Friday, July 27, 2007
[IWS] USITC: INDIA--COMPETITIVE CONDITIONS FOR FOREIGN DIRECT INVESTMENT [July 2007]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
U.S. International Trade Commission (USITC)
Staff Research Study
Competitive Conditions for Foreign Direct Investment in India [July 2007]
(Publication 3931)
Laura Bloodgood, Office of Industries
http://hotdocs.usitc.gov/docs/pubs/332/pub3931.pdf
[full-text, 153 pages]
Abstract
Net foreign direct investment (FDI) flows into India reached $15.7 billion in India's
200607 fiscal year, more than triple the $4.7 billion recorded during 200506, with the
largest share of FDI flows from Mauritius, followed by the United States and the United
Kingdom. This study examines FDI in India, in the context of the Indian economic and
regulatory environment. We present FDI trends in India, by country and by industry, using
official government data from India, the United States, and international organizations. To
supplement the official data, the study also discusses specific investment activities of
multinational companies in India, representing a wide range of countries and industries. To
illustrate the driving forces behind these trends, the study also discusses the investment
climate in India, Indian government incentives to foreign investors, particularly Special
Economic Zones, the Indian regulatory environment as it affects investment, and the effect
of India's global, regional, and bilateral trade agreements on investment from the United
States and other countries. Finally, the study presents two case studies. The first examines
global FDI in India's automobile industry. The second analyzes the effects of India's 2005
Patent Law on FDI in the pharmaceutical industry.
CONTENTS
Page
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ix
Chapter 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-1
Purpose and scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1
Overview of FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4
Chapter 2. FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2-1
Overview of FDI flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1
Mergers and acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3
Greenfield FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
Distribution of FDI within India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
FDI flows to India by source country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11
Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-13
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-14
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-19
United Arab Emirates (U.A.E.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-21
FDI flows to India by industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22
Chapter 3. India's FDI Environment . . . . . . . . . . . . . . . . . . . . . . . . 3-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
Strong economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-3
Labor issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Low wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Rigidity in the labor market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Rising salaries and high turnover in some industries . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6
Antiquated infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6
Increased opportunities for private sector participation in infrastructure projects . . . 3-7
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8
Educated work force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8
Weaknesses in the educational system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9
Access to capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10
Bureaucracy and corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-12
Chapter 4. Special Economic Zones . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Incentives to invest in SEZs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Establishment and licensing of SEZs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3
Other FDI incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7
Chapter 5. FDI Regulation and Dispute Settlement . . . . 5-1
FDI procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1
FDI regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2
Labor regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3
Intellectual property rights regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5
Trademark protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5
Copyright protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Patent protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Other regulatory issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7
Implications of recent FDI policy changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Semiconductors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Litigation and alternative dispute resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Litigation in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Alternative dispute resolution in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-11
ADR in action: The Enron dispute and the Dubhol power plant . . . . . . . . . . . . . . . . 5-13
Chapter 6. India's Investment-Related International
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
World Trade Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
Agreement on trade related investment measures . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
General agreement on trade in services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-2
South Asia Free Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4
Bilateral investment treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5
Double tax avoidance agreements and CECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5
Other agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
Chapter 7. Automotive Investment in India . . . . . . . . . . . . . 7-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1
Background on the domestic Indian automotive industry . . . . . . . . . . . . . . . . . . . . . . . 7-1
India as an automotive FDI destination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-4
The Indian domestic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-4
Indian government policies affecting automotive FDI . . . . . . . . . . . . . . . . . . . . . . 7-6
Auto policy of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-6
Automotive mission plan 20062016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-7
Foreign investment in the Indian auto industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
U.S.-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-10
European-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11
Asia-Pacific-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . 7-12
Component industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-13
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-16
Chapter 8. Case Study 2: Pharmaceutical FDIin India . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The evolution of India's patent laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The Patent laws under British rule (18561947) . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The Post-Independence patent laws (19471995) . . . . . . . . . . . . . . . . . . . . . . . . . 8-2
The post-TRIPS patent laws (1995present) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-2
Ongoing patent law controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-3
The evolution of the pharmaceutical industry in India . . . . . . . . . . . . . . . . . . . . . . . . . 8-6
The domestic pharmaceutical industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-6
Foreign direct investment in the drug and pharmaceutical sector . . . . . . . . . . . . . 8-7
Greenfield projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-10
Strategic alliances in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11
Strategic alliances in manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-13
Pharmaceutical M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-14
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-16
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Biblio-1
Appendices
A. Sector-specific guidelines for FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
B. Web site addresses of State and Unin Territory (UT) Governments and their
investment promotion agencies in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
C. Bilateral international agreements that affect investment in India . . . . . . . . . . . . . . . C-1
Boxes
3-1. Foreign investors attracted by strong Indian economy . . . . . . . . . . . . . . . . . . . . . . . . 3-3
3-2. Hindustan Lever Ltd. succeeds in the Indian market . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
3-3. Large U.S. firms tap educated Indian work force . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9
5-1. Forms of ADR: Mediation, Arbitration, and Concilation . . . . . . . . . . . . . . . . . . . . . . 5-12
7-1. Key recommended interventions in the AMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
8-1. The Novartis challenge to India's patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-5
Tables
2-1. Top 10 acquisitions in India, by value, 200206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5
2-2. Largest 15 greenfield FDI projects in India in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7
2-3. FDI equity inflows, January 2000December 2006, by region . . . . . . . . . . . . . . . . . 2-9
2-4. Top country investors in India, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11
2-5. India, M&A deals by acquiror country and industry of the target company, 200006 . . .. . . . . . . 2-12
2-6. Selected data for U.S. majority-owned affiliates in India, 2004 . . . . . . . . . . . . . . . . . 2-17
2-7. India, FDI by sector, selected years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22
3-1. Inward FDI flows for selected countries, 200205 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
4-1. India: Types of special economic zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
5-1. Selected Indian labor laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-4
6-1. India, GATS schedule of commitments: covered investment service sectors . . . . . . . 6-3
7-1. Indian passenger vehicle production, in units, FY 200102 through FY200506 . . . 7-2
7-2. Indian automotive parts production: FY200102 through FY200506 . . . . . . . . . . . 7-3
7-3. Indian passenger vehicle exports, in units, FY200102 through FY200506 . . . . . . 7-3
7-4. Indian exports of automotive parts: FY200102 through FY200506 . . . . . . . . . . . . 7-4
7-5. Indian passenger vehicle sales, in units, FY200102 through FY200506 . . . . . . . . 7-4
7-6. U.S. automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11
7-7. EU automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-12
7-8. Asia-Pacific automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . 7-14
7-9. Examples of global automotive parts suppliers manufacturing in India . . . . . . . . . . . 7-15
8-1. Greenfield FDI in the pharmaceutical and health biotechnology sectors by source
region and activity, 200206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11
8-2. Select contract manufacturing deals in pharmaceuticals in India . . . . . . . . . . . . . . . . 8-13
Figures
2-1. FDI inflows to India, 19902006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2
2-2. FDI inflows to developing countries, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2
2-3. M&A in India, by number of projects and value, 200006 . . . . . . . . . . . . . . . . . . . . 2-4
2-4. Map of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
U.S. International Trade Commission (USITC)
Staff Research Study
Competitive Conditions for Foreign Direct Investment in India [July 2007]
(Publication 3931)
Laura Bloodgood, Office of Industries
http://hotdocs.usitc.gov/docs/pubs/332/pub3931.pdf
[full-text, 153 pages]
Abstract
Net foreign direct investment (FDI) flows into India reached $15.7 billion in India's
200607 fiscal year, more than triple the $4.7 billion recorded during 200506, with the
largest share of FDI flows from Mauritius, followed by the United States and the United
Kingdom. This study examines FDI in India, in the context of the Indian economic and
regulatory environment. We present FDI trends in India, by country and by industry, using
official government data from India, the United States, and international organizations. To
supplement the official data, the study also discusses specific investment activities of
multinational companies in India, representing a wide range of countries and industries. To
illustrate the driving forces behind these trends, the study also discusses the investment
climate in India, Indian government incentives to foreign investors, particularly Special
Economic Zones, the Indian regulatory environment as it affects investment, and the effect
of India's global, regional, and bilateral trade agreements on investment from the United
States and other countries. Finally, the study presents two case studies. The first examines
global FDI in India's automobile industry. The second analyzes the effects of India's 2005
Patent Law on FDI in the pharmaceutical industry.
CONTENTS
Page
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ix
Chapter 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-1
Purpose and scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1
Overview of FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4
Chapter 2. FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2-1
Overview of FDI flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1
Mergers and acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3
Greenfield FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
Distribution of FDI within India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
FDI flows to India by source country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11
Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-13
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-14
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-19
United Arab Emirates (U.A.E.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-21
FDI flows to India by industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22
Chapter 3. India's FDI Environment . . . . . . . . . . . . . . . . . . . . . . . . 3-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
Strong economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-3
Labor issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Low wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Rigidity in the labor market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Rising salaries and high turnover in some industries . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6
Antiquated infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6
Increased opportunities for private sector participation in infrastructure projects . . . 3-7
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8
Educated work force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8
Weaknesses in the educational system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9
Access to capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10
Bureaucracy and corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-12
Chapter 4. Special Economic Zones . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Incentives to invest in SEZs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
Establishment and licensing of SEZs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3
Other FDI incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7
Chapter 5. FDI Regulation and Dispute Settlement . . . . 5-1
FDI procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1
FDI regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2
Labor regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3
Intellectual property rights regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5
Trademark protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5
Copyright protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Patent protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Other regulatory issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7
Implications of recent FDI policy changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Semiconductors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Litigation and alternative dispute resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Litigation in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Alternative dispute resolution in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-11
ADR in action: The Enron dispute and the Dubhol power plant . . . . . . . . . . . . . . . . 5-13
Chapter 6. India's Investment-Related International
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
World Trade Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
Agreement on trade related investment measures . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
General agreement on trade in services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-2
South Asia Free Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4
Bilateral investment treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5
Double tax avoidance agreements and CECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5
Other agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
Chapter 7. Automotive Investment in India . . . . . . . . . . . . . 7-1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1
Background on the domestic Indian automotive industry . . . . . . . . . . . . . . . . . . . . . . . 7-1
India as an automotive FDI destination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-4
The Indian domestic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-4
Indian government policies affecting automotive FDI . . . . . . . . . . . . . . . . . . . . . . 7-6
Auto policy of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-6
Automotive mission plan 20062016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-7
Foreign investment in the Indian auto industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
U.S.-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-10
European-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11
Asia-Pacific-based passenger vehicle investment . . . . . . . . . . . . . . . . . . . . . . . . . 7-12
Component industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-13
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-16
Chapter 8. Case Study 2: Pharmaceutical FDIin India . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The evolution of India's patent laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The Patent laws under British rule (18561947) . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1
The Post-Independence patent laws (19471995) . . . . . . . . . . . . . . . . . . . . . . . . . 8-2
The post-TRIPS patent laws (1995present) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-2
Ongoing patent law controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-3
The evolution of the pharmaceutical industry in India . . . . . . . . . . . . . . . . . . . . . . . . . 8-6
The domestic pharmaceutical industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-6
Foreign direct investment in the drug and pharmaceutical sector . . . . . . . . . . . . . 8-7
Greenfield projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-10
Strategic alliances in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11
Strategic alliances in manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-13
Pharmaceutical M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-14
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-16
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Biblio-1
Appendices
A. Sector-specific guidelines for FDI in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
B. Web site addresses of State and Unin Territory (UT) Governments and their
investment promotion agencies in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
C. Bilateral international agreements that affect investment in India . . . . . . . . . . . . . . . C-1
Boxes
3-1. Foreign investors attracted by strong Indian economy . . . . . . . . . . . . . . . . . . . . . . . . 3-3
3-2. Hindustan Lever Ltd. succeeds in the Indian market . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
3-3. Large U.S. firms tap educated Indian work force . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9
5-1. Forms of ADR: Mediation, Arbitration, and Concilation . . . . . . . . . . . . . . . . . . . . . . 5-12
7-1. Key recommended interventions in the AMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
8-1. The Novartis challenge to India's patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-5
Tables
2-1. Top 10 acquisitions in India, by value, 200206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5
2-2. Largest 15 greenfield FDI projects in India in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7
2-3. FDI equity inflows, January 2000December 2006, by region . . . . . . . . . . . . . . . . . 2-9
2-4. Top country investors in India, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11
2-5. India, M&A deals by acquiror country and industry of the target company, 200006 . . .. . . . . . . 2-12
2-6. Selected data for U.S. majority-owned affiliates in India, 2004 . . . . . . . . . . . . . . . . . 2-17
2-7. India, FDI by sector, selected years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22
3-1. Inward FDI flows for selected countries, 200205 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
4-1. India: Types of special economic zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
5-1. Selected Indian labor laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-4
6-1. India, GATS schedule of commitments: covered investment service sectors . . . . . . . 6-3
7-1. Indian passenger vehicle production, in units, FY 200102 through FY200506 . . . 7-2
7-2. Indian automotive parts production: FY200102 through FY200506 . . . . . . . . . . . 7-3
7-3. Indian passenger vehicle exports, in units, FY200102 through FY200506 . . . . . . 7-3
7-4. Indian exports of automotive parts: FY200102 through FY200506 . . . . . . . . . . . . 7-4
7-5. Indian passenger vehicle sales, in units, FY200102 through FY200506 . . . . . . . . 7-4
7-6. U.S. automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11
7-7. EU automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-12
7-8. Asia-Pacific automakers with assembly operations in India . . . . . . . . . . . . . . . . . . . . 7-14
7-9. Examples of global automotive parts suppliers manufacturing in India . . . . . . . . . . . 7-15
8-1. Greenfield FDI in the pharmaceutical and health biotechnology sectors by source
region and activity, 200206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11
8-2. Select contract manufacturing deals in pharmaceuticals in India . . . . . . . . . . . . . . . . 8-13
Figures
2-1. FDI inflows to India, 19902006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2
2-2. FDI inflows to developing countries, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2
2-3. M&A in India, by number of projects and value, 200006 . . . . . . . . . . . . . . . . . . . . 2-4
2-4. Map of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 8:27 AM
