India Market

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 8 plus 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 2007-08 is estimated at Rs. 7,10,578 crore, as against Rs. 6,52,450 crore in Q2 of 2006-07, showing a growth rate of 8.9 per cent over the corresponding quarter of previous year. The economic activities which registered significant growth in Q2 of 2007-08 over Q2 of 2006-07 are, ‘mining & quarrying’ at 7.7 per cent, ‘manufacturing’ at 8.6 per cent, ‘electricity, gas & water supply’ at 7.3 per cent, ‘construction’ at 11.1 percent, ‘trade, hotels, transport and communication’ at 11.4 per cent, ‘financing, insurance, real estate and business services’ at 10.6 per cent, and ‘community, social and personal services’ at 7.8 per cent. The growth rate in ‘agriculture, forestry & fishing’ is estimated at 3.6 per cent in this period.

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 the 8 plus 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.The FDI equity inflows have been US $ 15.7 billion as compared to US $ 5.5 billion received during 2005-06. This is a growth of 185% as compared to the previous year. This is also the first time that FDI equity inflows into India have crossed the US $ 10 billion mark. If reinvested earnings and other capital inflows are also included, the total inflows in 2006-07 add up to US$ 19.5 billion compared to US$ 7.7 billion during the same period last year showing a growth of 153%.

During the first quarter of the Financial Year 2007-08, the FDI inflows have been US$ 4.9 billion as against US$ 1.7 billion received during the corresponding quarter of 2006-07, registering a growth of more than 185%. The first six months of the current calendar year (January-June 2007) have witnessed FDI inflows of US$ 11.4 billion as against US$ 3.6 billion received during the same period in 2006.This indicates a growth of 218%.

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 10 sectors attracting highest FDI into India are: electrical equipments (including computer software & electronics); services sector (financial & non-financial); telecommunications (radio paging, cellular mobile, basic telephone services); transportation industry; fuels (power plus oil refinery); chemicals (other than fertilisers); construction activities;drugs & pharmaceuticals; food processing industries and Housing and Real Estate. The 10 top investing countries are: Mauritius, USA, UK, Netherlands, Japan, Germany, Singapore, France, South Korea and Switzerland.

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.