India is one of the fastest growing economies in the world today, India has sustained recent global downturn and also emerged as one of the leading nations in terms of GDP growth rate and FDI inflows. Economists predict that by 2020, India will be the third largest economy in the world. Indian markets have immense potential and offer prospects of high profitability and a favorable regulatory regime to attract investors. Further, with the new initiatives like Make in India, Ease Of Doing Business In India, Digital India, Startup India, Smart Cities, etc. the Indian Government further intends to attract the Non Residents to make financial investment in India. The ambitious ‘Make in India’ campaign launched on 25th September 2014 aims at turning the country into a global manufacturing hub by eliminating the unnecessary regulations and time bound project clearances. Some of the key answers to the question “Why Make In India?” are as follows:
⇒ Large presence of FIIs in the Indian capital market with over 451 FIIs and 38 foreign brokers registered with SEBI.
⇒ Placed amongst the most transparent & mature markets in the world.
⇒ The world’s third largest investor base only after U.S.A and Japan.
Government of India has emphasized on the importance of ‘Ease of Doing Business’ and it is a major pillar of ‘Make in India’ initiative. It is working extensively on improving India’s rank in the World Bank Group’s Doing Business Study.
Also in a presentation in Hong Kong by CLSA’s Chris Wood, who is recognized as the one of the best strategists in Asian markets. During his speech, Wood maintained that India has been and continues to be his favorite market in the region. Following is the extract from his speech:
I have, in fact, allocated 41 percent of my long only portfolio to India… I am not going to pull out because I am viewing India as a five-year story given the fact that Modi has been elected for five years. Modi is the most pro-business, pro-investment political leader in the world today.
The above mentioned factors contributed to the fact that India best destination to invest right now and the world has its eye on India.
Further, the Government of India has permitted foreign investment in almost all sectors with a few exceptions, for instance in sectors such as atomic energy, lottery business, etc. where FDI is completely prohibited. For other sectors, FDI is either 100% permitted or partially permitted. In the permitted sectors, subject to sectoral caps, FDI may be via 2 routes:
- Automatic route or
- Government route i.e. where prior approval of Government of India is required.
The sector-wise detail of FDI is as follows:
SECTORS UNDER AUTOMATIC ROUTE (WITH CONDITIONS)
Up to 100%
- Mining – Metal & non-metal ores; Lignite & Coal
- Broadcasting Carriage Services (Teleports, DTH, Cable Networks, Mobile TV, HITS)
- Broadcasting Content Service – Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels
- Airports – Greenfield; Brownfield
- Airport Transport Services – Non-Scheduled; Helicopter/Seaplane Services
- Ground Handling Services
- Maintenance and Repair Organizations; Flying and Training Institutes; Technical Training Institutions
- Construction Development
- Industrial Parks – New and Existing
- Trading – Wholesale; B2B e-commerce
- Duty Free Shops
- Railway Infrastructure
- Asset Reconstruction Companies
- Credit Information Companies
- White Label ATM Operations
- Non-Banking Finance Companies
- Pharma – Greenfield
- Petroleum & Natural Gas – Exploration Activities of Oil and Natural Gas Fields
Up to 49%
- Petroleum Refining by PSUs
- Infrastructure Company in the Securities Market
- Commodity Exchanges
- Power Exchanges
SECTORS WHERE GOVERNMENT APPROVAL IS REQUIRED
(as on July 8, 2016)
Up to 100% (Government approval – up to 100%)
- Mining and mineral separation of Titanium bearing minerals and ores
- Publishing/printing of scientific and technical magazines/specialty journals/periodicals
- Publication of facsimile edition of foreign newspapers
- Satellites – establishment and operation
- Food product retail trading
Up to 100% (Government approval – beyond 74%)
- Pharma – Brownfield
Up to 100% (Government approval – beyond 49%)
- Air Transport Service – Scheduled and Regional Air Transport Service
- Telecom Services
- Trading – SBRT
Up to 74% (Government approval – beyond 49%)
- Banking – Private Sector
- Private Security Agencies
Up to 51% (Government approval – up to 51%)
- Trading – MBRT
Up to 49% (Government approval – up to 49%)
- Broadcasting Content Service
- FM Radio
- Uplinking of news & current affairs TV Channels
- Investment by Foreign Airlines
Up to 26% (Government approval – up to 26%)
- Print Media – Publication of Indian editions of foreign magazines dealing with news and current affairs
- Print Media – Publishing of newspaper and periodicals dealing with news and current affairs
Up to 20% (Government approval – up to 20%)
- Banking – Public Sector
Moving a step further, following are the business forms in which a foreign investor can enter into Indian Market:
An Indian Company:
- Joint Venture as (i) Private Limited or (ii) Public Limited Company, s.t. Companies Act, 2013
- Wholly owned subsidiary permissible in sectors where 100% FDI is permitted
A Foreign Company*:
- Liaison Office to represent the parent company in India
- Branch Office activities such as Export-Import of goods; research, consultancy etc.
- Project Office activities as per contract to execute project
Click here to download the latest eligibility criteria and procedural guidelines issued by Reserve Bank of India for establishment to Branch Office, Liaison Office and Project office in India.
Limited Liability Partnership:
- Subject to provisions of LLP Act, 2008
- FDI permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions
*Incorporate company in India s.t. sectoral caps and requisite approvals
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