Investment in India

Opportunities for foreign investors in India

Indian markets, across all industries, are considered as viable long-term investment options as the country stands strong amid global financial turmoil. India is considered to be the third most favoured destination for investment after China and the US for major global companies, according to UNCTAD's World Investment Report 2012. The report anticipates that foreign investments in India could increase by over 20 per cent in 2012-13.

Foreign Direct Investments in India

In recent years, bulk of the foreign direct investments in Indian business sectors of infrastructure, telecommunication, information technology, computer hardware and software, and hospitality services, have been made by investors of countries like US, UK, Mauritius, Singapore, and many others.

The foreign direct investment in India can easily be made in a variety of ways, through the Governmental and automatic routes. However, the joint ventures (JV) are the most popular and preferred forms of making investment in Indian industry.

The Government has recently cleared 14 foreign direct investment proposals worth Rs 113.35 crore based on the recommendations of Foreign Investment Promotion Board (FIPB). Major proposals include an equity increase of Rs 68.22 crore by the UK-based Dashtag to conduct business of pharmaceuticals specialising in dermatology, anti-histamines, antibiotics and oncology products.

Some of the major foreign direct investments in India are:

• Japanese auto major Nissan intends to introduce 10 new passenger car models by the end of March 2016 in a bid to boost its volumes in India. The company also aims to double its vehicle sales in 2012-13
• United Nations Industrial Development Organisation (UNIDO), Austria has appointed Ramky Enviro Engineers Limited (REEL) as its strategic partner to work on a project for the Bhilai Steel plant
• Mahindra Finance's subsidiary Mahindra Insurance Brokers (MIBL) has formed a venture with LeapFrog Investments wherein the latter's subsidiary, Inclusion Resources Singapore, would infuse Rs 80.41 crore for a 15 per cent stake in MIBL

Major reforms in foreign direct investments in India

The Government of India has given its nod to 51 per cent foreign direct investment in multi-brand retail. The decision will pave way for retail giants like Walmart, Tesco and IKEA to enter into Indian market and make footprints in the US$ 450 billion retail industry. Moreover, the Government has relaxed sourcing norms for single-brand retailers and has permitted them to buy at least 30 per cent of the goods from Indian industry, rather than particularly from Indian small and medium enterprises (SMEs) as per earlier stipulation.

In case of civil aviation, the Government has allowed foreign carriers to buy up to 49 per cent stake in their Indian counterparts.

Further, to sustain the momentum of the above stated reforms, the Government would take more decisions to create investment options for overseas investors. The measures being considered include raising the ceiling for foreign borrowings, easing curbs on portfolio investors, and liberalising norms for overseas borrowings.

Future of foreign investment in India

With the Government of India laying intense focus on increasing the country's share in the global FDI space from 1.3 per cent in 2007 to 5 per cent by 2017 by relaxing and un-complicating the FDI norms, it is expected that foreign majors would invest aggressively in the flourishing Indian markets.

Doing Business in India - A profitable opportunity for NRIs

The Indian economy continues to grow at a good pace and holds a strong position on the global map. The country’s gross domestic product (GDP) has been growing at an average rate of 8.5 per cent for the last five years.

India’s economy is amongst the largest in the world on the basis of Purchasing Power Parity. It is today one of the most attractive destinations for business and investment opportunities with the available large manpower base, diversified natural resources and strong macroeconomic fundamentals. In FY 2011-12, the country attracted foreign direct investment (FDI) of around US$ 46.8 billion in various sectors.

Advantage India

• World's largest democracy with 1.2 billion people
• Stable political environment and responsive administrative set up
• Well established judiciary to enforce rule of law
• Land of abundant natural resources and diverse climatic conditions
• India's growth will start to outpace China's within three to five years and hence, India will become the fastest large economy with 9-10 per cent growth over the next 20-25 years, according to a report by Morgan Stanley
• Investor friendly policies and incentive-based schemes
• India's economy will grow five-fold in the next 20 years, as per a study by McKinsey
• Cost competitiveness; low labour costs
• Total labour force of nearly 530 million

Investment Options for NRIs in India

India offers a stable, prosperous foundation to grow one’s business. It offers rich business opportunities and markets to non-resident Indians (NRIs) for new products and services. It is one of the fastest, easiest and lucrative investment destinations in the world to set up business. India is the second-most profitable destination, according to UNCTAD's World Investment Prospects Survey 2010-2012.

India is in the midst of rapid economic and social transition and is giving a feel good factor to the NRIs, especially the real estate sector. Returns from real estate investments have consistently performed well and have even outperformed other businesses in India.

The health care sector has also opened new business opportunities in India for NRIs to invest in the country because of the rise in disposable income, penetration of health insurance and change in lifestyle of present generation.

There are many other exciting business opportunities in India, especially, for entrepreneurs dealing in outsourcing technology, internet ventures, software development, e-commerce, etc.

Government’s intervention on policy issues, especially, tax regulations and FDI in sectors like retail, aviation etc. will play an important role in driving large transactions, especially, inbound deals. India’s growth story remains intact and NRIs can look forward to see better investment options in the second half of 2012.

Success Stories

India has witnessed a number of success stories - both Indian and multinational firms have registered higher profits, increased turnover and higher sales over the years. This has prompted them to reinvest profits and inject fresh capital into their processes in order to reap the benefits of the India growth story.

Investments have been made by Corporate across the board and almost all the sectors have seen inflow of funds. Global players such as Daimler Chrysler, General Motors, Ford, LG Electronics, Samsung, Sony, Amway, Tupperware, Pepsico, McDonald's, IBM, Oracle, Microsoft, Aviva, Nortel, and Nokia among others have benefited from their business in India and have made expansion plans for the country. The companies plan to expand by way of product diversification, setting up manufacturing base in India, increasing the existing production capacity, establishing research centres in India, etc.

FDI in retail sector to create 10 million jobs in India

India has emerged as the fifth most favourable destination for international retailers, outpacing UAE, Russia, Indonesia and Saudi Arabia, according to A T Kearney's Global Retail Development Index (GRDI) 2012. "India remains a high potential market with accelerated retail growth of 15-20 per cent expected over the next five years," highlighted the report.

The foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2012 stood at US$ 42.70 million, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). Cash and carry represents an opportunity worth around Rs 8,250 billion (US$ 154.45 billion) of the Rs 27,500 billion (US$ 514.84 billion) annual retail business in India. Online retail business is another format which has high potential for growth in the near future. India's e-retail industry is likely to touch Rs 70 billion (US$ 1.31 billion) by 2015, up from Rs 20 billion (US$ 374.43 million) currently, as per an industry body report.

The recently announced FDI guidelines in the Indian retail sector are likely to create 10 million jobs over the next 10 years, according to Indian Staffing Federation (ISF). The report also mentioned that the new job opportunities in the sector will make it the largest sector in organised employment.

The federation has welcomed the new FDI in retail announced by the Government of India. For the record, the Government has announced its decision to allow 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail. In addition, the Government has also opened up the aviation sector and put up four PSUs for disinvestment.

The ISF said that FDI in retail sector will have a much wider impact on organised employment as compared to what happened in the IT sector over a decade ago. The federation also said that these measures will open doors for the low-skilled people.

It is believed that logistics and supply chain companies are also expected to make rapid progress considering the fact that they will be the link between small manufacturers, farmers and the organised retail chains.

The close integration within the organised retail chains will support the small producers in gaining access to the latest processes, systems and technologies available in the market.

With increasing disposable incomes, expansion of stores and supporting economic factors, retail sector in India is expected to grow to about US$ 900 billion by 2014, according to a report by global consultancy and research firm, PricewaterhouseCoopers (PwC).

The next generation of India's retail environment is favourable for the rise of luxury goods. Consumer markets in emerging market economies like India are growing rapidly owing to robust economic growth. The retail sector in India is highly competitive because of ever changing consumer preferences and the need for marketing differentiation. The retail enterprises need to focus on costs throughout the consumer value chain because of proliferation of new products and categories and ever increasing demands to optimise value chains.

Growing Indian Education sector creating numerous investment opportunities

With increasing population in India, the demand for educational institutes has also augmented. Today, the Indian education sector is one of the biggest education systems in the world. The sector is one of the leading areas for investment opportunities.

The education sector in India is divided into two main segments; the core segment comprises of schools and higher education, while the non-core comprises of coaching classes, pre-schools and vocational trainings.

With a growth rate of 10 to 15 per cent expected over the next decade, the Indian education market has witnessed a series of developments and changes in the last few years. This has resulted in a significant increase in the market size of the education industry compared to previous years.

In fact, the private education sector is estimated to reach US$ 70 billion by 2013 and US$ 115 billion by 2018, according to consulting firm Technopak.

Invest in Indian Education Sector

India has emerged as a strong potential market for investments in training and education sector, due to its favourable demographics (young population) and being a services-driven economy. Further, India’s expanding role in sectors such as software development, generic pharmaceuticals and healthcare, would require the country to invest into learning and training segment as well.

India’s education sector is also considered as one of the major areas for investments as the entire education system is going through a process of reformation, according to a report ‘Emerging Opportunities for Private and Foreign Participants in Higher Education’ by PricewaterhouseCoopers (PwC).

India needs 1.2 million more teachers under the Right to Education Campaign, according to Shri Kapil Sibal, Union Minister for Human Resource and Development. He also added that with 546 million people under 25 years of age, there is huge potential in India in the education sector that needs to be tapped.

The country has been attracting foreign direct investments (FDIs) in education sector as well.

According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI in education sector stood at Rs 1170.09 crore (US$ 221.71 million) in the month of May 2012. The Government of India allowes 100 per cent FDI in education sector through the automatic route.

The country's fast-growing education sector holds a potential to attract a US$ 100 billion investment over the next five years, driven by demand for skilled professionals and need for infrastructure development, according to research firms such as KPMG.

There is clearly an opportunity for private players to enter the education space. This opportunity exists in all three segments – schools, higher education and vocational training. Some success stories are Manipal University, Amity University and the Indian School of Business. Public-private partnerships (PPP) arrangements, tax concessions for education and encouraging foreign capital to build infrastructure in India would encourage the creation of new capacities by the private sector.

The education sector in India is expected to witness huge investments from PE funds over the next couple of years on the back of increased Government spending and expansion plans of private players.

Investment Prospects for NRI’s in India

India is considered to be the second favourite destination for investors from other countries. India's unique and vast geography, endowed with diverse topography, has made it one of the most attractive investment destinations in the world.

The healthy growth of the Indian economy also becomes evident from the inflow of the foreign direct investment (FDI). Investment opportunities in India are plentiful. It becomes evident with the numerous MNC's not only trailing their products and services into the Indian markets but also coming forward to set up their manufacturing units in India.

The vast investment opportunities available and the positive investment climate in India have become a part of every business entrepreneur’s life. The Ministry of Overseas Indian Affairs has set up an Overseas Indian Facilitation Centre (OIFC) as a not-for-profit-trust, in partnership with Confederation of Indian Industry (CII) to promote investment opportunities amongst the overseas Indians.

Some of the fruitful investment options in India are:

Fixed deposits: It is the most common among the investment opportunities in India. These are safe investments and provide decent return.

Insurance sector: There are a lot of insurance companies emerging these days as the health is becoming less secured because of the unhealthy life style of present generation. Some of the common insurance policies are life insurance, health insurance, home insurance and the car insurance policies.

Investment in Stock: The investment in stock market in India is one of the fastest means of earning. As the stock prices are always fluctuating, the chances of risk are also high along with high profits.

Mutual Funds: It is a collective investment scheme that pools money from many investors or foreign investors in India to purchase securities such as stocks, bonds, money market instruments and similar assets. It is an easy and safe investment with periodic withdrawals.

Real Estate: The population in India is increasing and therefore land is always in demand. Besides the need to reside, the establishment of industries also requires land. The projection of real estate includes sectors such as hospitality, manufacturing, housing, retail, commercial etc. Thus it is obvious that the cost of real estate is not going to fall down. Thus the investment opportunities in India are high and by investing in a land and selling it on demand by others is an easy source to earn money.

Also, there are many other exciting business investment opportunities in India, especially, for industrialists dealing in outsourcing technology, internet ventures, software development, e-commerce, etc.

The Government of India is trying to accommodate and utilise the conducive investment climate of the country by relaxing and even introducing new policies. The change in government policy, availability of cheap resources, strong operational units, etc. are the important reasons for FDI in India. It is important for foreign investors in India to have some trend analysis of investment scope before they plan to start or set up a business in India, thus the role of investment advisors to prepare extensive investment guides to help and direct the trade investments and the scope of foraying into a particular business in India becomes crucial.

FDI in Indian Pharmaceutical Market

The pharmaceutical industry in India is one of the largest and most advanced among the developing countries. The industry stands third in the world in terms of volume. It ranks 14 in terms of value and is expected to grow 8 to 9 per cent annually. According to a research done by Associated Chambers of Commerce and Industry (Assocham), the Indian pharma industry is expected to reach US$ 20 billion by 2015, making it one of the world's top 10 pharmaceuticals markets.

In India, there are many small sectors, medium sectors, private limited companies and public companies that have been consistently manufacturing various medicinal products to meet the increasing demands of the people. The foreign investors can invest in Indian companies through the purchase of shares, debentures, equities, or bonds from an Indian company.

Pharma industry in India is growing at a rapid pace, marked by a number of mergers and acquisitions and growth in foreign expenditure. The sector is going to be a major area of focus in the coming years as Indian medicines are increasingly becoming popular in many developed and developing countries because of the cost effectiveness and easy availability.

India saw FDI inflow of US$ 341.49 million in the drugs and pharmaceuticals sector between April 2009 and February 2012. Also, the government has liberalised investments made by registered Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme (PIS) from April 10, 2012. Earlier, these spendings required approval from the government.

There are numerous ways for foreign company to enter in to an Indian market. Different types of foreign investment in India are:

Green field investment is FDI when a company establishes a subsidiary in a new country and starts its own production. It involves construction of a new plant, rather than the purchase of an existing plant or firm. According to the latest rules of Reserve bank of India (RBI), FDI, up to 100 per cent, under the automatic route, is permitted for green field investments in the Indian pharmaceutical sector.

Brown field investment is FDI that involves the purchase of an existing plant or firm, rather than construction of a new plant. For e.g. many host countries encourage the formation of joint ventures, as a way to build international cooperation. Joint venture is an equity and management partnership between the foreign firm and a local entity in the host market. FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments in the Indian pharmaceuticals sector. Under the new rules, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

In India, the cost of setting up research and development laboratory, scientific equipments, administration costs, transportation cost, raw materials cost and licensing procedure is much less when compared to any developed countries. The main determinants of FDI in India are availability of huge natural resources, cheap labor, steady economic growth, huge benefits and concessions granted by government, increasing population and per capita income, etc. So, there are huge opportunities for foreign investment in India.

Investment Scenario in Indian Power Sector

Indian power industry has a long way to go. India’s fast-paced economic growth and its rapid rate of industrialisation and urbanisation have fuelled an increased demand for energy.

India has made remarkable progress in the power sector during the eleventh plan. The sector ranked sixth among the leading sectors of the Indian economy and has attracted US$ 4.6 billion in foreign direct investment since 2000. There are three major pillars of the sector - generation, transmission, and distribution. Generation is further divided into central sector (Public Sector Undertakings), state sector, and private sector, which constitutes total installed capacity of 31.21 per cent, 47.49 per cent and 21.17 per cent respectively.

Investment in Power Sector

With the population increasing at a rapid pace and a wide gap between demand and supply, the Indian energy sector offers strong opportunity to industry participants. After China and the US, India has been ranked as the third best investment destination in renewable energy sector.

The power sector in India requires an investment of up to US$ 400 billion in a span of five years to end on March 2017, according to P. Uma Shankar, Secretary, Ministry of Power, India.

The organised trading business in energy sector is set to be opened up for NRI invest in India. This attracts foreign funds to invest in the Indian power industry. 26 per cent FDI will be allowed at par with the level of commodity exchanges in the sector.

Investment Opportunities and Future Prospects

If India continues to grow at the current rate, the Indian economy would emerge as the second largest in the world, next only to China, by the year 2050. It is therefore expected that, the demand for energy would also rise substantially in the future.

US companies investing in India's green energy market will have good prospects and it will be a win-win situation for both the countries.

The generation capacity of the country stands at over 180 MW (as in August, 2011) with a dominant share of the state sector. The private sector, which currently contributes around 22 per cent of the generation capacity, is expected to increase its share to 52 per cent by 2017.

Government Initiatives

Indian Government has proposed various proposals in the budget 2012 to stimulate investments in power sector in India, which provides a massive opportunity to the American companies.

In order to attract NRI invest in India, FDI up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading.

The Government of India is working on the plan to generate 470 gigawatts (GW) of nuclear energy by 2050, announced in 2009. Thus, it opens the door for huge opportunities in the sector.

The Government has planned to set up four solar thermal power projects through the solar energy corporation of India.

Being one of the fastest growing economies and the second largest populated country, India represents an attractive investment destination for the power industry.

FDI is a source of Indian Economic Growth

India is developing into an open-market economy. It is the fourth preferred destination for foreign investment just after the United States, China and Britain. India attracted overseas investment of US $8.1 billion in March, the highest ever monthly inflows. Cumulative FDI inflows for the fiscal 2011-12 amounted to US $36.50 billion.

The Indian economy has continuously recorded high growth rates and become an attractive destination for investment. Government offers various facilities to non-Indian resident to attract foreign investment in India. The factors that attract investment in India are stable economic policies, availability of cheap and quality human resources, and new unexplored markets. The government has taken various initiatives like - allowing foreign education providers to set up campuses in India, FDI in limited liability partnership firms, etc.

Impact of FDI on Indian economy

Foreign direct investment in India has enabled the country to attain a certain degree of financial stability and economic growth with the help of investments in different sectors. After liberalization of trade policies in India, there has been a positive GDP growth rate in country’s economy.

Foreign investment in India helps in developing the economy by generating employment, generating revenues in the form of tax and incomes, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, etc.

How to make FDI in India

Foreign direct investment in India is permitted in the form of financial collaborations, joint ventures, technical collaborations, capital markets and private placements.

Foreign investors are free to invest in India except few areas. There are some activities and sectors which require prior approval of Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB) for e.g. manufacture of cigarettes and tobacco, manufacture of electronic aerospace and defence equipments, manufacture of items exclusively reserved for small scale sector with more than 24 per cent overseas investment and all other proposals falling outside notified sectoral policy.

The 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 per cent 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.

Who can invest in India?

A non-resident of India (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy under automatic or government route plans.

Qualified financial Investors (QFIs) are permitted to invest through SEBI registered Depository Participants only in the equity shares of listed Indian companies through recognised stock exchanges in India under various SEBI guidelines.

Foreign institutional investors are allowed to invest in the capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs can acquire shares or debentures of Indian companies with the help of stock exchanges in India.