CAPITAL ISSUES

An important element of the measures taken towards reform of the capital market was the decision to abolish the Office of the Controller of Capital Issues. Government control over issue and pricing of capital issues has been replaced by guidelines announced by the SEBI. These guidelines stipulate that where a new company is being set up by existing companies with a five year track record of profitability, it will be free to price its issue provided the participation of the promoting companies is not less than 50% of the equity of the new company and the issue price is made applicable to all new investors uniformly. Other issues will be at par.

Government would amend THE SECURITIES CONTRACT (REGULATION) ACT to enable derivative intrumentsto be treated as securities

Where a new company is set up by existing private sector companies alongwith a state level agency or a government company or a foreign collaborator, it will be sufficient if the private sector companies satisfy the requirements of five year track record.

In any capital issue to the public, there is a minimum limit on the amount of contribution to be made by the promoters:

Where fully convertible debentures (FCDs) are to be issued, the interest rate can be freely determined by the issuer.

Companies are required to create a Debenture Redemption Reserve (DRR) equivalent to 50% of the amount of debenture redemption commences.

FIIs to be allowed to invest in unlisted domestice debt securities. Risk of default be borne by the FIIs.

Type of instrument	Class of Companies	Size of Issue	Minimum Contribution of project
Equity Capital	New company set up by profitable existing company.	------	50% of total issued capital
	New company established	morethan Rs. 1.00 bln.	20% of issue amount
	by individual entrepreneurs	lessthan Rs. 1.00 bln.	25% of issue amount
Fully convertible Debentures (FCDs)/Partly convertible Debentures (PCDs)	All new Companies	-----	% of promoters stake to be maintained after conversion as per requirements given above i.e. 50% 25% or 20%.

The Rs. 105 bln. electronics industry in India has achieved and maintained remarkable rates of growth. The annual growth rate of 25% from 1980- 85 was further accelerated to 35% in the 1985-90 period with the first wave of liberalization. Though the boom was essentially led by an upsurge in the demand for consumer goods, the industry's product range now covers the entire technology has been a major area of emphasis. The effort is towards forging a strategic alliance between Government, national laborat- ories & the industry. India's software development industry has already been recognized for its technical sophistication.

A National Information Technology Task force, headed by the Dy. Chiarman, Planning Commission set to formulate a National Informatices Policy.

Going beyond development of management information systems to decision support systems in manufacturing industry, telecommunications and the service sector, it has developed expertise in conversion methodologies and operating in a fifth-generation environment. Crucial to this range of capabilities has been the availability of a large pool of highly educated technical manpower.

Recognizing this particular advantage, major international companies such as IBM have chosen to locate a new regional software training and development centre in India. Other significant electronics companies now resident and growing rapidly in India include Motorola, Texas Instruments,Digital,Hewlett-Packard, Unisys, Siemens Nixdorf and Groupe Bull. With telecom infrastructure becoming a major growth area, Siemens, CIT-Alcatel and Fujitsu among others have set up impressive new production facilities in India. As the demand for electronic process control and instrumentation grows in tandem with modern industry, Honeywell, Taylor and Bosch have expanded their Indian operations.

Much of this has been made possible by the liberalization drive. Formerly required licensing formalities have been done away with except in the case of some consumer electronics equipment and strategic electronics but even here licensing formalities have been considerably simplified.

Emphasis has also been placed on the creation of appropriate infrastructure, particularly telecom services and network infrastructures.

These are now met by a variety of options in both the private and public sectors. Data communication needs for software technology parks are provided either through Packet switch Data Network (PSDN) or dedicated earth stations. Satilite Earth Stations at the STPs in Bangalore, Trivandrum and Hydrabad provide high speed data communication facilities.

Exports are seen as a major area of concentration. They are targeted to rise from Rs. 16.5 bln. on 1993 to Rs. 65 bln. by 1997.

The emphasis is therefore on creating an environment of high production of international quality with competitive cost structures. By 1997, the electronics industry could have a turn over in excess of Rs. 360 bln. Investments through 1997 of over Rs. 101 bln. are consequently seen as essential. Domestic and foreign industry analysis see both as achievable.

A further impetus is now being given to the electronics sector through a policy that encourages the setting up of Electronic Hardware Technology Parks (EHTPs) and Software Technology Parks. These Parks, like EPZs, are duty free areas and units located there are eligible to import all their operations-related requirements free of duty.

The primary objective of this policy is to give entrepreneurs greater flexibility in commercial decisions. Value addition and access to the domestic market are not defined in any rigid manner, but are related to each other. The entrepreneur is free to select the combination that best suits his requirements.

Value addition	Permissible sale in the Domestic Tariff Area (DTA) for items manufactured by the EHTP unit.
Less than 15%	Nil
15% to 25%	(1) Upto 25% of the production in value terms of finished equipment.
	(2) Upto 30% of the production in value terms of components and electronic materials.
More than 25%	(1) Upto 30% of the production in value terms of finished equipment.
	(2) Upto 40% of the production in value terms of components and electronic materials.

Value addition is defined as the net foreign exchange earned by the unit expressed as the percentage of the FOB value of exports. Value addition also covers specific categories of DTA sales when these are made under global tender conditions, against hard currency payment, against valid import licences or to other EHTP units.

Payment of corporate income tax will be exempted for a block of 5 years in the first 8 years of operation of each unit.

EHTP units may combine both computer hardware and software operations within the requirement that the minimum value addition for software will be 60% and the DTA sale of software shall be limited to 25% of the production of software in value terms. As a special incentive, the income generated by software exports is eligible for 100% tax deduction.

The Joint Secretary
Department of Electronics
Electronics Niketan
6, CGO Complex
New Delhi - 110 003
India
Tel. 91 11 436 3093
Fax: 91 11 436 3134, 436 3083.