"Joint Venture in India"

Introduction :-

                   

                 India has an open philosophy on capital markets, and it closely parallels its English peers in operation. The Bombay Stock Exchange (BSE) has close to 5,000 listed shares, and trades in several thousand more, making it the largest stock exchange in the world. The National Stock Exchange is the other exchange at present. English is one of the preferred languages of the market, and its policies are first announced in English.

                  The Indian people are skilled and entrepreneurial by nature as evident in world markets, but in India, less than 1% of its billion population at present – that is, only 11 million people – representing 3% of households invest in the market.

                  People who work the market in other languages are adept in recognizing concepts in derivatives and futures contracts and trade in them. India is one of three countries that has supercomputers, one of six that has satellite launching facilities and has over 100 Fortune 500 companies doing R&D in the country.

India does not restrict the repatriation of investments, dividends, profits and if need be, the principal, through the single autonomous entity, the Reserve Bank of India (RBI). The Indian currency (the rupee) is 100% convertible for earnings at free-market rates.

                 India's new policies (described below) have resulted in aggregate foreign investment flowing into India, increasing from US$103 million in 1990-91 to US$61.8 billion in 2007/2008.

Liberalization of policy :-

                 India's basic outlines of industrial development were framed by Pandit Jawaharlal Nehru in 1956, making the private sector a participant in development, but giving the public sector a dominant position.

However, by the early 1990s, the situation in the world economies turned: Japan entered a phase of stagnancy of growth, the pace of the "Asian tigers" slowed, as did the European economy. But, also, the country's balance of payments crisis.

                 To counteract these effects a new policy was born in July 1991, the reformed New Industrial Policy (NIP). It and later modifications (further liberalization) streamlines procedures, deregulated industrial licensing, and vastly expanded the role for the private sector, while shrinking the Public Sector. Also, anti-trust laws (the Monopoly and Restrictive Practices Act) were trimmed and customs duties for industrial goods slashed. The restrictive Foreign Exchange Regulation Act (FERA) was replaced by the Foreign Exchange Management Act (FEMA).

Industrial policy divided industry into three categories:

• those that would be reserved for public-sector development,
• those under private enterprise with or without State participation, and
• those in which investment initiatives would ordinarily emanate from private entrepreneurs.

               Only six industries are exclusively reserved for the public sector: trading (except single-brand retailing), agricultural or plantation activities, housing and real estate business (except development of townships), atomic energy, gambling or betting/lottery business, and retail construction of residential/commercial premises, roads or bridges are on the negative list for foreign participation.

Automatic licensing and administered licensing :-

                          India's investment policy, as of April 2010, is presented at the site. Briefly, India allows investments both through Foreign Direct Investment (FDI), meant for long-term controlling investments and Portfolio Investment – taking a position by buying shares of a company – which is likely short-term capital market operation. Foreign Institutional Investors (FIIs) from reputable institutions (like pension funds, mutual funds) may (and do) participate in the Indian capital markets.

                        Industrial approvals are automatic (RBI approval of investment) for most manufacturing industries with equity investment up to 51% foreign control and as of 1997 to 74% in certain select industries (See the current policy highlighted above). For another 36 sectors there are varying limits without output restrictions. RBI approvals come within two weeks for the invested entity. Investments can flow to the country prior to approvals for such cases. Even in sectors limited to 51%, a higher level of control, up to 74%, is feasible if approach is made to the Foreign Investment Promotion Board (FIPB) – thus, "administered" licensing. Investments up to 100% are allowed in power generation, coal washeries, electronics, an Export Oriented Unit (EOU) in the EPZ's.

NRI (Non-Resident Indians), PIO (People of Indian Origin), and OCBs (Overseas Commercial Bodies) have relaxed accommodation

                    Industrial licensing of the 1951 policy is applicable to “Annex II” (not shown here) industries which revolve around certain key natural resources. It is administered through FIPB.

Joint venture companies :-

                        JV companies are the preferred form of corporate investment but there are no separate laws for joint ventures. Companies which are incorporated in India are treated on par as domestic companies.

• The above two parties subscribe to the shares of the JV company in agreed proportion, in cash, and start a new business.
• Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.
• Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

Private companies (only about $2500 is the lower limit of capital, no upper limit) are allowed in India together with and public companies, limited or not, likewise with partnerships. sole proprietorship too are allowed. However, the latter are reserved for NRIs.

                 Through capital market operations foreign companies can transact on the two exchanges without prior permission of RBI but they cannot own more than 10 percent equity in paid-up capital of Indian enterprises, while aggregate foreign institutional investment (FII) in an enterprise is capped at 24 percent.

The establishment of wholly owned subsidiaries (WOS) and project offices and branch offices, incorporated in India or not. Sometimes, it is understood, that branches are started to test the market and get its flavor. Equity transfer from residents to non-residents in mergers and acquisitions (M&A) is usually permitted under the automatic route. However, if the M&As are in sectors and activities requiring prior government permission (Appendix 1 of the Policy) then transfer can proceed only after permission.

Joint ventures with trading companies are allowed together with imports of secondhand plants and machinery.

                 It is expected that in a JV, the foreign partner supplies technical collaboration and the pricing includes the foreign exchange component, while the Indian partner makes available the factory or building site and locally made machinery and product parts. Many JVs are formed as public limited companies (LLCs) because of the advantages of limited liability.

                  JVs are expected in the nuclear industry following the NSG waivers for nuclear trade. The nuclear power industry has been witnessing several JVs. The country has set an imposing target of achieving an installed capacity of 20 GW by 2020 and 63 GW by 2030. The total size of the Indian nuclear power market will be around $40 billion by 2020 with a growth rate (AAGR) of 9.2% in installed nuclear capacity during 2008–20. The total investments made are to a tune of around $1.30 billion following the Indo-US nuclear deal in 2008.

                 There is a group of industries reserved for the small-scale sector wherein foreign investment cannot exceed 24%, and if does, then approval is necessary from the FIPB, and the unit loses its 'smallness' and requires an industrial license.

India's legal system :-

                   India is a common law country with a written constitution, guaranteeing individual and property rights.

There is a single hierarchy of courts.

Arbitration can be in India or International Commercial Arbitration.

The country has recently enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (Model Law).

All agreements are in accordance with Indian laws.