FDI in Figures
India ranks among the top 10 host economies for FDI, according to the United Nations Conference on Trade and Development (UNCTAD) 2018 World Investment Report. Foreign direct investment inflows hit an all-time high of USD 44.5 billion in 2016; however, following the global downward trend, flows to India declined in 2017 to USD 39.9 billion. In 2018, that number stayed stable as India saw more than $38 billion of inbound deals. For the first time in two decades, India has been getting more foreign investment than its neighbour China, which has historically been the favourite emerging market. The overall growth of FDI in India is thanks to its many assets, especially its high degree of specialisation in services, with a skilled, English-speaking and inexpensive labour force and a potential market of one billion inhabitants. In January 2018, the Indian government approved a number of major amendments aiming to further liberalise and simplify the national FDI policy. In the last three years, the government had already eased 87 FDI rules across 21 sectors. In 2018, Singapore, Mauritius, the Netherlands, the U.S., Japan, the U.K., Germany, France, the U.A.E., and Cyprus were the main investing countries in India. Investments were mainly oriented towards chemicals, services, computer software and hardware, trade, telecommunications, the automobile industry, construction, power, and pharmaceuticals.
In 2019, India ranked 77th out of 190 countries in the Doing Business report published by the World Bank, a significant improvement from the previous year’s spot, when it ranked 100th. Despite short-term uncertainty over the political climate, like state or federal election, global investors typically focus on India maily because of its demographics, but also for its stable barometers, whether it be inflation, fiscal deficit or growth. Given India’s growing demographics, and huge ecommerce and technological markets, activity in both areas are expected to grow in the following years. In 2018, American giant, Walmart, purchased Flipkart for USD 16 billion, in the country’s biggest M&A deal that year. Walmart took over 77% of the company, buying out a number of prior investors in the process and expanding its rivalry with Amazon.
|Foreign Direct Investment||2015||2016||2017|
|FDI Inward Flow (million USD)||44,064||44,481||39,916|
|FDI Stock (million USD)||282,617||318,487||377,683|
|Number of Greenfield Investments***||722||845||703|
|FDI Inwards (in % of GFCF****)||7.2||7.0||n/a|
|FDI Stock (in % of GDP)||13.5||14.1||n/a|
Source: UNCTAD, Latest available data.
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country’s Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
FDI EQUITY INFLOWS BY COUNTRY AND INDUSTRY
|Main Investing Countries||2018, in %|
|United Arab Emirates||0.9|
|Main Invested Sectors||2018, in %|
|Computer software and hardware||18.6|
|Drugs and pharmaceuticals||0.8|
Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry – Latest available data. Form of Company Preferred By Foreign InvestorsPartnership or Private Limited.Form of Establishment Preferred By Foreign InvestorsJoint Venture companySources of StatisticsInvestment Commission
Ministry of Finance
Department of Industrial Policy and Promotion
India Brand Equity Foundation
What to consider if you invest in India
Advantages for FDI in India:
- Deep-rooted and highly effective democratic regime, which ensures a calm and stable political environment
- Well-developed administration and an independent judicial system, along with a vast geography, making the country a repository of resources
- Work force is educated, hard-working and skilled (engineers, management staff, accountants and lawyers).
- India hosts an ever-growing consumer base, making it one of the world’s largest markets for manufactured goods and services.
- Proximity to key manufacturing sites, key suppliers and low development costs. These factors make it an effective base from which multi-national companies can export to other high-growth emerging markets.
- Transparency International gave Indian companies the top ranking among emerging market multinationals in terms of transparency and compliance.
Disadvantages for FDI in India:
- Persistent uncertainties regarding Kashmir province
- A glaring lack of infrastructure that slows the development of this country-continent
- Cumbersome and slow administrative procedures at the federal level make it difficult to carry out any economic reform
- The vastness of its territory makes India a country vulnerable to natural disasters which can at any time paralyse an entire part of the national economy.
- Problems related to corruption (especially at the federal level) and political pressures, depending on the party in power, both at regional and national level
- Labour regulations remain rigid and among the most complex in the world.
Government Measures to Motivate or Restrict FDIThe Government of India provides tax and non-tax investment incentives in specific sectors (e.g. electronics) and regions (Northeast region, Jammu & Kashmir, Himachal Pradesh and Uttarakhand). It has also created incentives for manufacturing companies to set up in Special Economic Zones (SEZ), National Investment & Manufacturing Zones (NIMZ) and Export Oriented Units (EOUs). In addition, each state government has its own policy, providing additional investment incentives, including subsidised land prices, attractive interest rates on loans, reduced tariffs on electric power supply, tax concessions, etc. The central government development banks and state industrial development banks offer medium to long-term loans for new projects.
The Government has recently relaxed FDI policy in a variety of sectors by such measures as raising the foreign investment limit, easing conditions for investment and putting many sectors on the ‘automatic route’ (as opposed to the ‘Government route’, which requires approval from the Foreign Investment Promotion Board). Reforms to clean up the banking system have been implemented, but they take time and may impact the supply of credit. On the other hand, while the fiscal deficit and public debt remain large, the government has taken steps to reduce them. The most notable of these initiatives is the introduction of the GST (Good and Services Tax), which aims to boost tax revenues and make the economy more competitive in the long run. Sectors that have benefited from the expansion include real estate, private banking, defence, civil aviation, single-brand retail and television news. For more information, consult the website of Invest India, the official Investment Promotion and Facilitation Agency of the Government of India.
Protection of Foreign Investment
Bilateral Investment Conventions Signed By IndiaIndia has bilateral investment treaties with the United Kingdom, France, Germany, Canada, Malaysia, and Mauritius. UNCTAD has an updated list of conventions signed by India.International Controversies Registered By UNCTADForeign investors frequently complain about a lack of “sanctity of contracts.” UNCTAD offers a database listing disagreements and the countries involved.Organizations Offering Their Assistance in Case of DisagreementICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for settlement of Investment Disputes
United States Council for international Business
Member of the Multilateral Investment Guarantee AgencyYes.
Country Comparison For the Protection of Investors
|India||South Asia||United States||Germany|
|Index of Transaction Transparency*||7.0||5.0||7.0||5.0|
|Index of Manager’s Responsibility**||6.0||5.0||9.0||5.0|
|Index of Shareholders’ Power***||10.0||6.0||4.0||8.0|
|Index of Investor Protection****||7.3||5.3||6.5||6.0|
Source: Doing Business – Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
Procedures Relative to Foreign Investment
Freedom of EstablishmentVarious approvals and clearances are required such as permission for land use in case the factory is located outside an industrial area. An environmental site approval might also be required along with registration under State Sales Tax Act and Central and State Excise Acts and consent under Water and Air Pollution Control Acts.Acquisition of HoldingsAcquisitions by private arrangement are considered contractual agreements between the parties and would take the form of share acquisitions, asset transfers, or slump sale.Obligation to DeclareMergers and acquisitions are generally governed by the Companies Act, 1956 and the sector-specific law.
In the case of listed companies, provisions of Listing Agreements with the stock exchange SEBI (Disclosure & Investor Protection Guidelines)-2000, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations- 1997 must be complied with. If a merger has cross-border aspects, the parties must comply with among others the foreign direct investment policy of the Government – the Foreign Exchange Management.Competent Organisation For the DeclarationDepartment of Industrial Policy and Promotion
Requests For Specific AuthorisationsEnvironment clearance from the Ministry of Environment and Forest for investment of foreign capital in fields like petrochemicals complexes, petroleum refineries, cement thermal power plants and bulk drugs is required.
Office Real Estate and Land Ownership
Possible Temporary SolutionsOffices, showrooms, warehouses, industrial premises. Visit the website Offices Mumbai for further information.The Possibility of Buying Land and Industrial and Commercial BuildingsForeign companies can buy land and building space for business purpose.Risk of ExpropriationThere have been few instances of direct expropriation since the 1970s (Coca Cola in seventies and Dabhol Power).
Forms of AidSeveral measures and incentives, to attract investments into the country: Tax holiday, tax concessions, and import of capital goods at concessional customs duty, Special Economic Zones (SEZs), bilateral investment protection agreements with investing countries; etc.Privileged DomainsPower, ports, highways, electronics and software, scientific R&D, manufacturing of energy-saving, environmental-protection and pollution-control equipment.Privileged Geographical ZonesConsult the list of the Special Economic Zones (SEZ) in India.Free ZonesNoneOrganizations Which FinanceIndustrial Development Bank of India (IDBI)
Industrial Investment Bank of India Limited (IIBI)
Power Finance Corporation Limited
Credit Guarantee Fund Trust for Small Industries (CGTSI)
Export-Import Bank of India
Indian Renewable Energy Development Agency Ltd.
Asian Development Bank
The World Bank
Multilateral Investment Guarantee Agency
International finance Corporation
The Key Sectors of the National EconomyThe services sector is by far the most dynamic in India. It accounts for 53.8% of GDP. India is the fourth largest agricultural power in the world. Agriculture accounts for 17.4% of GDP and employs 44% of the active population. The country is also the fourth largest coal producer in the world. In the manufacturing industry, textiles play a predominant role. The chemical industry is the second largest industrial sector (12% of GNP). Finally, the sectors of new technologies (software) and telecommunications are booming.High Potential SectorsAirport services, ground handling, computers and devices, educational services, electrical power, transmission equipment, food processing, machine tools, medical equipment, equipment for mining and mineral processing, machinery for oil and gas fields, pollution control equipment, security, telecommunications equipment, textile machinery, water, renewable energy, urban infrastructure and services (access to water, waste treatment), electricity, cosmetics, and luxury goods.Privatization ProgrammesIndia has been privatising its large, mostly non-profitable public sector: telecommunications, public infrastructure, airways, ports, etc.
The Department of Disinvestments looks after the disinvestment privatization program in the country.Tenders, Projects and Public ProcurementTenders Info, Tenders in India
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide
Sectors Where Investment Opportunities Are Fewer
Monopolistic SectorsRailways, power generation & distribution (though it is being slowly privatised now), life and medical insurance (though it is also slowly opening up), manufacturing of arms, explosives, atomic energy and aerospace.
Finding Assistance For Further Information
Investment Aid AgencyDepartment of Industrial Policy & Promotion
India Brand Equity Foundation (IBEF)
Other Useful ResourcesMinistry of Finance
Ministry of Commerce
National Center for Trade Information
Doing Business GuidesThe Lexmundi guide “Doing Business” about India
The Deloitte ‘International Tax and Business Guide’ about India