Overview
Investment opportunities for foreign investors are rapidly increasing in India. According to UNCTAD's 2020 World Investment Report, India ranks 12th among the top 20 host economies for FDI and the biggest host in the sub-region; the country historically accounts for 70 to 80% of inflows in the region. During the year, India has relaxed administrative regulations for foreign investors in some industrial sectors by abolishing the requirement for approval by the Reserve Bank of India under certain conditions.
The overall growth of FDI in India is thanks to its many assets, especially its high degree of specialization in services, with a skilled, English-speaking, and inexpensive labour force and a potential market of one billion inhabitants. Singapore, Mauritius, the Netherlands, Japan, the U.S., the U.K., France, and Germany are the main investing countries in India. Investments were mainly oriented towards services, computer software, and hardware, telecommunications, trade, the automobile industry, construction, chemicals.
As the Indian economy is developing very fast, it has opened new avenues for people to start businesses. Also, it is a profitable option as the majority of the industries and sectors are almost untapped and hence the fear of facing stiff competition is less. "Our economic and commercial relations are expanding. But there is still a lot of untapped potentials that need to be exploited, especially in sectors like agro-processing, manufacturing, pharmaceutical, medical equipment, seafood, automobile parts, tourism and hospitality, IT, and IT-enabled services."
"It is a golden opportunity for you. Your investment will be safe, and you will get excellent returns," the union minister Nitin Gadkari said, adding that COVID-19 hit Indian economy needs liquidity.
Investment Environment in India
The Government of India is trying to accommodate and utilize the conducive investment climate of the country by relaxing and even introducing new policies. The change in government policy, availability of cheap resources, tax holidays, liberalization of external commercial borrowing norms, etc. are the important reasons for increasing NRI investments in India.
NRIs are permitted to open bank accounts in India with funds remitted from abroad, foreign exchange brought in from abroad, or with funds legitimately due to them in India, with an authorized dealer.
Advantages for FDI in India
- The deep-rooted and highly effective democratic regime, which ensures a calm and stable political environment
- Well-developed administration and an independent judicial system, along with a vast geography, making the country a repository of resources
- The workforce is educated, hard-working, and skilled (engineers, management staff, accountants, and lawyers).
- India hosts an ever-growing consumer base, making it one of the world's largest markets for manufactured goods and services.
- Proximity to key manufacturing sites, key suppliers, and low development costs. These factors make it an effective base from which multi-national companies can export to other high-growth emerging markets.
- Transparency International gave Indian companies the top ranking among emerging market multinationals in terms of transparency and compliance.
Government measures to encourage FDI
The Government of India provides tax and non-tax investment incentives in specific sectors (e.g. electronics) and regions (Northeast region, Jammu & Kashmir, Himachal Pradesh, and Uttrakhand). It has also created incentives for manufacturing companies to set up in Special Economic Zones (SEZ), National Investment & Manufacturing Zones (NIMZ) and Export Oriented Units (EOUs). In addition, each state government has its own policy, providing additional investment incentives, including subsidized land prices, attractive interest rates on loans, reduced tariffs on the electric power supply, tax concessions, etc.
The central government development banks and state industrial development banks offer a medium to long-term loans for new projects.
The Government has recently relaxed FDI policy in a variety of sectors by such measures as raising the foreign investment limit, easing conditions for investment, and putting many sectors on the ‘automatic route’ (as opposed to the ‘Government route’, which requires approval from the Foreign Investment Promotion Board). Reforms to clean up the banking system have been implemented, but they take time and may impact the supply of credit. On the other hand, while the fiscal deficit and public debt remain large, the government has taken steps to reduce them. The most notable of these initiatives is the introduction of the GST (Good and Services Tax), which aims to boost tax revenues and make the economy more competitive in the long run. Sectors that have benefited from the expansion include real estate, private banking, defense, civil aviation, single-brand retail, and television news.
Investment Opportunities
The Key Sectors of the National Economy
There are 12 champion sectors: modular furniture, toys, food processing like ready-to-eat food, agrochemicals, textiles like man-made fibers, air conditioners, capital goods, pharma, and auto components
The services sector is by far the most dynamic in India. It accounts for 50% of GDP. India is the fourth largest agricultural power in the world. Agriculture accounts for 16% of GDP and employs 41,5% of the active population. The country is also the fourth-largest coal producer in the world. In the manufacturing industry, textiles play a predominant role. The chemical industry is the second-largest industrial sector and contributes 3% to the global chemical industry. Finally, the sectors of new technologies (software) and telecommunications are booming. India is the world’s largest BPM destination, which represents 8% of India’s GDP.
High Potential Sectors
Airport services, ground handling, computers and devices, educational services, electrical power, transmission equipment, food processing, machine tools, medical equipment, equipment for mining and mineral processing, machinery for oil and gas fields, pollution control equipment, security, telecommunications equipment, textile machinery, water, renewable energy, urban infrastructure and services (access to water, waste treatment), electricity, cosmetics, and luxury goods.
Privatization Programmes
India has been privatizing its large, mostly non-profitable public sector: telecommunications, public infrastructure, airways, ports, etc.
Why should FIIs invest in India?
At current market levels, India offers the most attractive risk-return trade-off. Even with 6-7% GDP growth, India remains the second-fastest growing economy in the world. Interest rates are set to come down and the government has shown some urgency in reforms. The sharp decline in crude oil prices would drive lower inflation and CAD. The draft guidelines of GAAR, which keeps P-Notes (participatory notes) out of the purview and suggests the applicability of provisions will encourage capital flows.
Ways of investing in India
Foreign investors can invest in India in two ways:
- Incorporation of an Indian company: The foreign investor can set up a separate legal entity in India under the provisions of the Companies Act, 1956. The foreign investors can invest in such Indian company up to 100 percent of capital based on sectoral guidelines specified by the Government of India.
- Unincorporated entity: A foreign company can operate in India, by establishing a Branch Office of the other place of business (foreign entity), subject to conditions and activities permitted under the Foreign Exchange Management Regulations.
Investment Facilitation
The Ministry of Overseas Indian Affairs has set up an Overseas Indian Facilitation Centre (OIFC) as a not-for-profit-trust, in partnership with the Confederation of Indian Industry (CII) to facilitate NRIs and overseas corporate bodies of overseas Indians which want to invest in India.
Further, in order to ease the process of investment in India, OIFC has developed an online toolkit– Investment Guide to India. The toolkit serves as a simple, practical, and stage-wise investment guide for the non-resident Indians wanting to invest in India.
Road Ahead
India is going to be the most attractive emerging market for global partners (GP) investment for the coming 12 months as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).
Annual FDI inflow in the country is expected to rise to US$ 75 billion over the next five years as per the report by UBS.
The Government of India is aiming to achieve US$ 100 billion worth of FDI inflow in the next two years.
If you are an investor from any part of the world and are looking for investment opportunities, then do look at the opportunities that the Indian market has to offer. Connect with us and we will help you find the best opportunities for you to invest in!
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