VII. Investment Climate INVESTMENT CLIMATE STATEMENT - JUNE 1994 A. ECONOMIC OVERVIEW Three years after launching a concerted drive to modernize its economy, India is beginning to attract the attention of the international investment community. With its two hundred million-strong middle-class, vast pool of skilled labor, and relatively well-developed financial system, India offers both a rich market and tremendous productive capacity. U.S. investors have responded with enthusiasm to policies that welcome foreign investment. The $1.1 billion in U.S. investment projects approved by Indian authorities during fiscal year 1993-94 exceeded the total nominal value of all previous U.S. investment, and made U.S. investors India's largest source of foreign direct investment. For investors, the crux of the 1991 economic reforms consisted of the deregulation of most domestic industries, removing licensing requirements and permitting foreign and domestic firms far more independence in investment and marketing decisions. The "New Industrial Policy", as it became known, included the removal of licensing requirements for most industries; the reduction of sectors reserved for government enterprises; and an increase in the equity ceiling on foreign investment. Regulatory reform has been accompanied by a far more positive attitude toward private enterprise and foreign investment on the part of regulators. Agriculture is still the mainstay for 70 percent of India's 900 million citizens. Most agricultural production is done either on small, family-owned plots or larger, feudally-organized farms. Foreign investors are still prohibited from investing in farm and plantation production, but agricultural/food processing has been declared a "priority area" for foreign investment. In addition to fertile farmland, India is richly endowed with minerals such as coal, iron ore, bauxite, manganese, chromite, limestone, dolomite and barite -- raw materials for the manufacture of steel, cement and aluminum. India's recoverable crude oil reserves at the end of 1993 were estimated at 890 million metric tons, equivalent to about 15 years of consumption at current rates. Natural gas reserves of approximately 735 billion cubic meters are yet to be fully tapped. The introduction of sweeping policy reform has underlined the serious constraints inadequate infrastructure pose to improved economic performance. Electricity generation capacity as of November 1993 totalled about 80,511 megawatts, with an average plant load factor of only 57 percent. Despite the government's efforts to increase electricity generation, output remains 9 percent below demand. The energy deficit is expected to increase until a backlog of projects awaiting approval come on stream later in the decade. India has one of the largest railway networks in the world, and fairly well-developed road systems criss-cross several of the more prosperous states. However, the maintenance of transport infrastructure is generally poor. Bombay is the largest port, handling about 25 percent of total freight. Other major ports include Calcutta, Visakhapatnam, Paradeep, Kandla, Madras, and Marmugao. Indian Airlines and Air India provide domestic and international services. Seventeen private air taxis provide service to domestic travellers. India is also served by many foreign airlines, including Delta and Tower Airlines. India is linked to most other countries via telephone and telex, but the communications net is overtaxed and unreliable. Basic industries such as steel, fertilizers, and cement account for 39 percent of total industrial output; consumer goods, 24 percent; intermediate products, 21 percent; and capital goods, 16 percent. India's principal exports include textiles, gems and jewelry, chemicals, engineering products and leather goods. Major imports include crude oil and petroleum products, machinery, transport equipment and fertilizers. Real GDP growth fell to 3.8 percent in 1993/94, after expanding at a rate of 4.6 percent in 1992/93. This was the third consecutive year of positive, but relatively sluggish growth, following the demand limitation measures introduced by the government in 1991 as part of its stabilization program. Led by Finance Minister Manmohan Singh, India's economic management has been widely praised for avoiding the traumatic deceleration in economic activity that frequently accompanies stabilization programs. The current account deficit was limited to 0.8 percent of GDP during FY 1993/94, compared with 2.2 percent in 1992/93. Fueled by buoyant exports and strong investment inflows, foreign exchange reserves grew by USD 8 billion during 1993/94, reaching USD 15 billion in April 1994. The average annual rate of wholesale price inflation was contained to 7.5 percent in 1993/94, compared with 10 percent in 1992/93. However, the government's failure to maintain pressure on the fiscal deficit, which shot up to 7.4 percent of GDP in 1993/94 (compared with 5.8 percent in the previous year) contributed to a marked acceleration in inflation to double-digit levels by early-1994. By mid-1994, foodgrain stocks were at record levels due to favorable climatic conditions (including good monsoons for seven years in a row), and steady increases in government procurement prices. Responding to the liberalization of exchange rate and trade policies, export growth soared to 20 percent in dollar terms during fiscal year 1993/94, up from a growth rate of only 3.8 percent in 1992/93. A1 OPENNESS TO FOREIGN INVESTMENT India's post-independence economic policy combined a vigorous private sector with state planning and control, treating foreign investment as a necessary evil. Prior to 1991, foreign firms were allowed to enter the Indian market only if they possessed technology unavailable in India. Almost every aspect of production and marketing was tightly controlled, and many of the foreign companies that came to India eventually abandoned their projects. The industrial policy announced in July 1991 is vastly simpler, more liberal and more transparent than its predecessor, and actively promotes foreign investment as indispensable to India's international competitiveness. The new policy permits automatic approval for foreign equity investments of up to 51 percent, so long as these investments are made in one of 34 "high priority" industries that account for the lion's share of industrial activity. Prior to 1991, foreign equity participation was limited to 40 percent, and foreign investors were saddled by numerous operating constraints. Foreign equity investments in excess of 51 percent, or those which fall outside the specified "high priority" areas, must be negotiated with the Foreign Investment Promotion Board (FIPB) and approved by a Cabinet Committee. In practice, the government has rarely denied a higher equity stake to applicants. Non-resident Indians (NRI's) and Overseas Corporate Bodies (firms with NRI majority ownership) may hold 100 percent ownership in all industries except those reserved for the public sector. These reserved industries are: - arms, ammunition and defence equipment; - atomic energy; - mineral oils; - minerals used in atomic energy; and - railway transport. A number of recent policy changes have reduced the discriminatory bias against foreign firms. -- The government has amended exchange control regulations previously applicable to companies with significant foreign participation. -- The ban against using foreign brand names/trade marks has been lifted. -- The FY 1994/95 budget reduced the corporate tax rate for foreign companies from 65 percent to 55 percent. The tax rate for domestic companies was lowered to 40 percent. -- The long-term capital gains rate for foreign companies was lowered to 20 percent; a 30 percent rate applies to domestic companies. -- The Indian Income Tax Act exempts export earnings from corporate income tax for both Indian and foreign firms. Other policy changes have been introduced to encourage foreign direct and institutional investment. For instance, the Securities and Exchange Board of India (SEBI) recently formulated guidelines to facilitate the operations of foreign brokers in India on behalf of registered Foreign Institutional Investors (FII's). These brokers can now open foreign currency denominated or rupee accounts for crediting inward remittances, commissions and brokerage fees. The condition of dividend balancing (offsetting the outflow of foreign exchange for dividend payments against export earnings) has been eliminated for all but 22 consumer goods industries. A2 CONVERSION AND TRANSFER POLICIES There are no restrictions on remittances for debt service or payment for imported inputs. Such transfers are made in hard currency at the prevailing market rates. Dividend remittance restrictions do not apply to firms in the 34 high-priority industries. There is no limitation on the inflow/outflow of funds for remittances of profits, capital gains, royalty and technology transfer fees, etc. Remittance of funds from asset liquidation remains complex, but foreign firms have generally been able to liquidate assets and repatriate the proceeds without excessive delays. The success of liberal trade and exchange rate policies in boosting India's foreign reserves reduces the likelihood draconian exchange controls will be reinstituted. Foreign institutional investors are allowed to open foreign currency accounts in designated banks along with non-resident rupee accounts. The company can transfer repatriable proceeds from the rupee account to the foreign currency account and vice-versa at the market rate of exchange. Repatriation of capital, capital gains, dividends, interest income and any compensation received from the sale of rights offerings is permitted without approval. However, disinvestment is allowed only through stock exchanges in India. Foreign exchange is readily available. A3 EXPROPRIATION AND COMPENSATION Since the wave of nationalizations and expropriations in the early 1970's, there have been few instances of direct expropriation in India. Indeed, the current trend favors privatization of existing publicly owned enterprises. In the past, compensation and due process meeting international standards have been observed in all cases. A4 DISPUTE SETTLEMENT Currently, there are no investment disputes over expropriation or nationalization. Government demands for penalty payments for alleged overcharging by pharmaceutical companies during the 1980's could lead to de-facto expropriation of some foreign drug companies' assets in India. A committee has been named to study these longstanding disputes, but the failure of successive governments to produce a swift and transparent resolution has led to a virtual standstill in foreign investment in India's pharmaceutical sector. Indian courts provide adequate safeguards for the enforcement of property and contractual rights. However, case backlogs frequently lead to long procedural delays. India is not a member of the International Center for the Settlement of Investment Disputes, nor of the New York Convention of 1958. Arbitration decisions may be appealed to the courts. The government is considering reforms in its judicial system to permit the operation of dispute arbitration panels in cases involving large foreign investment projects. A5 PERFORMANCE REQUIREMENTS/INCENTIVES The current investment policy requires no local-sourcing for new and existing foreign investments. In December 1992, the government removed all controls on dividend repatriation by foreign firms except the specified 22 consumer goods industries. Earlier requirements calling for "dividend balancing" against exports, gradual reduction in foreign equity, and conditions related to technology transfer have been dropped. India has a fairly liberal plant-location policy. In urban settings, non-polluting factories may be established outside a 25-kilometer radius. State environmental regulations and local government zoning policies may also affect plant location. There is no requirement to employ Indian nationals, and previous restrictions on the employment of foreign technicians and managers have been eliminated, although companies continue to complain that hiring and compensating expatriate employees remains administratively time-consuming. Special incentives are available for units set up in Export Processing Zones (EPZs) and 100 percent Export Oriented Units (EOUs). Export units are granted incentives which include duty-free import of capital goods, raw materials and components; permission to sell up to 25 percent of the production into the domestic market; exemption from central/state taxes on production and sales; and liberal loans and financing schemes from government financial institutions. A6 RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT Foreign investors can operate in specified priority industries or in EOUs. However, a business entity cannot own a property for use in carrying out his business transactions. The Foreign Exchange Regulation Act regulated by the RBI allows a foreigner to own a property in India only if it is for his residential purpose. Foreign institutional investors (FIIs), including pension funds, mutual funds, investment trusts and asset management companies, are now allowed to invest in all securities traded on India's primary and secondary markets, subject to initial registration with the Securities and Exchange Board of India (SEBI). FIIs can buy, sell and realize capital gains on their investments. However, portfolio investments are subject to a ceiling (cumulative) of 24 percent of issued share capital in any one company. The GOI has also formulated a scheme for investment by Non-Resident Indians in the housing and real-estate development sector. Until recently, investment in real estate and housing was permitted on a non-repatriable basis. A7 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS Indian law offers international-standard rigorous protection for copyrighted material. In May 1994, Parliament approved an amended Copyright Bill enlarging the scope of protection and introducing stiff mandatory penalties for copyright theft. Trademark protection is also considered good, and will be raised to international standards with the passage of a new Trademark Bill that codifies existing court decisions on the use and protection of foreign trademarks, including service marks. Passage of trademark legislation is expected in late-1994 or early-1995. Enforcement of intellectual property rights has been indifferent in the past, but is steadily improving as the courts and police respond to domestic concerns about the high cost of piracy. Indian patent law prohibits product patents for any invention intended for use or capable of being used as a food, medicine or drug, or relating to substances prepared or produced by chemical processes. Processes for making such products are patentable, but the patent term is limited to the shorter of five years from the grant of patent or seven years from the filing date of the patent application. Product patents in other areas are granted for 14 years from the date of filing. As a result, "reverse engineering" of pharmaceutical products is widespread. However, as a signatory to the Uruguay Round of GATT trade negotiations, India must introduce a comprehensive system of product patents no later than 2005. The Indian Government has formed an advisory committee to recommend changes in the 1970 Indian Patents Act. A variety of complaints led the U.S. Government to initiate an investigation of India's intellectual property practices in May 1991, under the Special-301 provision of the 1988 Trade Act. In April 1992, the investigation found progress in all areas except patent protection. As a result, the U.S. withdrew duty-free export privileges under the Generalized System of Preferences for Indian pharmaceutical and chemical products. These privileges have not yet been restored, and India remains a "priority foreign country" under Special-301. India is a member of the World Intellectual Property Organization (WIPO),the Berne Union, and the Universal Copyright Convention. India is not a member of the Paris Convention. A8 REGULATORY SYSTEM Abolition of industrial licensing for many sectors, the convertibility of the rupee on trade account transactions, and the advent of a regulatory attitude more conducive to investment and competition have produced a marked change in the Indian investment climate. Investors, foreign and domestic, still complain that the regulatory system allows far too much leeway for bureaucratic discretion. However, the volume of complaints has fallen off sharply, and the government appears intent upon improving the clarity and consistency of regulations. The government has declared its intention to introduce sweeping reforms in laws and regulations dealing with the organization, management, and dissolution of business entities; bankruptcy; and labor policy. Reform faces stiff opposition from labor unions and opposition political parties. As the pace of regulatory reform at the federal level accelerates, the focus of liberalization is gradually shifting to state governments which, under India's federal system of government, enjoy broad regulatory powers. A9 CAPITAL MARKETS AND PORTFOLIO INVESTMENT The size and sophistication of India's capital market have increased significantly in recent years, thanks in large measure to the entry of foreign institutions. After registering with the SEBI and the Reserve Bank of India (RBI), FIIs may now make portfolio investments in equity shares. Foreign individuals and corporations, except for NRIs, are not permitted to invest directly in the stock market. Disinvestment and repatriation of dividends are permitted after payment of capital gains taxes. The newly formed National Stock Exchange of India allows deals in scripless and floorless trading to offer efficient nation-wide access to investors. Futures trading is still not available. Despite their growing sophistication, Indian stock exchanges continue to lack adequate safeguards against manipulation, and suffer from inadequate custodial services, and lengthy delays in physical delivery of certificates. Indian firms successfully launched Euro-issues in overseas markets last year. Early in 1993, several large firms entered international markets by issuing Global Depository Receipts (GDR's) and convertible bonds. The GOI has also permitted entry of Mutual Funds both in public and private sectors. SEBI guidelines for Mutual Funds require that a closed-ended scheme must raise at least Rs.200 million ($ 6.4 million) and open-ended scheme must raise Rs.500 million ($ 16.0 million). Interest rates and commercial bank lending policies are still regulated by the RBI. Foreign investors can obtain financial assistance by way of loans in rupees/foreign currency from all commercial banks. At present, public sector banks account for 88 percent of India's banking activities; regional private banks handle 5 percent; and foreign banks account for 7 percent. Total deposits of India's top five banks amounted to Rs. 1,439 billion (USD 46 billion) as of March 31, 1993. Non-performing assets form about 14.5 percent of bank portfolios in India. The GOI is pressing public sector banks to improve loan collections, and established a special tribunal for speedy loan recovery in late 1993. Domestic Indian banks are required to extend 40 percent of their loans at concessional rates to "priority" borrowers, consisting largely of agriculture, exporters and small businesses. Since July 1993, foreign banks have also been required to offer 32 percent of their loans to the non-agricultural priority sector. The Government has taken a number of measures to liberalize interest rate policies, such as reducing reserve requirements, but floor rates on loans (14 percent) and ceiling rates on deposits (10 percent) continue. Commercial borrowers currently pay effective rates of 17-22 percent. A10 POLITICAL VIOLENCE There have been very few incidents of politically-motivated attacks on foreign projects or installations. In the isolated instances where attacks have occurred there has only been minor property damage and state and federal governments generally have responded swiftly to avoid further destruction. Violent separatist movements exist in Kashmir, several of the northeast states, and (to a much lesser extent) the state of Punjab. Violent clashes occur sporadically between Muslims and Hindus, and relations between India and Pakistan are strained. In none of these areas have foreign investors been targets. The Indian Government acts firmly to maintain law-and-order in all but a few isolated corners. B. BILATERAL INVESTMENT AGREEMENTS In his 1994 budget speech, the Finance Minister stressed the importance the Government places on bilateral investment agreements as a means of reassuring foreign investors. India recently completed a bilateral investment treaty with the U.K. (text is publicly available). Negotiations on investment protection agreements are underway with Germany, the Netherlands, and Sweden. C. OPIC PROGRAMS India has a bilateral investment protection agreement with the U.S. Overseas Private Investment Corporation (OPIC). Since 1963, OPIC has provided coverage for over 100 U.S. investment projects in India. As the government steps up efforts to increase foreign investment, OPIC activities are expected to increase. OPIC sent an investment mission to India in January 1993, and is expected to field another mission in late 1994. India has been a member of the World Bank's Multilateral Investment Guarantee Agency since April 1992. D. LABOR India has the world's third largest pool of scientific and technical personnel, which serves as an important attraction for foreign investors. Most managerial and technical people, and many skilled workers, speak English and many have studied or worked abroad. Unemployment and underemployment are high, providing an abundance of labor. However, as in much of the developing world, illiteracy acts as a brake on labor productivity. The current industrial policy provides for hiring of foreign technicians without prior government approval. In 1992, the RBI increased the remittable per-diem rate from USD 500 to USD 1000, with an annual ceiling of USD 200,000 for services provided by foreign technicians payable to a foreign firm. Technical personnel can remit up to 75 percent of their monthly net income through authorized exchange dealers. Total duration of employment of a technician is limited up to three months at a time. Employment in excess of three months requires clearance by the Ministry of Home Affairs. Industrial relations are governed by the Industrial Disputes Act of 1947. The Act curbs unfair labor practices by employers, workers or trade unions through imposition of fines and imprisonment. Wage increases are normally negotiated between unions and management. Workers' rights as defined by the International Labor Organization are guaranteed under the Indian Constitution. Workers may form or join unions of their choice, but most trade unions are linked to political parties. Not surprisingly, this has highly politicized the labor unions, posing problems for domestic and foreign employers. However, even the Communist-led state of West Bengal, once notorious for the stridency of its labor unions, has moderated its activism to compete for investment and jobs. India's labor scene has been remarkably quiet during the past three years. Payment of wages is governed by the Payment of Wages Act, 1936 and Minimum Wages Act, 1948. Industrial wages range from about USD 3.00 per day for unskilled labor, to over USD 150 per month for skilled production workers. Retrenchment, closure and layoffs are governed by the Industrial Disputes Act, 1947, which requires prior government permission to carry out layoffs/closures of businesses employing 100 or more workers. In practice, permission is rarely given. E. FOREIGN TRADE ZONES Export Processing Zones (EPZs) are designed to provide internationally competitive infrastructural facilities, and a duty-free low cost environment for exporters. India has six export processing zones. Units in these zones may be 100 percent foreign-owned or joint ventures with majority foreign equity holding. 100 percent Export Oriented Units (EOUs) can be established outside the zones, subject to Government approval. All the incentives granted to units set up in the EPZs are available to EOU units. The Export-Import policy allows export firms duty-free import of all goods, including capital goods; five-year income tax exemption; exemption of excise tax on capital goods, components and raw materials; exemption of sales tax at federal/state level; and permission to sell 25 percent of output (by value), as well as up to five percent "seconds", into the domestic market against payment of appropriate taxes. The GOI requires a minimum value-addition of 20 percent for most products, and 60 percent for computer software and plant tissue culture. There is no free port at present; but Bombay is being considered for a free port location in the near future in order to attract greater foreign investment. F. CAPITAL OUTFLOW POLICY Major incentives for investment in overseas ventures include reimbursement of 50 percent of expenditure toward market development assistance; Indian ExIm Bank credit to developing countries to encourage project-related exports; concessional import tariffs on imports of used equipment for re-export by Indian investors; and 50 percent income tax exemption on earnings from project and consultancy services. Under the earlier policy, GOI approval was required for Indian direct investment overseas. The GOI now grants "automatic" approval within 30 days to proposals in industrial/commercial/services activities. However, the total direct investment by the Indian concern cannot exceed USD 2 million, with the cash component limited to USD 500,000. G. FOREIGN DIRECT INVESTMENT STATISTICS Foreign direct investment (FDI) approvals have increased dramatically since the introduction of reforms in July 1991. Over USD 2.8 billion in FDI was approved in 1993 - more than double the 1992 level, and 15 times the amount logged in 1991. The U.S. is the leading source of foreign direct investment in India, accounting for about 42 percent of total investment approved in 1993. The following table provides investment approvals by major countries (in million of dollars): Country 1991 1992 1993 1994 (Up to March) ------------------------------------------------------- Total Approvals 297.7 1577.1 2835.0 376.0 Of which: U.S.A 103.6 499.6 1107.8 170.1 U.K. 17.9 47.7 199.3 19.0 UAE 1.2 2.6 129.4 15.3 Netherlands 6.1 39.3 102.9 1.8 Japan 29.4 247.6 82.4 4.5 Germany 17.4 20.7 56.3 18.5 ------------------------------------------------------- Source: Secretariat for Industrial Approvals, Ministry of Industry, April 1994. Data on inflow of capital by country related to direct foreign investment (in millions of dollars) is as follows: Country 1991 1992 1993 1994 (Up to March) ------------------------------------------------------- Total Approvals 146.2 232.8 571.5 190.0 Of which U.S.A 13.50 40.3 153.3 8.2 U.K. 20.70 26.2 74.2 32.0 Netherlands 6.40 5.1 36.2 11.5 Switzerland 0.08 18.9 34.2 4.6 Japan 3.16 24.9 21.9 13.2 Germany 23.10 20.0 12.8 26.0 ------------------------------------------------------- Source: Secretariat of Industrial Approvals, Minister of Industry, April 1994. Indian investment in equity share capital abroad has been mainly through export of machinery and equipment/technology. Total Indian investment abroad as of December 1993 is estimated at Rs 1.42 billion (USD 45.44 million). Indian firms have tended to locate their overseas operations in the U.K., Sri Lanka, Singapore, Thailand, UAE, Nigeria, Nepal and Kenya. MAJOR FOREIGN INVESTORS Major U.S. and other investments approved during the last three years include: Company Project Market value of U.S. equity ------- ---------- --------------------------- Coca Cola Consumer goods USD 70 million U.S. G.M., U.S. Vehicles USD 25 million Guardian,U.S. Glass USD 25 million Mount Everest Mineral water USD 24 million Singapore G.E., U.S. White goods USD 15 million Pepsi, U.S. Consumer goods USD 12 million Quebec Iron Mineral sand USD 10 million & Titanium Canada IBM Computers USD 8 million Spindle Textile spin USD 8 million Fabrik Machinery Suessen Germany J.M.Britania Processed USD 6 million Hongkong snack food Ford Automobiles USD 3 million ------------------------------------------------------- Source: Indian Investment Center and Embassy survey of U.S. investment in India. U.S. INVESTMENT IN INDIA The U.S. Embassy's 1993 Survey of U.S. Investment in India, our first, was conducted during January and February 1994. The results are based on the most complete list of companies we were able to obtain. However, the recent entry of many U.S. companies into the Indian market means that our sample is probably biased toward largeand medium-sized firms with an established presence in India. While neither comprehensive nor statistically representative, we believe our survey provides the most complete snapshot of U.S. investment in India currently available, and a useful baseline against which future investment developments can be measured. Working with U.S. Consulates in Bombay, Calcutta and Madras, multiple mailings of the one-page questionnaire were sent to 201 firms in 12 states believed to have U.S. equity investment. A total of 138 companies responded (69%); 21 companies reported no U.S. equity investment. Our results are thus based on 117 useable submissions, representing a 58% response rate. In several cases our request for information on "current market value" elicited several responses that clearly indicate historical or book values were used. These estimates were included without adjustment. U.S. Investment sharply higher: Out of 117 usable responses received from companies with U.S. equity investment, 81 firms estimated the current market value of U.S. investment at $2.6 billion. The ten largest investors account for $2.1 billion of the estimated current market value of all respondents, or 81% of the total. This figure excludes companies that failed to respond to our survey and recently established companies unknown to the Embassy. We estimate the total market value of U.S. investment in India falls within a range of $4.0 - $4.5 billion. Turning to historical trends, the nominal value of U.S. investment reported prior to 1980 was only $45 million. By 1989, the nominal value of our respondents' investments still totalled only $186.3 million. In real terms, then, the value of U.S. investment virtually stagnated during the 1980's. U.S. investment accelerated rapidly during the following four years, reaching $778.3 million by the close of 1993. This represents a four-fold increase over the level of investment in 1989. Survey results reveal that the rapid growth in U.S. investment was driven by an increase in the number of firms active in India. Only 15 investments were reported prior to 1980, compared to 36 firms reporting investments during the 1980's. During the four years from 1990 - 1993, however, the number of investing companies almost doubled to 61. Looking to the future, 41 companies indicated they plan investments valued at $371.3 million during 1994 and 1995. Additional investments worth $476.6 million are projected for the period 1996-2000 by 19 companies. While often speculative, these prospective investment plans capture the strong response by U.S. investors to marked improvements in India's investment climate. Significantly, the nominal value of planned investment for in 1994 - 2000 exceeds the sum of actual investments made in all years prior to 1994. Investments by sector: Manufacturing accounts for the largest share of actual and planned investment, with 36% of U.S. investment concentrated in Industrial, Electronic, Consumer or "Other" Manufacturing. Consumer Goods account for 48% of Manufacturing investment, and 17% of total investment. Banking/Finance and Energy contribute 28% and 24% of total investment, respectively. Investment in the Energy sector will treble by the end of the century, according to the survey results, while investment in Banking/Finance will almost double. Major new investments are also planned in the Computer and Manufacturing sectors. Ownership: Ownership is divided fairly evenly between minority and majority U.S. shareholdings: 44 companies reported equity holdings greater than 50%, while 59 companies held less than 50% of the reporting firm's equity. The remaining 14 firms reported U.S. equity shares of exactly 50%. Many U.S. companies have plainly exercised their option, available since 1991, to increase their equity stake above the previous 40% limit. Employment: U.S. firms now represent a significant source of employment in India. Respondents reported a total of 42,057 employees, an average of 359 employees per company. This suggests that the total employment provided by U.S. companies operating in India is probably in the range of 60,000 - 70,000. Only 216 expatriate employees were reported, or fewer than 2 per company. The largest number of foreign national employees was reported in the Energy sector, with 85. These results are consistent with the widely-held perception that India offers an abundance of skilled blue-collar, technical, and managerial employees. Manufacturing companies currently employ 27,710 Indian employees or 66% of the total. Banking/Finance and "Other" account for the bulk of the remaining employment. Trade: U.S. companies reported total sales in 1993 of $5,693 million. Of this amount, $185.7 million (3.3%) represent export sales. The U.S. was the largest market for these exports, with about 44% of the total. U.S. companies accounted for approximately 1.0% of total Indian exports during 1993, comparable to the value of Indian exports of ores and minerals. U.S. companies reported total purchases of $2,401.9 million. Imports accounted for $259.7 million of the purchases, making the "balance of trade" slightly negative. This reflects the recent establishment or expansion in India of many of these companies, consistent with a heavy demand for imported equipment and raw materials and a low volume of finished exports. We expect the value of exports to rise sharply in the future as new investments come on stream, the burgeoning domestic market contributes to scale economies, and economic reforms continue to reduce production costs. FOREIGN TRADE OF U.S. FIRMS ($ MILLIONS) U.S.A. OTHERS TOTAL Exports to 80.89 107.85 188.74 Imports from 158.62 117.18 275.80 DOMESTIC INDIAN TRADE OF U.S. FIRMS ($ MILLIONS) Sales in India 5,260.00 Purchases within India 2,150.00 Geographic distribution of investment: U.S. investment appears closely linked to the commercial hubs of Bangalore, Bombay, Madras, and New Delhi. Although the survey failed to capture the specific locations of respondents' plants, a clear bias emerges toward a relatively few Indian states. The states of Maharashtra (46), Tamil Nadu (21), New Delhi (16), and Karnataka (16) account for 85% of the companies responding to our survey. Gujarat and Andhra Pradesh both have 4 U.S. companies located within their borders. Two or fewer U.S. investments were reported for the states of Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Goa.