Investing in India

India has undergone a paradigm shift owing to its competitive stand in the world. The Indian economy is on a robust growth trajectory and boasts of a stable annual growth rate, rising foreign exchange reserves and booming capital markets among others.

Quarterly GDP at factor cost at constant (1999-2000) prices for Q2 of 2009-10 is estimated at Rs. 8,34,780, as against Rs. 7,73,850 crore in Q2 of 2008-09, showing a growth rate of 7.9 per cent over the corresponding quarter of previous year.

GDP at factor cost at current prices in Q2 of 2009-10, is estimated at Rs. 12,79,500 crore, as against Rs. 11,75,633 crore in Q2, 2008-09, showing an increase of 8.8 per cent.

There is ample reason for India's viability as a destination for foreign investment. In addition to the above-mentioned macroeconomic indicators, higher disposable incomes, emerging middle class, low cost competitive workforce, investment friendly policies and progressive reform process all contribute towards India being an appropriate choice for investors.

The Indian Government is committed in its efforts to maintain a healthy growth rate and provide a conducive policy environment to the enterprises, both public and private, to invest and grow their business in the country. To this end, the Government has liberalized the foreign investment regime substantially over the last decade. Today, foreign direct investment is allowed in almost all sectors barring a few sensitive areas such as defence. Further, FDI is allowed in most of the sectors under the automatic route, except a few, where approval from the Foreign Investment Promotion Board is required.

India's foreign trade policy has been formulated with a view to invite and encourage FDI in India. The process of regulation and approval has been substantially liberalized. The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI.

The FDI policy rationalization and liberalization measures taken by the Government have resulted in increased inflows of FDI over the years. During 2009-10 (from April 2009- September 2009),foreign direct investment (FDI) flows to India were valued at US$ 15.31 billion.

FDI can be divided into two broad categories: investment under automatic route and investment through prior approval of Government. The pick up in FDI inflows further reflects growing investor interest in the Indian economy on the back of strong fundamentals and simplified procedures.

The sectors attracting the highest FDI equity inflows during April-September 2009 have been the Services Sector (US$ 2.63 billion),Telecommunications (US$ 2.01 billion),Housing and Real Estate (US$ 1.89 billion),Power(US$ 1.19 billion), Construction Activities (US$ 991 million).

The top investing countries in terms of FDI equity inflows during April-September 2009 have been Mauritius (US$ 6.52 billion), U.S.A (US$ 1.24 billion), Singapore (US$ 1.19 billion), Cyprus (US$ 794 million), Japan (US$ 793 million),Netherlands (US$ 571 million), U.A.E (US$ 484 million), Germany (US$ 375 million), U.K (US$ 282 million), France (US$ 185 million).

In addition to FDI, Foreign Institutional Investment (FII) is also flowing into India. Qualified foreign entities (other than those predominantly owned by non resident Indians) seeking to undertake portfolio investments in India are regarded as Foreign Institutional Investors (FIIs). Eligible institutional investors that can register as FIIs include asset management companies, pension funds, mutual funds, banks, investment trusts, nominee companies, incorporated/ institutional portfolio managers, power of attorney holders, university funds, endowment foundations, charitable trusts and charitable societies.

India Overview

Location: The Indian peninsula is separated from mainland Asia by the Himalayas. The Bay of Bengal in the east, the Arabian Sea in the west, and the Indian Ocean to the south surround the Country.

Area: 3.3 Million sq km

Geographic Coordinates: Lying entirely in the Northern Hemisphere, the mainland extends between latitudes 8°4' and 37°6' north, longitudes 68°7' and 97°25' east.

Capital: New Delhi

Border Countries: Afghanistan and Pakistan to the north-west; China, Bhutan and Nepal to the north; Myanmar to the east; and Bangladesh to the east of West Bengal. Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and the Gulf of Mannar.

Coastline: 7,516.6 km encompassing the mainland, Lakshadweep Islands, and the Andaman & Nicobar Islands.

Climate: The climate of India can broadly be classified as a tropical monsoon one. But, in spite of much of the northern part of India lying beyond the tropical zone, the entire country has a tropical climate marked by relatively high temperatures and dry winters. There are four seasons - winter (December-February), (ii) summer (March-June), (iii) south-west monsoon season (June-September), and (iv) post monsoon season (October- November)

Natural Resources: Coal, iron ore, manganese ore, mica, bauxite, petroleum, titanium ore, chromite, natural gas, magnesite, limestone, dolomite, barytes, kaolin, gypsum, apatite, phosphorite, steatite, fluorite, etc.

Government Type: Sovereign Socialist Democratic Republic with a Parliamentary system of Government.

Administrative Divisions: 29 States and 6 Union Territories.

Constitution: The Constitution of India came into force on 26th January 1950.

Advantage India

• Progressive movement towards delicensing and deregulation.
  
• India is the world's largest democracy.
  
• Large pool of young skilled labour force, cost effective production facilities, large domestic market.
  
• Capacity upgradation in infrastructure, industrial base and intellectual capital.
  
• Progressive tax reforms.
  
• Progressive opening of the economy to FDI.
  
• Portfolio investment regime liberalized.
  
• Liberal policy on technology collaboration.
  
• Investor friendly policies.
  
• Acceleration of the privatization process and restructuring of public enterprises.
  
• Good network of research and development.
  
• Economic and political stability.

Sectoral Overview

Agriculture Sector

Agriculture provides the principal means of livelihood for over 60% of India's population. Despite a steady decline in its share of the GDP, it remains the largest economic sector in the country. Low and volatile growth rates and the recent escalation of agrarian crisis in several parts of the Indian countryside are a threat not only to national food security, but also to the economic well-being of the nation as a whole.

GDP from agriculture has more than five times, from US$ 23.24 billion in 1950-51 to US$ 121.39 million in 2008-09.

According to the First Advance Estimates of Production of Foodgrains, Oilseeds and other Commercial Crops for 2009-10 released by the Department of Agriculture and Cooperation , production of rice, coarse cereals, pulses and oilseeds is expected to decline by 17.9%, 19.7%, 7.5% and 14.8% respectively during the Kharif season of 2009-10 as compared to the production of these crops in the Khrif season of 2008-09. However, very little part of the anticipated kharif production of these crops accrues in the period July-September (Q2), 2009. The above mentioned crops account for about 18% of GDP in ‘agriculture, forestry and fishing’ sector. Therefore, bulk of the estimates of GDP of this sector to the extent of 82% in Q2 are based on the anticipated production of fruits and vegetables, other crops, livestock products, forestry and fisheries, which are estimated to register positive growth rates in the range of 3 to 4 per cent.

Industrial Sector

The loss of growth momentum in the industrial sector was evident during 2008-09 (April-February) with the year-on- year expansion being 2.8 per cent as against 8.8 per cent in the corresponding period of the previous year. The intra-year movement of growth in industrial production reveals that the Index of Industrial Production (IIP), which witnessed an average growth of around 5.6 per cent during the first four months of 2008-09 (April to July), slipped to a low of 1.7 per cent during August, before recovering to 6.0 per cent in September. The IIP growth, however,decelerated in October-November 2008 and January 2009 and recorded a negative growth during December 2008 and February 2009. Before this, IIP had registered negative growth in April 1994.

Foreign Direct Investment (FDI) up to 100% is permitted in all manufacturing activities except where the foreign investor had an existing joint venture/technical collaboration/trademark agreement in the same field of activity.

Sevices Sector

Among the services sectors, the key indicators of railways, namely, the net tonne kilometers and passenger kilometers have shown growth rates of 11.2 per cent and 6.3 per cent, respectively in Q2 of 2009-10. In the transport and communication sectors, the production of commercial vehicles, cargo handled at major ports, cargo handled by the civil aviation, passengers handled by the civil aviation and the total stock of telephone connections (including WLL and cellular) registered growth rates of 4.5 per cent, 2.9 per cent, (-) 1.3 per cent, 15.8 per cent and 43.9 per cent, respectively in Q2 of 2009-10 over Q2 of 2008-09. The
other key indicators, namely, aggregate bank deposits, and bank credits have shown growth
rates of 19.8 per cent, and 12.6 per cent, respectively in Q2 of 2009-10 over Q2 of 2008-09.

Indian States and Union Territories

The country houses 29 states and 6 union territories. Each of the Indian state and union territory of India is blessed with several investment opportunities depending on their geographical location and availability of natural resources. These opportunities are further enhanced by the rapid technological advancements taking place in almost all states that enhance the ability to innovate and grow. There exists plethora of diversified investment opportunities across India and the respective state Governments are taking progressive steps such as development of powerful infrastructure and formulating conducive and stable policies to harness the same. The state Governments have devised investor friendly policies in terms of incentives and concessions offered for several sectors such as biotechnology, infrastructure and information technology among others to promote FDI into their respective states. A healthy competition has emerged among states to attract investment in their states and this has proved to be beneficial for the potential investor. A small brief of the investment opportunities available in some of the Indian states is given here:

Andaman and Nicobar: Tourism, I.T., Handicrafts, High value added Agro Products, Fisheries, Coir, Hydro Carbon Energy, Shipping Sectors including Transshipment ports and Service Industry.

Andhra Pradesh: Biotechnology, tourism, food and agro based industries, and information technology.

Arunachal Pradesh: art and craft industries, tourism and educational services

Assam: IT Sector, Tourism, Agro- Horti & Food Processing Sector, Bamboo Industries and Bio Technology Sector

Bihar: agro based industries, sericulture, chemical industry, tourism, biotechnology, pharmaceutical, etc.

Chhattisgarh: Processing of medicinal, aromatic and dye plants, Automobile, auto components, spares and cycle industries, Manufacturing of plant, machinery & engineering spares, pharmaceuticals, etc.

Delhi: computer software, IT enabled services, electronics and high tech industries and small-scale industry.

Goa: Pharmaceuticals, Drugs and Biotech Industries, Food processing and Agro based Industries, IT and IT-enabled services, Eco tourism/Heritage tourism/Adventure tourism/Event tourism/Medical, Tourism and Entertainment Industry.

Gujarat: Agro Based and Food Processing Industry, Chemical and Allied Industry, Information Technology, Mineral Based and Allied Industries, Plastic and Allied Industries, Port Related activities and infrastructure and Textile Industry.

Haryana: Agro based and Food Processing Industry., Electronics and Information & Communication Technology, Automobiles & Automotive Components., Handloom, Hosiery, Textile and Garments Manufacturing., Export- Oriented Units, Footwear, leather garments and accessories.

Himachal Pradesh: units based directly on horticulture produce, mineral water bottling, automobile manufacturing units, cold storage units, electronic units, floriculture, handicrafts, precision industries, etc.

Jammu and Kashmir: food processing, agro based industries, floriculture, information technology, sports goods industry, etc.

Jharkhand: mining and mineral based industry, agro based industries, sericulture, engineering, auto components, tourism, ceramics, sports goods, etc.

Karnataka: informatics, computer software, IT enabled services, telecom, auto and auto components, food processing, floriculture, biotechnology, tourism, infrastructure projects, etc.
Kerala: Mineral and Clay based products, Agriculture and Horticulture Produce, Traditional Industries, Tourism, Auto Components, Marine Products and Agro Processing industries.

Madhya Pradesh: agro- processing industries, cement, textiles and apparels, tourism, power, education, information technology, etc.

Maharashtra: auto industry, biotechnology, floriculture, food processing, textiles and leather.

Manipur: agro based industries, handicraft industries, sericulture, tourism, telecommunications, petrochemicals and pharmaceuticals.

Meghalaya: Minerals based industries, Horticulture and agro based industry, Power Generation, Export Promotion Industrial Park (EPIP), Tourism, Biotechnology- based units, Electronics and information technology and Tissue culture and orchid units.

Mizoram: bamboo and timber based industries, food processing, agro-horticulture sector, mines and minerals, handloom, handicrafts, tourism, etc.

Nagaland: food-processing industry, agro based industry, tourism, mineral based industry, pharmaceuticals, etc.

Orissa: mineral and mineral based industries, agro and food processing industries, Information technology, tourism, biotech, pharma, handicrafts, handlooms, chemicals and fertilizers, etc.

Pondicherry: information technology and software development, electronics, agro processing, textiles, leather products, light engineering and tourism.

Punjab: agriculture, dairy and poultry products, meat processing, leather industry, sports goods, textiles, light engineering goods, etc.

Rajasthan: IT and ITeS, biotechnology, agro based industries, power sector, education, urban infrastructure, tourism, gems and Jewellery, etc.

Sikkim: eco-tourism, handicrafts and handlooms, floriculture, biotechnology, etc.

Tamil Nadu: engineering, automobiles and components, software and ITeS, biotechnology, health care, pharma, tourism, textiles, etc.

Tripura: natural gas, food processing, rubber, tea, handicraft, bamboo, handloom, tourism, information technology, etc.

Uttar Pradesh: power, food processing, agro based industries, animal husbandry, engineering, horticulture, etc.

Uttaranchal: hydropower, floriculture, horticulture, agro based and food processing industries, information and communication technology, etc.

West Bengal: agri business, tourism, information technology, metals, petrochemicals, leather, food processing, etc.

Sectoral Opportunities

The Indian growth story seems to be on a roll and India has emerged as the fourth largest economy in the world on a purchasing power parity basis.The quality of business environment in India has improved manifolds in the recent years . The strong fundamentals underlying the Indian economy make it an obvious choice for investors all over the world.

The government of India has put in place a liberal and transparent FDI policy. In the post liberalization era, a number of initiatives have been taken to attract FDI in several sectors. This includes opening of many new sectors to FDI, raising FDI equity caps in sectors already opened and procedural simplification. Today, the FDI policy in India is widely reckoned to be among the most liberal in the emerging economies and FDI up to 100% is allowed under the automatic route in most sectors and activities.

Vast investment potential exists in sectors such as biotechnology, retail, real estate, roads and highways, power, telecommunications, civil aviation, special economic zones, healthcare among others.

These investments are encouraged by the facts that India has a large pool of skilled and competitive manpower, huge research and development base, Government support and conducive policies, growth in the Indian domestic market owing to higher disposable incomes, abundant natural resources required to set up industries, etc.

Success Stories

Overseas investors are looking at India as an attractive investment destination owing to the prospects of high returns. A number of Corporates and Multi National Companies from all over the world have established business in India and have expanded over the years.

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 induced 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 corporates 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, Nokia among others have benefited from their operations 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.

The reform process initiated during the late eighties and early nineties have begun to show their impact and India is taking huge strides in the course of growth and development. However, recognizing that there is no room for complacency, Indian policy makers are moving ahead with due caution and at the same time integrating India with the global economy.