India Regulatory Brief: E-Business Continues to Prosper, Parliament Passes Bill to Increase Insurance FDI Cap

Online Wholesalers Take the Lion’s Share in India E-Business Report

According to an e-business report release by brokerage firm Jefferies India Pvt. Ltd on March 12, 45 percent of India’s online market is now controlled by wholesalers and 35 percent by pure-play online sellers.

The report refers to online portals such as Amazon, SnapDeal and Flipkart, all of which serve as a platform for different types of vendors. Approximately 60 percent of those surveyed reported 100 percent growth in online sales, with another 20 percent showing sales growth between 30 – 100 percent. 

Despite such growth, challenges still remain. The Indian government does not permit foreign direct investment (FDI) in online retail and restricts e-commerce FDI to 51 percent. Although it increased its market size in India in 2014, Amazon still incurred an overall loss in the country. There is therefore still cause for caution in India’s e-commerce market, but this latest report shows that the industry is moving in the right direction.

Assocham Best Performing States Index Released

Assocham’s recent comparative report on the Best Performing States highlights key destinations for investors.  Investigating nine different classifications – economy, power, electricity, roads, health, education, income, equality, and industrial development – Assocham found Tamil Nadu ranked among the best performing states (BPS) in every category barring education. Ranked a surprising second among the BPS, Kerala also performed well.

Odisha and West Bengal ranked among the BPS in three categories, notably highlighting their advanced infrastructure with an extensive road system and electricity access – an attractive feature for investors, particularly those in manufacturing. Assocham President Rana Kapoor highlighted both states still need to improve market access, including policy on land acquisition in order to capitalize on these strengths.

Gujarat, Tamil Nadu, Maharashtra, Karnataka, Rajasthan, Uttar Pradesh and Madhya Pradesh were among the BPS in industrial development. Assam, Bihar, Kerala, Odisha, Uttar Pradesh, Tamil Nadu and West Bengal all excelled in road connectivity.  

Is India’s E-Commerce Industry Too Regulated for FDI?

Indian Parliament Passes Bill to Increase Insurance FDI Cap

The Indian Parliament has approved a bill that will increase the foreign direct investment (FDI) limit in insurance from 26 percent to 49 percent.

The Insurance Laws (Amendment) Bill 2015 replaces previous ordinance from last year and could result in investment inflow of US$1 billion-$3 billion. Global insurers like Alliance and Standard Life are expected to be enticed into joining the Indian market by increasing their shares in local insurance units. Currently, only a small portion of Indians have insurance coverage for life or health and most of the industry that does exist is dominated by the state-run Life Insurance Corporation of India. India’s life insurance industry grew rapidly until 2008-09, but has since been stagnating.

An additional change in the amendment Bill is that global reinsurance companies will now be able to set up in India for the first time. This industry is also dominated by a state-run – General Insurance Corporation of India. With foreign branches now able to set up in India, companies like Berkshire Hathaway, Inc. could find it easier to reinsurance their Indian assets.

Falling Prices of Crude oil to boost profits at OMCs

India’s three state-owned oil marketing companies (OMCs) have been predicted improved performance figures from the beginning of the next fiscal year.

With crude prices stabilizing in the fourth quarter at approximately US $60 per barrel, companies will see an increase in their gross refining margins (GRMs).  This in turn will improve OMCs who were hit hard by high inventory losses and dropping GRMs in the third quarter.

Hurt by the sharply falling prices of crude oil and consequent discrepancies between purchase and sale costs on refined petroleum products, OMCs could now see their profits increase by 20 to 30 percent.

Cost of fuel and loss (the cost of fuels used in the logistics of running refineries), coupled with falling inventory losses, reduced borrowing requirements and improved marketing margins, have all contributed to the projected financials.

It is estimated that India’s OMCs, India oil Corp. Ltd, Bharat Petroleum Crop. Ltd and Hindustan Petroleum Corp. Ltd, could continue to enjoy this upswing well into 2017.

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Assocham proposes ‘Chinese Manufacturing Zone’ in Uttar Pradesh

Assocham, India’s industry lobby body, has announced it is working to submit a proposal to Chief Minister Akhilesh Yadav requesting the establishment of a Chinese Manufacturing Zone. It will be the first of its kind in India.

50 Chinese firms are said to support the proposal with a further 100 companies potentially onboard. Assocham has announced wildly optimistic investment projections for the Zone – around one lakh crore – which is to be located in Uttar Pradesh, a state close to Delhi.

Assocham’s secretary general DS Rawat has claimed the investment would significantly improve the state’s infrastructure with the building of townships, hospitals and schools, as well as employing 30,000 to 40,000 people.

In his State Budget announced in February, Akhilesh Yadav committed 21,296 crore rupees to improving its roads, bridges and transport links in an effort to attract further FDI, particularly from Chinese companies.

Though the Manufacturing Zone will require land and tax rebates granted from the Indian government, Assocham hoped the initiative will redress the balance of India and China’s bilateral trade, which it argues currently favors China.

Assocham will be consulting the Chinese ambassador on the proposal and are also prepared to negotiate meetings between Uttar Pradesh’s government officials and Chinese firms. Whether this proposal will make concrete progress in the coming year seems unlikely.

Establishing Your Sourcing Platform in India
In this issue of India Briefing, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.

Passage to India: Selling to India’s Consumer Market
In this issue of India Briefing Magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures.

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