Invest in India Foreign Direct Investment FDI Investment Opportunities

Summary:

India's unique and vast geography, endowed with diverse topography, has made it one of the most attractive investment destinations in the world. It has become a global resource for various manufacturing and services industry.

With the largest area of arable land, India is one of the world’s biggest food producers. It is the largest producer of milk, sugarcane and tea as well as the second largest producer of rice, fruit and vegetables.

India's pool of technical manpower base with an increasing disposable income and its burgeoning market have all combined to enable India emerge as a viable partner to global industry.  It is the preferred hotspot for organizations keen to outsource their R & D activities, software development work, customer contact centers or IT enabled business processes.

The top sectors attracting highest Foreign Direct Investment (FDI) inflows into the country are: electrical equipments, services sector (financial and non financial), telecommunications, transportation industry, fuels, chemicals, construction activities, drugs and pharmaceuticals, food processing, cement and gypsum products. Huge investment potential exists in the upcoming Knowledge Process Outsourcing (KPO) sector and the real estate industry.

Thus, India is one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business, particularly in tourism, information technology (IT) and agricultural sector.

New Delhi, Mumbai, Bangalore and Chennai are the first four spots recognized as destinations for FDI inflows.

Foreign Direct Investment (FDI) in India

India is in the global arena for increased foreign investment termed Foreign Institutional Investment (FII) - and Foreign Direct Investment (FDI). While its size and growth potential make India attractive as a market, the most compelling reason for investors to be in India is that it provides a high Return on Investment (ROI). India is a free market democracy with a legal and regulatory framework that rewards free enterprise, entrepreneurship and risk taking.

Foreign investment is welcome in almost all the areas, except those of strategic concern (for instance, defense and atomic energy) and generally 100% FDI under automatic route is permitted. In such a changed investment climate, India is offering attractive business opportunities in virtually every sector of the economy.

The Government has recently passed a Special Economic Zones (SEZs) Bill. SEZs are treated as deemed foreign territory with no import or export tariffs and extended periods for waiver of income taxes. Fourteen SEZs have been set up and many more are in the pipeline. Legislation on Intellectual Property Rights (IPRs) has been adopted by the country’s Parliament.

All IPR laws are TRIPS (Trade Related Aspects of Intellectual Property Rights) compliant with a fully functional Intellectual Property Appellate Tribunal. In order to encourage flow of investment into the country, the Government of India has set up several investments facilitation agencies, which include:

• Foreign Investment Promotion Board (FIPB)
• Foreign Investment Implementation Authority (FIIA)
• Investment Commission (IC)
• Secretariat for Industrial Assistance (SIA)
• India Brand Equity Foundation (IBEF)

FDI Strategic Sectors in India

Today, the automotive industry of India has made its mark worldwide, making India the world's second largest manufacturer of two wheelers; fifth largest manufacturer of commercial vehicles and fourth largest passenger car market in Asia. It also manufactures the largest number of tractors in the world.

Drugs and pharmaceutical industry occupies an important place in the Indian economy. It has made tremendous progress in terms of infrastructure development, technology base creation and production. Today, the industry is manufacturing practically the entire range of the therapeutic products. It is also capable of producing raw materials for the manufacture of a large number of bulk drugs from the basic stage as well as pharmacy machinery and equipments. The industry has achieved global recognition as a low cost producer of quality bulk drugs and formulations.

The Indian IT and ITS industry is expected to grow to $148 billion by 2012. Over 25% p.a. CAGR expected over the next seven years. India aims to achieve a 50% share in the global off-shored IT and BPO services by 2008

In India, the food processing industry is one of the largest in terms of production, consumption and export prospects. The Ministry of Food Processing Industries (http://mofpi.nic.in/ ) is the main central agency responsible for developing such a vibrant food processing sector. Thus, there exist immense opportunities for investment in the Indian food processing sector arising from the fact that India is one of the major food producers in the world and has abundant availability of a wide variety of crops, fruits, vegetables, flowers, live-stock and seafood. This is reflected in the amount of FDI inflow into the sector which stood at Rs. 333.06 crores (US$ 74.01 million-approx.) in 2005-06 and 2006-07 (till September 2006).

Tourism is one of the largest service industry in terms of gross revenue and foreign exchange earnings. In India, the tourism industry has the potential to grow at a high rate and ensure consequential development of the infrastructure.

In India, the six core infrastructure industries having a direct bearing on the infrastructural sector are crude petroleum; refinery products; electricity generation; coal; cement; and finished steel. The index of these infrastructural industries (having a combined weight of 26.7 per cent in the Index of Industrial Production), stood at 219.9 (provisional) and registered a growth of 7.2% in February 2007.

India's telecommunication network is the third largest in the world and the second largest among the emerging economies of Asia. It still continues to grow at an unprecedented pace and is one of the key sectors responsible for India's resurgent economic growth. The number of telephones has increased from 44.97 million (as on 31st March 2002) to 142.09 million (as on 31 March 2006) and 190 million (till December 2006) and 203 million (by February 2007). Also, the tele density in the country has steadily increased from 4.29% (as on 31st March 2002) to 16.83% (as on 31st December 2006).

Foreign Direct Investment (FDI) Procedures

Foreign corporate and individual investment in India, termed collectively as Foreign Direct Investment (FDI) when it relates to control or ownership of a company in India, takes one of two routes:

A- Automatic route or Automatic Approval:
This requires no prior approval for FDI. Post-facto filing of data relating to the investment made with the Reserve Bank of India (RBI) are for record and data purposes.

B- FIPB Approval – the Foreign Investment Promotion Board (FIPB) approves investment proposals:
• where the proposed shareholding is above the prescribed sector caps, or
• where the activity belongs to that small list of sectors where FDI is either not allowed or where it is mandatory that proposals be routed through the FIPB (sectors that require industrial licensing, for example)
The FIPB ensures a single-window approval for the investment and acts as a screening agency (for sensitive/negative list sectors). FIPB approvals (or rejections) are normally received in 30 days. Some foreign investors use the FIPB application route where there may be absence of stated policy or lack of policy clarity.

Sectors where FDI is not permitted are restricted to Railways, Atomic Energy and Atomic Minerals, Postal Service, Gambling and Betting, Lottery and basic Agriculture or plantations.

A foreign company planning to set up business operations in India has the following options:
Incorporate a company under the Companies Act, 1956 through:
- Joint Venture or
- Wholly owned Subsidiary
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the sector/area of activities under the FDI policy.
- Enter as a Foreign Company through:
- Liaison Office/Representative Office
- Project Office
- Branch Office

India has a well developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Indian Constitution. Permanent Account Number (PAN) is an all India, unique ten-digit alphanumeric number, issued in the form of a laminated card by the Income Tax Department.

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