World Trade Organization Organisation Mondiale du Commerce Organización Mundial del Comercio

Reply: The Jawaharlal Nehru National Solar Mission (JNNSM) envisages a target of 20 000 mw solar energy and stipulates implementation and achievement of the targets in three phases – first phase up to 2012 13, second phase 2013 17 and the third phase from 2017 22. The Mission provides immense opportunity for investments, both domestic and foreign. The broader goal is to promote ecologically sustainable growth while addressing India's energy security challenge. It will also constitute a major contribution by India to the global effort to meet the challenges of climate change.

Malaysia 4:

Report by the Secretariat (WT/TPR/S/249 01), paragraph 24, Page xiii

24. … In order to encourage investment in the manufacturing sector, India also offers a wide range of tax incentives, concessionary credit, and other types of assistance. …

What are the types of incentives offered by the Indian Government for the foreign investment in the solar and automotive industries?

Reply: India has a liberal FDI regime to promote foreign investment in the country. As per the para 5.2.6.1 of the FDI policy 100% FDI is allowed on automatic route in non conventional energy generation and distribution subject to applicable laws/sectoral rules/regulations/security conditions. Similarly in case of automotive sector, 100% FDI is allowed on automatic route subject to applicable laws/sectoral rules/regulations/security conditions.

Malaysia 5:

Report by the Secretariat (WT/TPR/S/249 03), Page 20, paragraph 4.

Most sectors are currently at least partially open to FDI, subject to a cap and specific conditions.

• 
  Please elaborate on the cap and specific conditions imposed to FDI in certain sectors/activities.
  
• 
  Please specify the special requirements and permits required for sectors/activities that are open to FDI.
  

Reply: The policy on FDI is available under the Consolidated Circular on FDI Policy (currently "Circular 1 of 2011"), which is currently being updated every six months, to ensure that the latest changes are reflected in the Circular. The Circular is available in the public domain on the website www.dipp.nic.in. Chapter 5 of the Circular contains the sector specific policy on FDI, including the caps and general conditions on FDI.

Malaysia 6:

Report by the Secretariat (WT/TPR/S/249 01), page xii, Paragraph 20.

"Since its last Review in 2007, India has made several amendments to its competition policy legislation, and the Competition Commission of India, created under the Competition Act 2002, started operations in 2009. In addition, some aspects of the law affecting mergers and acquisitions recently entered into force."

Can India please elaborate on the new aspects that have been introduced into its competition law which affect mergers and acquisitions?

Reply:

1. 
   The provisions relating to regulation of combinations (which include mergers, amalgamations and acquisition of shares, voting rights, assets or control), under the Competition Act, 2002, were notified by the Government of India on 4 March 2011, and came into force from 1 June 2011. The provisions relating to regulation of combinations are given under sections 5, 6, 20, 29, 30 and 31 of the Competition Act, 2002.
   
2. 
   The revised thresholds for combinations, given under section 5 of the Act, are in terms of joint asset base of Rs 1500 crore* or turnover of Rs 4500 core in India; or assets of US$2250 million (including turnover of Rs 2250 crore in India). If the combined entity belongs to any group, the threshold for combinations are an asset base of Rs 6000 crore* or turnover of Rs 18000 crore in India; or assets of US$3 billion (including assets of at least Rs 750 crore in India) or turnover of US$9 billion (including turnover of at least Rs 2250 crore in India) in case of outside and within India both.
   

*1 crore = 10 million.

3. 
   The Government of India, vide recent notifications, has also exempted an enterprise, whose control, shares, voting rights or assets are being acquired and having turnover less than Rs 750 crore in India or having assets less than Rs 250 crore in India, from the provisions of section 5 of the Competition Act, 2002 for a period of five years.
   
4. 
   For executing the mandate given under the Competition Act, 2002, the implementing regulations relating to regulation of combinations were notified by the Competition Commission of India on 11 May 2011. These regulations are called as the "The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011".
   

Malaysia 7:

Report by the Secretariat (WT/TPR/S/249 05), page 148, paragraph 88

Non banking financial companies (NBFCs), which engage in lending, investment in shares and securities, hire purchase, chit fund, insurance or collection of monies, are regulated by the RBI and are open to foreign investment up to 100% of their capital. NBFCs do not have any cap on exposure to the capital market. They are classified according to the operations they are allowed to undertake by the RBI. As at March 2010 (latest available figures), there were 12,662 NBFCs, of which 311 were permitted to accept deposits and were classified as NBFC Ds; non deposit taking companies are classified as NBFC NDs.

We note the references made to Non banking financial companies (NBFCs) in paragraph 88. To further our understanding on NBFCs, please provide examples of financial entities which fall within this category. Do they include asset management companies and stock broking companies as well? Are NBFCs solely regulated by RBI or are there certain NBFCs which are co regulated by both RBI and SEBI.

Reply: Section 45I (c) of RBI Act 1934 lists out six activities namely financing, acquisition of shares and securities, hire purchase, insurance, managing chit funds, and collecting money under any scheme etc., as financial business. Companies which carry on such business are NBFCs unless their principal business is carrying on agricultural operations, industrial activities, trading in goods and services or construction and allied activities. Prior to being registered with RBI as NBFCs these entities have to first get themselves registered as companies under the Companies Act, 1956. This implies that they have to comply with the provisions of the Companies Act also which is under the jurisdiction of the Ministry of Corporate Affairs, Govt of India. Presently companies which carry on or principally engage in the financial activities as permitted under the above Act are classified as NBFCs. There are five categories of NBFCs, viz., asset finance companies (AFCs), investment companies (ICs), loan companies (LCs), infrastructure finance companies (IFCs) and systemically important core investment companies (CIC ND SIs). The regulation of asset management companies and stock broking companies does not fall within the purview of RBI. The RBI (in exercise of the powers conferred on it by Section 45NC of the RBI Act) has granted exemption from registration, maintenance of liquid assets and creation of reserve funds to NBFCs carrying on the business of stock broking and merchant banking provided they are not accepting deposits, are registered by SEBI and acquire securities as part of their merchant banking/stock broking activities. This exemption was given as they were undertaking predominantly non fund based activities. It was also perceived that these would not pose any risk or compromise depositors' interest, as they are non deposit taking entities and function directly under the oversight of SEBI. Hence dual regulation is avoided. Further, while insurance companies are regulated by IRDA stock brokers/stock exchange/sub brokers companies are regulated by SEBI. Chit fund companies are regulated under Chit Acts of the respective state Governments. Companies including NBFCs which are engaged in insurance business and chit business have to abide by the rules of their regulators. SEBI being a market regulator, the capital market issues and other market related matters pertaining to companies including NBFCs are regulated by it.

Malaysia 8:

Report by the Secretariat (WT/TPR/S/249 05), page 155,paragraph 112

Other policy initiatives include changes to the regulatory environment, such as a reduction of the timelines for public issue; simplified listing requirements for Indian depository receipts (IDRs) issued by companies from IOSCO MMoU signatories; a liberalization of the overseas investment regime for mutual funds, and the abolition of an entry load for all mutual fund schemes; and promotion of an initiative to develop the still incipient Corporate Bond Market.

Paragraph 112 states that there has been a reduction of timeline for public issues of securities. Can India please provide more details i.e. how much improvement in terms of reduction of timeline has been achieved in this regard?

Reply: Earlier, it used to take 22 calendar days to list the securities of a company in a public issue after closure of the issue. In line with SEBI's endeavour to reduce the exposure of issuers/investors to volatility in market conditions and enable quicker turnaround of money invested, timelines between issue closure and listing have been reduced from 22 calendar days to 12 working days. This has come into force w.e.f. 1 May 2010.

Malaysia 9:

Report by the Secretariat (WT/TPR/S/249 04), page 36, paragraph 6.

Public procurement is considered as an important instrument of government policy and is used to obtain certain socio economic objectives. As a result, the Central Government has set reservations and price preferences as part of the procurement system. However, competition from foreign suppliers is ordinarily allowed.

• 
  In what circumstances and under what conditions would competition from foreign suppliers be allowed?
  
• 
  Could India please elaborate on its reservations and price preferences in its procurement system? Does this include the setting of minimum prices? If yes, how does India reconcile this with its competition policy?
  

Reply: Procurement by all central ministries/departments are subject to GFRs. Unless specifically indicated in the tender notice/document, both domestic and foreign suppliers can participate against open tender. Carve outs and offsets are essential for the development of the sensitive sectors in a developing economy like India, and has been availed of even by other GPA signatories. The Central Government, through administrative instructions, has reserved certain products for procurement from specific sectors such as MSMEs, KVIC etc. and have been allowed price preference to a specified level. For example, 358 products belonging to respective industry sectors are reserved for procurements from micro and small enterprises (MSEs) by state/central ministries/departments/PSUs. Instructions relating to price preference/reservation for procurement of certain items/categories of suppliers are issued by certain ministries/departments such are D/o Public Enterprises and M/o Micro, Small and Medium Enterprises.

Malaysia 10:

Report by the Secretariat (WT/TPR/S/249 04), page 40, paragraph 22

The Central Board of Excise and Customs is authorized, by notification in the Gazette of India, to fix "tariff values" (reference prices) for any type of imported (exported) good. At present, India uses "tariff values" to calculate customs duty applicable on imports of, inter alia, palm oil and palmolein oil (crude and RBD), as well as crude soybean oil, poppy seeds, and brass scrap. According to the authorities, "tariff values" are revised every two weeks and are adjusted to align with international market prices; however, "tariff values" for edible oil remain unchanged since 2006 (Table III.2).

• 
  Could India please elaborate on the reason for the use of "tariff values" to calculate customs duty for the relevant products, instead of the transaction value.
  
• 
  Could India please elaborate on the reason for not revising the tariff values for edible oil since 2006.
  

Reply: Tariff values have been notified for palm oils, crude soybean oil, poppy seeds and brass scrap, as these goods are prone to undervaluation. Tariff values are computed on the basis of prevailing international prices of these goods as observed from the various reputed international journals and other publications.

The tariff value system promotes greater uniformity and certainty in assessment practice. It checks undervaluation and thus acts as an important policy instrument for collection of appropriate amount of customs duty.

The tariff values are neither arbitrary or fictitious values nor minimum customs values. As these values on identified goods are fixed on the basis of prevailing international prices, that is to say, the prices at which these goods are sold or offered for sale in the ordinary course of international trade under fully competitive conditions, such values are not inconsistent with Article VII of the GATT 1994. These values are in fact floating values and are frequently reviewed and revised so as to keep them closer to the transaction values under Article 1.1 of the CVA.

The tariff value of edible oils is reviewed along with other goods that are subject to tariff values.

MEXICO

Mexico 1:

Report by the Secretariat

I. Economic Environment (1) Overview: Paragraph 2; and

I. Economic Environment (3) Fiscal Policy: Paragraph 13, 14

Report by the Government

II. Economic Environment (6) Challenges (ii) Fiscal Deficit: Paragraph 37

While we recognize that due to the effects of global crisis India has not achieved the fiscal deficit reduction as scheduled, we wish to ask what measures are being proposed in the future to achieve this goal.

Reply: The Government of India has enumerated the accelerated fiscal consolidation path through expenditure correction guided by the principles of gradual adjustment from the fiscal expansion during the crisis period in 2008 09 and 2009 10. The Government is able to bring down the estimated fiscal deficit in 2011 12 to 4.6% of GDP. Reduction in overall expenditure would be the key to the fiscal adjustment path in India. As per the roadmap on fiscal consolidation, the fiscal deficit is projected to be brought down to 4.1% of GDP in 2012 2013 and 3.5% in 2013 14. In order to keep the overall expenditure under the estimated level, the following measures are proposed by the Government of India:

• 
  To control the growth of expenditure on subsidies and related items which is a major component, the Government has firmly established the practice of providing petroleum and fertilizer subsidy in cash instead of securities. The Government has moved towards nutrient based subsidy (NBS) regime in fertilizer subsidy and with respect to rationalization of petroleum subsidy, it has already decontrolled the pricing of petrol.
  
• 
  To arrest diversion of other subsidized items like kerosene oil, and LPG the government will move towards direct transfer of cash subsidy to people below poverty line in a phased manner.
  
• 
  To determine the effective imbalance in the revenue account which the government has to eliminate, better depiction of revenue deficit through "effective revenue deficit" is being used as a fiscal indicator from the current financial year, which factors the imbalance in revenue account owing to grants for creation of capital assets.
  
• 
  The FRBM rules prescribe a cap of 0.5% of GDP in any financial year on the quantum of guarantees that the Central Government can assume in a particular financial year which would put a limit on the stock of contingent liabilities and for better management of contingent liabilities the government guarantee policy has been framed which lays down the principles to streamline the liability management by the Government.
  
• 
  The Government policy towards borrowings to finance its deficit would be anchored on the principles of greater reliance on domestic borrowings over external debt, preference for market borrowings over instruments carrying administered interest rates, consolidation of the debt portfolio and development of a deep and wide market for government securities to improve liquidity in secondary market.
  
• 
  On the revenue side, implementation of GST would help in further improving the compliance and thereby increase the overall indirect tax collection. Rationalization of tax structure through moderate levels and few rates, implementation of Direct Taxes Code (DTC) integrating all direct tax laws, widening of the tax base and reduction in compliance costs through improved tax administration, adoption of IT solutions and re engineering the business processes would foster less intrusive tax system and would increase buoyancy in tax revenues and help in fiscal consolidation.
  

Mexico 2:

Report by the Secretariat

II. Trade Policy Regime: Framework and Objectives (1) Overview: Paragraph 4; and

II. Trade Policy Regime: Framework and Objectives (4) Investment Regime (ii) Foreign investment regime: Table II.8 Sectors where FDI is prohibited, 2011

We want to know the reasons why India does not allow foreign direct investment in some sectors or activities such as retailing, some real estate activities, development of tobacco and some agricultural activities

Reply: India follows a liberal FDI policy which dovetails with its national policy objectives, keeping in mind sensitivities and vulnerability. The sectors open for FDI are kept under constant review.

Mexico 3:

Report by the Secretariat

III. Trade Policies and Practices by Measures (2) Measures Directly Affecting Imports (vi) Imports prohibitions, restrictions and licensing: Para 53

We want to know the reasoning of India for banning of import of several (brands of) mobiles and cellular phones

Reply: Import of mobile handsets without IMEI No. and CDMA mobile phones without ESN/MEID is prohibited due to security risk involved.

Mexico 4:

Report by the Secretariat

III. Trade Policies and Practices by Measures (2) Measures Directly Affecting Imports (vi) Imports prohibitions, restrictions and licensing: Para 62

The report states that 24 tariff lines are subject to restrictions based on their import price. It also states that these minimum import prices are set taking into account the domestic and international prices and quality products. What are the technical criteria for determining the quality of these products?

Reply: Minimum import price (MIP) is one of the criteria to ensure the quality.

Mexico 5:

Report by the Secretariat

III. Trade Policies and Practices by Measures (2) Measures Directly Affecting Imports (vi) Imports prohibitions, restrictions and licensing: Para 66

We want to know the criteria by which India allows only the ports of Chennai, Kolkata and Mumbai for import of new cars and only to Mumbai for used cars?

Reply: Import of vehicles are allowed at specified ports for better monitoring of imports.

Mexico 6:

Report by the Secretariat

III. Trade Policies and Practices by Measures (2) Measures Directly Affecting Imports (x) Sanitary and phytosanitary measures: Para 119

The report notes that in 2006, India passed the standards and food safety Law. However, regulations to implement this law have not been notified yet.

Would we want to know the reasons for this delay and plans to publish these regulations?

Reply: Food Safety and Standard Regulations, 2011 were notified vide Gazette Notification dated 01.08.2011 by the Government of India and are available on FSSAI website http://fssai.gov.in. The Regulations came into force with effect from 5.08.2011.

Due time for consultations on the Draft Regulation was provided as per WTO provisions.

Mexico 7:

Report by the Government

II. Economic Environment (6) Challenges (iii) Infrastructure: Paragraph 43

The report highlights the importance of infrastructure development for promoting economic development in India. It highlights the role of private investment including foreign to achieve that goal. We want to know the actions that have contemplated by India for attracting foreign investment in infrastructure development of highways, airports, and telecommunications, among others.

Reply: India has a liberal FDI policy in the Infrastructure sector. FDI policy in the sectors mentioned in the question is as follows:

1. 
   FDI, up to 100%, under the automatic route is permitted in the development of highways.
   
2. 
   FDI, up to 100%, is permitted in airport projects. This is fully on the automatic route for Greenfield projects. For existing projects, it is on the automatic route up to 74% FDI and on the government route beyond 74% FDI (para 5.2.7.2.1 of "Circular 1 of 2011 – Consolidated FDI Policy").
   
3. 
   FDI, up to 100%, is permitted in the manufacturing of telecommunications equipment.
   
4. 
   FDI, up to 74%, is permitted in telecommunication services. This is on the automatic route up to 49% foreign investment and on the government route beyond 49% and up to 74% (para 5.2.23.1 of "Circular 1 of 2011 – Consolidated FDI Policy").
   

TRADE POLICIES BY SECTOR / 3) Services / ii) Financial Services), Banking, Legal and regulatory framework, commercial banks

Additional questions

Mexico 1:

In accordance with the provisions of Paragraph 70 on Commercial Banks, "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. Since 1 December 2009 Indian banks no longer require a licence from the RBI to open a branch in areas with a population below 50,000, subject to reporting."

Qn. Mexico wants to know if the same rule applies to foreign banks (and they too could open such branches in less populous areas).

Reply: The opening of branches by foreign banks, existing and new, in India is subject to a limit of 12 branches in a year, as per India's commitments to WTO. Therefore, the general permission granted to domestic scheduled commercial banks is not applicable to foreign banks.

TRADE POLICIES BY SECTOR / 3) Services / iv) Transportation a) Shipping

Mexico 2:

According to Paragraph 138 of Shipping, says that "foreign vessels must obtain from the Directorate General of Shipping a license for a particular voyage or a period (license for a specified period) for coastal trade. This license is subject to the granting of a certificate of no objection from the Indian National Shipowners' Association."

Qn. Mexico requests further explanation regarding the criteria to be met by owners of foreign flag vessels to obtain this certificate, and to know if the license and the certificate are the only distinct requirements that are required in respect of nationals. (Alt: Are the same requirements to be met by Indian nationals as well).