Investment in India

Investment opportunities for NRIs in the booming Indian Economy

A stable, prosperous foundation is the primary requirement to grow oneís business in India. India offers such a foundation. It provides rich business opportunities and markets to non-resident Indians (NRIs) and persons of Indian origins (PIO) 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.

To attract foreign investment in India, the Government has offered several facilities to the NRIs, PIO and overseas corporate bodies (OCBs).

Investment options for NRIs in India

National priority level and state-specific projects are being implemented across the country. These projects offer huge investment opportunities in India. The government is in fact, promoting Public Private Partnerships (PPPs) in many projects opening up new vistas in sectors such as infrastructure, education, healthcare etc.

The health care sector of India has also opened new investment opportunities for NRIs investing in India because of the rise in disposable income, penetration of health insurance and rising health related lifestyle challenges across demographics.

The returns from the real estate sector in India have consistently been high and have even outperformed other investment options. The Government of India has created many policies and schemes to maximize investment options for NRIs/PIOs looking to invest in Indian real estate sector.

Some of the most popular investment opportunities available to the NRIs and PIOs for investments in India are:

• Non-Resident (External) Rupee (NRE) Accounts: NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney. The interest rates on NRE Savings deposits shall be at the rate applicable to domestic savings deposits.
• Non-Resident Ordinary (NRO) Rupee Account: NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. Account should be denominated in Indian Rupees. Permissible credits to NRO account are transfers from rupee accounts of non-resident banks.
• Bank Fixed Deposits: Bank failures are rare in India so bank fixed deposits are a very safe way to invest for NRIs investing in India. You know the rates up front so there is no uncertainty there. Taxes can eat into your returns though, especially if you are in the high tax bracket, but even then a fixed deposit (FD) that compounds quarterly and is done for a long maturity will yield well.
• Foreign Currency Non Resident (Bank) Account ñ FCNR (B) Account: FCNR (B) accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. Account can be in any freely convertible currency.
• Senior Citizens Savings Scheme (SCSS): It is a new investment opportunity in India for Senior Citizen. The account may be opened by an individual, who has attained age of 60 years or above on the date of opening of the account.
• National Savings Certificates (NSC) IX Issue: This is another safe investment with decent returns. There is no maximum limit for investment and no tax deduction at source (TDS). Certificates can be kept as collateral security to get loan from banks.

Investment opportunities in Indian states

India is one of the oldest civilisations in the world with diverse cultural heritage. It is divided into twenty eight States and seven Union Territories (UT). Each and every Indian states and UTs has a unique demography, history, language etc. which provides various investment opportunities. These states/UTs are blessed with large number of tourist places - beautiful landscapes, wildlife and forests, hills, plateaus, valleys, monuments, forts, palaces, temples, etc. Tourism is the major source for investments in Kerala.

States and UTs of India are also gifted with distinct inherent strengths - from abundant supply of mineral resources and large forest reserves to the availability of good fertile lands, which are suitable for growing variety of agricultural and horticultural crops.

Several global majors are present in these States which brings large investments into the country. These companies/ industries are confined to iron and steel, cement, textiles, agro-processing, mineral-based industries, drugs and pharmaceuticals, chemicals, electronics, automobiles, etc. Pharmaceuticals and automobiles are the major source of investments in Gujarat.

Information technology (IT) is now being recognized as an essential part of the economy by the various State Governments, thereby attracting new players into the market. IT revolution is committed to provide good governance that ensures transparency, reduction in transaction costs, efficiency and citizen centric delivery of public services. Therefore, the Government is making all efforts to facilitate the growth of such industries and promote overall development of the economy.

Major investment states of India

Haryana: Due to its strategic location, Haryana has been recognised as a business-friendly State. Panipat, Rohtak, Gurgaon, Faridabad and Sonepat have a special potential for accelerated socio-economic development. Land and water are the important resources of the State, making it an agriculturally rich State. Large number of food grains and horticultural crops are produced, by using available irrigation facilities.

Kerala: The State of Kerala constitutes one of the most advanced society of the country. Its literacy rate is the highest among the Indian States. The State has several advantageous features - pro-active administrative set up, simple and transparent procedures for investment, rich natural resource base, educated and hardworking manpower, including the highest density of science and technology personnel, etc. The Government has taken several policy measures and incentives for attracting investments in Kerala.

Punjab: Punjab is a land of numerous opportunities which are embedded in its advantageous position. These include:

• Simple and responsive administrative set-up
• Educated and professional work force with abundance of skilled workers
• Strong agricultural and industrial base
• Efficient infrastructural set up including transportation, telecommunication, stable and cheap power

Gujarat: Gujarat is the leading industrialized State of India. It houses a number of multinational corporations, private sector companies, public sector enterprises and a large number of medium and small scale units. It is a manufacturing powerhouse with world-class production capabilities. Textiles, petrochemicals, pharmaceuticals are some of the few sectors which attracts investment in Gujarat. The State is also known for its entrepreneurial spirit as well as robust social and physical infrastructure.

Andhra Pradesh: Andhra Pradesh is the resourceful land of minerals which includes coal, oil and natural gas, bauxite, limestone, gold, diamonds and much more. It is an agriculturally-prosperous State, endowed with fertile land, water and conducive agro-climatic conditions. It is among the largest producers of food grains, fruits, vegetables, cotton, maize, dairy and poultry products in the country.

Scenario of pharmaceutical market in India

The pharmaceutical industry in India is most progressive and advanced among all the developed and developing countries. The industry has provided great employment opportunities to thousands of people, apart from contributing greatly towards the Indian economy.

Today, India is among the top five pharmaceutical emerging markets in the world. The market is expected to grow at a compound annual growth rate (CAGR) of 14-17 per cent over 2012-16. The total revenues of the market stood at US$ 11 billion and are estimated to be US$ 74 billion by 2020.

Growth in the sector

• Pharma sector in India is growing at a rapid pace, marked by a number of mergers and acquisitions (M&A) 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 parts of the world because of the cost effectiveness and easy availability. The manufacturing cost of Indian pharma companies is up to 65 per cent lower than that of US firms and almost half of that of the European manufacturers.
• The domestic pharmaceutical market is expected to register a strong double-digit growth of 13-14 per cent in 2013 on back of increasing sales of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets.
• The growth of healthcare sector also provides huge opportunities for investing in India’s pharma space. The growing network of private and public hospitals in the country generates a huge demand for industrial cleaning equipment, waste management, hygiene products and laundry solutions.

Pharmaceutical exports

The Ministry of Commerce has targeted Indian pharma sector exports of US$ 25 billion by 2014 at an annual growth rate of 25 per cent.

Last year, the industry registered exports of US$ 13 billion at a growth rate of 30 per cent, as per Dr P.V. Appaji, Director-General, Pharmaceutical Exports Council of India (Pharmexcil). The Government has also planned a 'Pharma India' brand promotion action plan spanning over a three-year period to give an impetus to generic exports.

FDI inflows

The cumulative drugs and pharmaceuticals industry in India attracted foreign direct investment (FDI) inflows worth US$ 10,308.75 million during April 2000 to February 2013, according to the Department of Industrial Policy and Promotion (DIPP)

Recent initiatives

The Department of Pharmaceuticals has prepared a 'Pharma Vision 2020' document for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose, the department provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures.

Pharmexcil has removed the need for overseas investors to get a no-objection from their joint venture (JV) partner before venturing out on their own or roping in another local firm. This will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country.

FDI policies

• FDI, up to 100 per cent, under the automatic route, is permitted for green field investments (when a company establishes a subsidiary in a new country and starts its own production) in pharmaceutical sector in India
• FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments (when company purchases an existing plant or firm, rather than construction of a new plant)

Investment opportunities for foreign investors in India

The Indian economy has continuously recorded high growth rates and become an attractive destination for investment. According to recent trends, India is only second to China in the league of favorite investment destinations. As the Indian economy is developing very fast, it has opened new avenues for people to start businesses.

Doing business in India 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 potential that needs to be exploited, especially in sectors like agro-processing, manufacturing, pharmaceutical, medical equipment, seafood, automobile parts, tourism and hospitality, IT and IT-enabled services," according to Anand Sharma, Minister of Commerce and Industry.

Investment sectors in India for NRIs

The sectors in which the non-resident Indian (NRI) can invest through the automatic route include agriculture, mining, alcohol brewing, power, industrial explosives, hazardous chemicals, drugs and pharmaceuticals, transport, insurance, industrial parks, non-banking financial institutions, etc. In some cases, the approval of the Foreign Investment Promotion Board (FIPB) may be required. These include sectors like tea, infrastructural companies except telecom, publication of newspaper and periodicals, courier service and single brand product retailing.

The various sectors where NRI investments in India are prohibited include retail, atomic energy, lottery and gambling establishments, tobacco products, etc.

Investment environment in India

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, tax holidays, liberalisation 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 authorised dealer.

Ways of investing in India

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.

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 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.

Exciting investment options for NRIs in India

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.

The economy of India also boasts a robust financial system and deep capital markets. India’s demographic are very attractive with approximately 65 per cent of the total population falling in the age group of 15 to 64 years. A comparatively stable Government, an open democratic set-up, and a strong and reliable judiciary system, add further advantage to the Indian Economy. The country’s strong fundamentals such as a growing middle class population, cost competitiveness and strong domestic consumption have made it a preferred destination for MNCs from across the world.

Government’s intervention on policy issues, especially, tax regulations and foreign direct investment (FDI) will play an important role in driving large transactions, especially, inbound deals. India’s growth story remains intact and NRIs/PIOs will continue investing in India.

Investment Options for NRIs in India

A stable, prosperous foundation is the primary requirement to grow one’s business in India. India offers such foundation. It provides rich business opportunities and markets to non-resident Indians (NRIs) and person of Indian origin (PIOs) 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.

NRIs/PIOs are investing in India, especially in the health care sector. The sector has opened up new business opportunities for them to invest in India because of the rise in disposable income, penetration of health insurance and change in lifestyle of present generation.

How can NRIs and PIOs invest in India?

The following investment opportunities are available to the NRIs and PIOs for investments in India:

• Non-Resident (External) Rupee (NRE) Accounts: NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney. The interest rates on NRE Savings deposits shall be at the rate applicable to domestic savings deposits. Currently the interest rate is 3.5 per cent
• Non-Resident Ordinary (NRO) Rupee Account: NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. Account should be denominated in Indian Rupees. Permissible credits to NRO account are transfers from rupee accounts of non-resident banks
• Foreign Currency Non Resident (Bank) Account – FCNR (B) Account: FCNR (B) accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. Account can be in any freely convertible currency
• The Government has created many policies and schemes to maximize investment options for NRIs/PIOs in the real estate sector of India
• RBI has allowed, both people residing outside India holding Indian passports and also PIO to invest in residential as well as commercial properties in India
• RBI has granted general permission to NRIs/PIOs, for undertaking direct investments in Indian companies, under the automatic route purchase of shares

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

Improved Banking Services for NRIs in India

India economy is the fifth best in the world for dynamic growing businesses, according to the Grant Thornton Global Dynamism Index. The index gives a reflection of how suitable an environment it offers for dynamic businesses.

In terms of purchasing power parity (PPP) it is expected to become world’s third largest economy by 2050, according to a recent report titled, 'World in 2050 The BRICs and Beyond: Prospects, Challenges and Opportunities' by PricewaterhouseCoopers (PwC). It is one of the most attractive destinations for business investments for non-resident Indians (NRIs) and overseas Indians. It is a land of large manpower base, diversified natural resources and strong macroeconomic fundamentals.

The robust financial system boasts the economy of India. It is essential for economic growth and development. The financial services sector in India includes banking sector, capital markets, insurance sector, private equity, stock markets, etc.

Banking services in India

Banking in India is moderately consolidated, with the top 10 players accounting for approximately 60 per cent of the total industry. The Indian banking sector is majorly dominated by public sector banks.

The Indian economy has registered a rapid growth in the banking population in previous decade due to increase in demand for consumer loans, housing loans and credit cards. There will be a requirement of at least 40,000–50,000 additional bank branches and 160,000–190,000 additional ATMs in this decade.

Major services of banks in India include:

• Privatisation & Disinvestments
• Corporate & Debt Restructuring (Mergers & Acquisitions/ Takeovers)
• Insurance & Financial Institutions regulations
• Licensing and regulatory approvals
• Project / Assets Finance
• Consortium, Mortgage, Pledge & Lien Agreements
• Loan, Credit & Security Documentation
• Futures/derivatives litigation

Indian banks also provide business investments opportunity to the NRIs and person of Indian origin (PIOs). These are:

• Non-Resident (External) Rupee (NRE) Accounts: NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney
• Non-Resident Ordinary (NRO) Rupee Account: NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. Account should be denominated in Indian Rupees
• Foreign Currency Non Resident (Bank) Account – FCNR (B) Account: FCNR (B) accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. Account can be in any freely convertible currency

Government initiatives to boost Indian banking sector

The Government of India has provided an added advantage to the banking industry by proposing to set up an Asset Reconstruction Firm. The banks burdened with non-performing assets will ease considerably, with the setting up of such companies.

The Government of India has also permitted offshore banking units to be set up in special economic zones (SEZs).

Foreign direct investments (FDI) in private banking sector of India is allowed up to 74 per cent, where FDI up to 49 per cent is allowed through automatic route and FDI beyond 49 per cent but up to 74 per cent is allowed through government approval route.

Future of Indian banks

Indian banking industry is anticipated to grow exponentially and become the world’s third largest in asset size (projected at US$ 28,500 billion from the current US$ 1,350 billion) by 2025, according to a report by the Boston Consulting Group (BCG) India.

Investment in Real Estate in India

Indian real estate has huge potential in almost every sector especially commercial, residential, retail, industrial, hospitality, healthcare etc. However, the major real estate developments in India are mainly the townships, residential units, shopping malls, offices, retail stores and commercial complexes.

The major growth has come due to increasing purchasing power, favourable demographics, existence of customer friendly banks & housing finance companies, professionalism in real estate and favorable reforms initiated by the government to attract global investors.

Real estate investment in India is primarily a long term investment providing low liquidity to an investor. Investors can look at renting out their property to bring consistency in revenues. This can also reduce the burden of EMIs for a property purchased on a loan. According to a survey conducted by ASSOCHAM, 65 per cent of working individuals prefer real estate as a mode of long term investment.

There are many banks and financial institutions that provide loans at attractive rate of interest to the builders. For example, HDFC Property Fund, Kotak Mahindra Realty Fund, and India Advantage Fund (ICICI), provide the funds for real estate development to the builders and developers for construction.

NRI real estate business is also on the rise in India. Recession had negligible impact on this sector. Therefore, the sector is opening up more and more investment opportunities for both domestic as well as foreign investors. The real estate sector is extremely a profitable venture, as the profits of investors have almost doubled or have derived 100 per cent profits in the residential segment.

The preferable time horizon for investment in real estate is four to seven years for better returns. The industry is popular for providing the second largest employment just after agriculture. One of the major reasons for this development is the policies taken by the Government of India.

Reforms initiated by the Indian Government

The Government including reserve bank of India (RBI) and Foreign Exchange Management Act (FEMA) has liberalised the rules and regulations for the NRIs to make investment in real estate. India has emerged as a top-most favourable destination for foreign direct investment (FDI) in the world with 100 per cent relaxation of FDI regulations in real estate.

The Government of India has now allowed international and domestic companies to operate real estate funds through private equity funding. RBI has also decreased its rate of interest in the home loan division.

Tax Advantages

People can avail the huge tax benefits on investing in real estate:

• Tax exemption is available on re-investment of sale proceeds of property in eligible possibilities.
• Tax benefit is available on interest on housing loan raised in India.

Nowadays, real estate investment in India is more productive and revenue generating in comparison to other businesses. India is a safe investment destination for real estate sector with assured returns of 10 to 12 per cent.

India is becoming an Investment Hub

India is the fastest growing economy in the world with buoyant investment climate. According to recent trends, India is only second to China in the league of favorite investment destinations. As the Indian economy is developing very fast, it has opened new avenues for people to start businesses. The country is extraordinarily rich in various resources with very low-cost labour. Doing business in India 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.

Entry Routes for Investment in India

Foreign Investment is easily permitted in almost all sectors. An Indian company may receive Foreign Direct Investment under two routes:

Automatic route: The foreign investor does not require any approval from the Reserve Bank of India or the Government of India for making investments. FDI up to 100 per cent is allowed under the automatic route in all sectors.

Government Route: The prior approval of the Government of India, Ministry of Finance, and Foreign Investment Promotion Board (FIPB) is required for making investment in India.

Sectors that an investor can look for long-term prospective are:

Banking: The Indian banking sector is one such industry, which has enormous upside growth potential. Investing in India can give investors above average return over long-term in the banking sector.

Healthcare: With the rise in disposable incomes and penetration of healthcare insurance, the demand for healthcare is growing day by day. The health and pharma sectors are quite promising in the current market conditions. Investors with a long-term prospect can invest in strong companies in the healthcare sector.

Education: The Indian Education industry is another industry which is poised at the wings of growth. Increasing awareness, rising disposable incomes and availability of loans for higher education creates a huge demand in the sector. So, it is one of the most important investment sectors in India.

Food processing: India is a country that largely depends on its agriculture. Thus, food processing industry in the country is among the largest in the world. The industry enjoys patronage from government, private players and cooperative sectors. Even the government ensures steady investment in this sector by introducing various changes in the “National Food Processing Policy”.

IT Sector: India is known as the IT hub. The BPO (Business Process Outsourcing) and the KPO (Knowledge Process Outsourcing) industries are enjoying a fast paced growth rate. Thus, investing in the giant software industry in India is really a good decision.

Real estate: Real estate has emerged as one of the most appealing investment sectors for domestic as well as foreign investors. The real estate sector will continue to derive its growth in future because of changing consumer lifestyles. For example, nowadays people prefer to live in societies (apartments) with facilities like swimming pool, gym, security rather than just houses.

"Our economic and commercial relations are expanding. But there is still a lot of untapped potential that needs to be exploited, especially in sectors like agro-processing, manufacturing, pharmaceutical, medical equipment, seafood, automobile parts, tourism and hospitality, IT and IT-enabled services," according to Anand Sharma, Commerce and Industry Minister.