsewhere, can practice as chartered accountants.138 A chartered accountant may practice the profession of chartered accountancy whether in his/her own name or as a firm of chartered accountants proprietory/partnership/limited liability partnership. Only an individual who has completed such requirements as prescribed under the Act can be registered as a member of the Institute; only a member of the ICAI can be a chartered accountant in practice by taking a Certificate of Practice in accordance with the Act. Under the Act, foreign qualifications may be recognized based on mutual-recognition agreements.

              4. Recent regulatory changes in the accounting sector include those associated with the adoption of the Companies Act 2013, which stipulated, inter alia: (i) stricter disqualification norms for auditors139; (ii) that an auditor must not perform specified non-audit services; (iii) that internal audit is mandated for certain large companies; (iv) that substantial civil and criminal liability is charged to an auditor in case of non-compliance; (v) that an auditor must report fraud in the company to the Government if, in the course of the performance of his/her duties as auditor, he/she has reason to believe that an offence involving fraud is being/has been committed against the company by officers or employees of the company; (vi) a whistle-blowing mechanism; (vii) class action suits as recognized to enable minority shareholders to approach the tribunal for suitable remedy including in case of any improper or misleading statement of particulars made in the audit report or for any fraudulent, unlawful or wrongful act or conduct of auditor/audit firm. On 1 April 2014, mandatory rotation of auditors for certain classes of companies was introduced. The Indian Accounting Standards (Ind-AS) is to be applicable, on a voluntary basis with effect from 1 April 2015, and mandatorily with effect from 1 April 2016 for a certain class of companies.
      3. Tourism

              1. The direct and indirect contributions of tourism to total GDP and employment during 2012‑13 were estimated at 6.9% and 12.4%, respectively. In 2013, 7.0 million foreign tourist arrivals were recorded in India, an increase over 2012 (6.58 million). During 2013, foreign tourist arrivals in India grew by 5.9% over 2012. The number of domestic tourist visits in 2013 was 1,145 million; it grew by 9.6% over 2012. According to the UN World Tourism Organization, in 2013 revenues in the tourism sector were estimated at US$ 18.4 billion.

              2. There is no specific legislation to regulate the tourism sector and other related activities in India. Foreign presence is allowed in travel agencies, tour operators or tourist transport operators. The Government issued a Ministry of Tourism Strategic Action Plan on 10 February 2001140, and Revised Guidelines for the Promotion of Wellness and Medical as Niche Tourism Products on 21 August 2014.141

              3. The Ministry of Tourism (MoT) is responsible for the development and promotion of tourism. The basic policy direction for the tourism sector is outlined in the National Tourism Policy, issued in 2002, which aims to make tourism a major engine of economic growth. The key objectives of the policy are to increase India's competitiveness in the world tourism market; improve, expand and market tourism products effectively; and develop world-class tourism infrastructure. The MoT also licenses travel agents, tour operators and tourist transport operators on a voluntary basis; to be licensed, operators must comply with a series of eligibility criteria stipulated by the MoT. As at December 2014, there were 671 government-approved tour operators and 404 travel agents. In addition, the MoT, in cooperation with the UN Environment Programme and the UN World Tourism Organization, has developed and issued 37 quality standards to be applied by tourism operators for the development of tourism in India. Various schemes to support the development of tourism industries continue to exist (Table 4.9).

              4. On 27 November 2014, the Government introduced visa-on-arrival for foreign nationals of 43 countries.

              5. A service tax (12.36%), an education cess (2%) and a secondary and higher education cess (1%) are levied on travel agents, tour operators, and on tourist transport operators.

              6. India has signed 51 bilateral agreements on tourism cooperation.142

Table 4.46 Selected support schemes for tourism, 2014

(Rs million)



Develop new tourism products to world standards

Ministry of Tourism bears 100% of the project cost or a maximum of Rs 250 million for destination development and Rs 500 million for circuit development

Develop rural tourisma

Maximum of Rs 5 million

Large projects with a tourism impactb

Grant to prepare the detailed project report, up to 50% of the actual cost, subject to a maximum of Rs 2.5 million per project;

amount of subsidy for private sector/public private partnership projects determined through a competitive bidding process by the concerned State governments/union territory administrations;

Subsidy capped at Rs 500 million, subject to a maximum of 25% of total project cost or 50% of equity contribution of the promoters, whichever is lower

Promote public‑private partnerships in infrastructure development, to deal with the lack of availability of physical infrastructure across different sectors, which is hindering economic development

Government support capped at 20% of total project cost; Rs 1 billion for each project may be sanctioned by the empowered institution, subject to budgetary ceilings indicated by the Finance Ministry; proposals up to Rs 2 billion may be sanctioned by the empowered committee; and amounts exceeding Rs 2 billion may be sanctioned by the empowered committee with the approval of Finance Minister

Unexploited potential for domestic tourists

Approved tourism service providers would be provided financial assistance on travel expenses by air only, subject to a ceiling of Rs 30,000 per trip. Trips must be with Air India or alliance partner

Create institutional infrastructure that may foster and facilitate professional education and training specific to tourism, travel, and hospitality industry

Assistance varies, according to project, from Rs 5 million (minor civil works at universities and other colleges, and polytechnics) to a maximum of Rs 20 million (expenditure on civil works, equipment, furniture, and fixtures in industrial training institutes)

Use of professional services from consultants/agencies for: tourism‑related surveys, studies, plans, and market research for making available relevant data/information/report/inputs to the Ministry of Tourism for policy making and planning purposes; and feasibility studies and detailed project reports (DPRs) for specific tourism projects

Maximum assistance of Rs 1 million provided for preparation of feasibility studies and DPRs for projects under the Scheme of Product/Infrastructure Development for Destination and Circuits

a The following activities may be taken up under the Scheme: improvement of village surroundings and access roads; illumination in villages; improvement in solid-waste management and sewerage management; procurement of equipment directly related to tourism (e.g. water sports, adventure sports, and eco-friendly modes of transport for moving within the tourism zone); refurbishment of monuments; reception centres; and tourist accommodation.

b Tourist trains, cruise vessels, cruise terminals, convention centres, golf courses open for domestic and international tourists, health and rejuvenation facilities, last-mile connectivity to tourist destinations (air and cruise including heli-tourism) etc., would qualify for assistance.

c IHM: Institute of Hotel Management; FCIs: Food Craft Institutes; IITTM: Indian Institute of Tourism and Travel Management; and ITIs: Industrial Training Institutes.

Source: WTO Secretariat, based on information provided by the Indian authorities.

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