INTRODUCTION

I
NDIA is one of the fastest
growing economies in the
world. Indias positive eco-
nomic outlook and regulatory
reforms have made it an attrac-
tive market for foreign investors.
While many barriers to foreign
investment have been removed,
there still remain formidable
challenges for a foreign investor
doing business in India.
Understanding and preparing for
these challenges is the key to
success in India. We discuss
some of the key challenges in the
paragraphs that follow.
FOREIGN INVESTMENT
Foreign investors can now
invest directly in most sectors
in India without obtaining the
prior approval of the Indian
government. However, there
are still several sectors where
a foreign investor cannot
directly invest or must first
obtain the approval of the
Indian government.
Convincing the government
about the viability and useful-
ness of a project may prove
to be a challenge for foreign
investors.
Prior approval of the Indian
government is also required
in cases where a foreign
investor plans to start a new
venture which is in the
same field as an existing
joint venture. The Indian
government will grant
approval only if both the for-
eign investor and its existing
Indian joint venture partner is
able to convince the govern-
ment that the new venture
that the foreign investor pro-
poses to commence will not
jeopardize the interests of the
existing Indian joint venture
partner and other stakehold-
ers of the existing venture.
REAL ESTATE
Foreign companies investing
in real estate in India should
be aware of the following
restrictions:
The minimum capitalization
requirement, when the
investment is routed through
a wholly-owned subsidiary of
a foreign company, is U.S.
$10 million, and U.S. $5 mil-
lion, when the investment is
routed through a joint ven-
ture established with an
Indian joint venture partner.
Money invested in real estate
in India cannot be repatriat-
ed for a period of 3 years
without first obtaining the
approval of the Indian
government.
Investors have to comply with
certain minimum land devel-
opment requirements. For
instance, in the case of con-
struction projects, an investor
has to develop a minimum
built-up area of 50,000
square meters.
At least 50% of the project
has to be developed within a
period of 5 years from the
date of obtaining the neces-
sary statutory approvals.
Investors are prohibited from
selling undeveloped land.
LABOR & EMPLOYMENT
Negative covenants in
employment contracts in the
form of non-compete clauses
are unenforceable beyond
the term of the contract.
While terminating employ-
ment contracts, investors
should be careful to comply
with relevant laws such as
Industrial Disputes Act, Shops
and Establishments Act and
state specific employment
orders. These laws lay down
specific rules for employment
and termination.
INTELLECTUAL PROPERTY
India still lags behind many
developed nations in its
implementation and enforce-
ment of intellectual property
laws. Foreign investors must
take adequate measures to
protect their intellectual
property rights from infringe-
ment and misappropriation.
Indian patent law requires
the owner of a patent to
obtain the consent of the
joint owner of the patent
before such person or entity
licenses, assigns or sells the
invention covered under the
patent.
In an action where an owner
of a patent seeks to enjoin a
third-party from infringing
the patent involving a life sav-
ing drug, Indian courts have
often balanced the public
good involved in making the
drug freely available to the
public with that of the rights
of the patent holder. Often
times, courts in India have
give preference to the public
good in making the drug cov-
ered under the patent avail-
able to the public, either
freely or at minimal cost, over
the commercial interest of
the patent holder.
Care should be taken while
drafting contracts that
involve the assignment of
copyrights. For instance, if
the term of the assignment is
not specified in the contract,
Indian copyright law will
restrict the term of assign-
ment to 5 years. Also, if the
territory is not mentioned,
the territory is deemed to lim-
ited to India. Furthermore,
the assignee must exercise his
rights within one year of the
assignment. Otherwise, the
assigned rights will revert to
the assignor after the said
period.
DELAYS IN COURTS
One of the biggest challenges
that foreign companies face
while litigating in India is the
problem of delay, with cases
sometimes taking several
years to be resolved.
While alternative forms of
dispute resolution such as
arbitration are available, they
are yet to gain complete
acceptance.
Arbitrating a dispute within
India may also contain a
considerable risk of delay
at the first level of dispute
resolution.
CORRUPTION
Corruption is a big hurdle
when doing business in India.
As per the Transparency
Internationals Corruption
Perception Index, in 2005,
India ranked 92nd out of 159
countries in a study measur-
ing perceptions about corrup-
tion. Foreign investors
should avoid violating local
and foreign anti-corruption
laws.
Political and regulatory risks
can also pose a major chal-
lenge. Investment in sectors
which require continuous
interface with various regula-
tory authorities expose the
investor to delays in imple-
menting the project thus
affecting their profitability.
Foreign investors also face
the challenge of dealing with
rampant bureaucracy at vari-
ous levels of federal, state
and local governments.
INADEQUATE
INFRASTRUCTURE
Indias weak infrastructure
manifested by its poor energy
supply, unpaved roads, inef-
fective airports and ports
pose a major challenge to
foreign investors.
Infrastructure inefficiencies
like inadequate power gener-
ation adds a significant cost
factor for manufacturing
companies in the country.
Author
Talat Ansari
Kelley Drye & Warren LLP
www.kelleydrye.com
SPECIAL ADVERTISING SECTION INDIA
CHALLENGES OF
DOING BUSINESS IN INDIA
Talat Ansari
Kelley Drye & Warre OP:NEW OP Grid 5/5/09 08:17 Page 2