Investment in India

Investment options in India, one of the most attractive economies in the world

The Indian economy continues to grow at a good pace and holds a strong position. Indiaís economy is amongst the largest in the world on the basis of purchasing power parity (PPP). It is today one of the most attractive destinations for business investment opportunities with the available large manpower base, diversified natural resources and strong macroeconomic fundamentals. During April-January 2012-13, India received foreign direct investments (FDI) worth US$ 30.82 billion while FDI equity inflows during January 2013 stood at US$ 2.16 billion, according to latest data released by the Department of Industrial Policy and Promotion (DIPP).

India is the third-most attractive destination for FDI in the world. Indian markets have significant potential and a favorable regulatory regime for foreign investors, according to a survey titled World Investment Prospects Survey 2012ñ2014 by UNCTAD.

"We are keen to see FDI investment to surge in India and to that end, a favourable business climate will be helpful in going forward. We are encouraged to see there is a continued path towards fiscal consolidation," according to Ms Christine Lagarde, Chief, International Monetary Fund (IMF).

Changes made by the Mr P Chidambaram, Union Minister for Finance, Government of India, in the Union Budget 2013-14 can greatly benefit high net worth individuals looking to invest in India, where returns on investments are higher than in any other market.

Key sectors in India where foreign investors can invest

India has become a trillion dollar economy with a self-sufficient agricultural sector, a varied industrial base and a well-established financial and services sector. There are numerous sectors that offer lucrative business opportunities in India. Some of the key investment sectors are:

• Aerospace & Defence
• Automotive
• Banking
• Biotechnology
• Information Technology
• Insurance
• Power
• Real Estate
• Retail
• Telecommunications

Government Initiatives in supporting business investments opportunities in India

In order to enable investors to have the complete benefit of available business opportunities in India, the Government of India has taken following initiatives:

• The Government of India has relaxed in expense ratios for mutual funds and the prospects of higher FDI limits in insurance sectors could unlock huge opportunities in these investment sectors.
• The Government has allowed Qualified Foreign Investors (QFIs) ó individuals, groups or associations ó to invest directly in Indian equities and bond markets.
• To encourage the micro, small and medium enterprises (MSMEs), the Government of Tamil Nadu (TN) has announced a special component package, which includes creation of an additional land bank for setting up new industrial estates in the state, increase in subsidy for machinery purchases and creation of a single window clearance committee to facilitate speedy approvals for industrial estates, said Ms J Jayalalithaa, Chief Minister of Tamil Nadu (TN).

Investment facilitation in India

The Ministry of Overseas Indian Affairs in partnership with Confederation of Indian Industry (CII) has set up an Overseas Indian Facilitation Centre (OIFC) as a not-for-profit-trust, to facilitate non-resident Indians (NRIs), overseas corporate bodies of overseas Indians and non-resident Indians who want to invest in India.

In order to ease the process for foreign investors to invest 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.

Scenario of real estate sector in India

The Indian real estate sector has witnessed significant growth in the past few years and is expected to grow at the rate of 30 per cent in the coming years. The sector has emerged as one of the most appealing investment sectors for domestic as well as foreign investors.

The major factors responsible for growth in the sector are 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 real estate investments.

Growth prospects

The Indian real estate market size is expected to touch US$ 180 billion by 2020. In fact, the demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to account for about 40 per cent of this.

Investment opportunities

At present, investment trends in India are showing a huge number of NRIs investing in Indian real estate sector.

India needs to invest US$ 1.2 trillion over the next 20 years to modernise urban infrastructure and keep pace with the growing urbanisation, as per a report released by McKinsey Global Institute (MGI)-India's urban awakening.

Growing infrastructure requirements from sectors such as education, healthcare and tourism are providing numerous opportunities in the sector. Further, India is going to produce an estimated two million new graduates from various Indian universities during the year, creating demand for 100 million square feet of office and industrial space. In addition, presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational base in India, thus creating more demand for corporate space.

FDI in Indian real estate

Construction development sector (including townships, housing, built-up infrastructure & construction-development projects) has attracted a cumulative foreign direct investment (FDI) worth US$ 22,007.67 million from April 2000 to February 2013, according to the Department of Industrial Policy and Promotion (DIPP).

In addition, the sector is set for robust inflows of US$ 4-5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourites, as per Jones Lang LaSalle, a global real estate consultancy giant.

Government initiatives in the sector

The Government of India (GOI) has allowed FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction development projects to increase real estate investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure.

The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to purchase property in India for residential or commercial purposes. Further, the government is also committed to introducing FDI in multi brand retail, introduce changes in the existing SEZ policy to resurrect developer interest and expand the role of the private sector in infrastructure development.

Tax Advantages

People can avail 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

Booming Indian Economy offering huge investment options for NRIs

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 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.

Being the world's largest democracy with over 1.2 billion people means a plethora of business opportunities for its people. The country also offers innumerable investment opportunities for NRIs. Combined with young skilled manpower along with a well established judicial and stable government conducive to business, are all positive points towards India's business potential.

Additionally, strong growth across diverse parameters like being the 2nd most attractive FDI destination, steady Infrastructure & GDP growth and being one of the largest economies of the world reinforce the strength of India's economy. All this translates to the availability of new investment opportunities for NRIs in India spanning all sectors of the Indian economy.

Key Sectors

The various key investment sectors in India offering lucrative business opportunities are Aerospace & Defence, Automotive, Banking, Capital markets, Life Sciences, Information Technology, Insurance, Media & Entertainment, Mining & Metals, Oil and Gas, Ports, Power and Utilities, Real Estate, Retail and consumer products, Roads and highways, and Telecommunications.

Growth Potential in key sectors

Indian tax climate is considered to be reasonably favourable and India has continued to be an attractive investment destination, according to a survey conducted by Deloitte Touche Tohmatsu Ltd (Deloitte).The investment sectors in India are witnessing new heights in terms of contribution both from the domestic front as well as from the foreign land.

• The pharmaceutical market of India is expected to grow at a compound annual growth rate (CAGR) of 14-17 per cent over 2012-16 and is now ranked among the top five pharmaceutical emerging markets globally
• India's IT and business process outsourcing (BPO) sector exports are expected to increase by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, as per National Association of Software and Services Companies (Nasscom)
• Indian manufacturing and natural resources industry plans to spend Rs 40,800 crore (US$ 7.53 billion) on IT products and services in 2013, a growth of 9.1 per cent over 2012, according to Gartner. The telecommunications category remains the biggest spending category and it is forecast to reach Rs 13,200 crore (US$ 2.43 billion) in 2013
• The electronic system design and manufacturing (ESDM) sector of India is projected to reach US$ 94.2 billion by 2015 from US$ 64.6 billion in 2011, according to a report by the India Semiconductor Association (ISA) and Frost & Sullivan
• The luxury car market of India is set for growth over the medium and long term, according to Mr Philipp Von Sahr, President, BMW Group India. The market is about 30,000 cars a year and is rising steadily, Mr Sahr added

India as an Investor-Friendly Country

The attractiveness of the Indian market is regularly substantiated through the investments made by various multinational corporations in the country, which demonstrate their belief in the strong fundamentals of the Indian economy. The Government of India policies backed with positive business environment, availability of talented workforce and stable outlook for the macro-economy has made India a global hub for international players to park their funds in various investment sectors.

There is a parallel process of business and industry with various countries taking note of the opportunities that recent economic developments in India have created for them.

Projections

As per the Government projections, Indian infrastructure landscape would attract investments worth Rs 49,000 billion (US$ 881.29 billion) during the 12th Five Year Plan period (2012-17), with at least 50 per cent funding from the private sector.

Sectors

For overseas Indians, India offers a tremendous opportunity for investment and wealth building as India is slated to grow at the rate of 8%-10% for the next few decades. There are various investment sectors where non-residents of Indians (NRIs) can explore money-spinning deals and do profitable business.

Investment Options

Most of the Indians who have migrated to foreign countries for professional and personal reasons, still feel the desire to be associated with their mother land in some way or the other. They try to make investments in India through different avenues. There are numerous investment options for NRIs in India that can yield them lucrative benefits and profitability both in short run as well as long run. A few of them are as follows:

• For the NRI who is looking for high returns, attention should be concentrated on the huge number of central and state sponsored projects in key infrastructural sectors like education, healthcare and construction
• In general NRI investment is made through three major sectors. These include bank accounts, investment in immovable properties and investment in securities and debts
• There are many types of bank accounts. The regulations vary according to the repatriation of the interest income
• The securities in which the 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. You do not need the approval of the Reserve Bank of India (RBI) to invest in these securities. 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
• If you are looking for investment opportunities with repatriation benefits, you will have to invest in mutual funds, term deposits and bonds for at least three years
• A NRI can invest in proprietary and partnership firms in India, but the income will not be repatriated outside the country
• NRI can directly invest in real estate in India except if you are buying agricultural lands or plantations. Investments in housing schemes and commercial properties are free

Infrastructure: The best investment sector in India

Infrastructural development mirrors the overall health of a nation’s economy. Physical infrastructure is directly proportionate to the growth and development of a country. The infrastructure sector in India comprising of roads and urban development, airports, energy, shipping and ports, and electricity has become a key driver of the Indian economy over the last five years.

The Government of India has always been quite forthcoming when it comes to the upgradation of infrastructure. There has been a strong focus on assuring effective implementation of associated projects though budgetary allocations, tariff policies, fiscal incentives, private investment sector participation and public-private partnerships (PPPs).

Infrastructure Development Finance Co (IDFC) Ltd has estimated that India’s spending on infrastructure is 8 per cent of the gross domestic product (GDP) as of March 2011 and it needs to be increased further to over 10 per cent of GDP by 2017 to sustain the growth targets.

Infrastructure sector in India is poised for a big leap and offers significant investment opportunities for US businesses and other investors.

Investment Opportunities for Non-Resident Indians (NRIs)/Person of Indian Origin (PIOs) in Indian Infrastructure

Global private equity (PE) funds looking for high return on investments are going to target Indian infrastructure companies in the coming years, says a report by research agency Preqin. As per the study, India is attracting the highest number of unlisted, closed-end funds that focus on a single country, making it the most preferred choice among emerging investment sectors in India.

Infrastructure PE funds investing in India can choose from sub-sectors such as power, telecom, roads and ports. The Preqin report says 74 per cent of India-focused funds will invest in greenfield projects, 84 per cent in brownfield assets, and 42 per cent will buy out the stakes of other PE funds.

India’s infrastructure sector will approximately entail an investment of US$ 1 trillion over the next five years, according to a report ‘Real Estate and Construction Professionals in India by 2020´ by realty consultant Jones Lang LaSalle. This includes work on the ambitious 7-phase National Highway Development Project (NHDP), India’s largest road project ever. Phase II, III and IV are under implementation. The Government through the National Highways Authority of India (NHAI) is using a variety of contractual structures in moving towards PPP in roads projects.

Investment opportunities for NRIs/PIOs exist in a range of projects being tendered by NHAI for implementing the remaining phases of the NHDP – contracts are for construction or Built-Operate-Transfer basis depending on the section being tendered. Over US$76 billion investment is required over the next 5 years to improve road infrastructure and Road sector investments expected to grow at 19 per cent per annum.

It is also estimated that about 97 million jobs would be created over 2012-22 across different investment sectors in the country due to which, India would potentially need to build an average of 8.7 billion square feet (sqft) of real estate space every year, as per a report by prepared for Royal Institution of Chartered Surveyors (RICS). This would be a great attraction for NRIs/PIOs looking for opportunities to invest in the infrastructure segment.

Role of Private Sector in the Indian Economy

The Indian economy today boasts of a strong annual growth rate, deep capital markets and liberalised foreign direct investment (FDI) regime. The economy of India has continuously recorded high growth rates and has become an attractive destination for investments.

India has been the favoured investment destination in Asia, according to a report by Mecklai Financial. India has received inflows worth US$ 11 billion in equities and US$ 4.7 billion in debt investments on a year-to-date basis.

Indian economy outlook was presented as being positive and robust by Zinnov Management Consulting. Both multinationals as well as Indian companies aiming for growth need to focus on the long-term investments in India.

The liberalization and globalization of the economy has led to free inflow of foreign direct investment (FDI) along with modern cutting edge technology, which increased the importance of private sector in Indian economy considerably. Private sector in the past few years has witnessed significant increase in terms of investment and its share in Gross Domestic Product.

Key Private Investment Sector in India:

Healthcare: The health care sector of India has opened new investment opportunities for non-resident Indians (NRIs) and person of Indian origin (PIO) to invest in India because of the rise in disposable income, penetration of health insurance and unhealthy lifestyle of present generation.

Food Processing: India is emerging as sourcing hub of processed food because of huge agriculture sector, abundant livestock, and cost competitiveness. The food services sector in India is expected to register a growth of 50 per cent in investments in 2012 to about US$ 750 million, as food suppliers and retail companies plan to scale up business and stay competitive by tapping the large potential of the domestic market.

Real Estate: Returns from the investments in real estate sector of India have consistently performed well and have even outperformed other sectors. The sector is offering huge investment opportunities to NRIs and PIOs because of the friendly policies of the Government of India. People residing outside India holding Indian passports as well as PIO are allowed to invest in residential and commercial properties in India, according to the Reserve Bank of India.

Pharmaceutical: Pharmaceutical sector of India is gaining its position as a global leader. The pharma market in India is expected to touch US$ 74 billion in sales by 2020 from the current US$ 11 billion; according to a PricewaterhouseCoopers (PwC) report. Growth will be driven by the fastest growing molecules in the diabetes, skincare and eye care segment, as per a report by research firm, Credit Suisse. So, it is one of the most important investment sectors in India.

Power: India has been one of the top performing clean energy economies in the 21st century, registering the fifth highest five-year rate of investment growth and eighth highest in installed renewable energy capacity. The sector is opening up new opportunities for NRIs/PIOs.

The importance of private sector in Indian economy can be viewed from the tremendous growth of Indian IT & ITeS industry including both BPOs and Indian software companies, private banks and financial service companies.

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.