Important question that still is in the minds of investors is whether India still an attractive Foreign Investment Destination - Well, the answer is Yes.
With the world turning deranged and petrified with debt-overload and timid economic growth in the developed economies, investors are in search of investing and diversifying across countries and their search ends in India.
Despite the negative signals in the form of major corruption scams like 2G Spectrum scams, coalgate scam, Satyam scam etc., India is still one of the most preferred destination because of the inherent advantages of doing business in India. India is one of the few economies to have weathered the recent global financial crisis but still it did not collapse and has depicted a modest economic growth.
Amid this situation of debt-overhang in the Euro zone and fragile economic recovery in the U.S., all eyes are now focused on the emerging market economies (EMEs) – and India is one of the most promising EME. The economic growth rate which EMEs have to offer is far more luring than that offered by developed economies. It is worth noting that even the International Monetary Fund (IMF) estimates that nearly 70% of the world growth in the next five years would come from the emerging markets, with China and India accounting for more than 40% of this growth. In comparison to other countries, India has demographic conditions which work in its favour.
That’s not all, there are other fundamental factors which make India an attractive investment destination for Resident as well as Non - Resident Indian investors. These factors are:
• Prudent Policy Measures
Liberalized FDI Norms
The Government has recently liberalized the FDI norms by announcing 51% in Foreign Direct Investment (FDI) in multi-brand retail and 100% FDI in single-brand retail. FDI norms in aviation sector also have been relaxed, which will now allow the foreign aviation firms to invest in Indian aviation sector. The broadcasting sector has also been liberalized by allowing up to 74% FDI.
Anti Inflationary Policies
The anti-inflationary monetary policies introduced by RBI have produced the desired results of taming the inflation bug.
On the fiscal front NRIs should recognize that in developing economies the risk of deviation on fiscal deficit always exist, since infrastructure spending, education, industrial development and agriculture will always comprise a major composition of the budgeted expenditure.
Hence while making investment decision, NRIs should look at policy measures adopted by the Government, since only prudent policy measures will result in gains in the long run.
• Robust Economic Growth Rate
Inspite of recessionary trends across the world and Euro Zone, economic and political crisis, India has still emerged as a country with a modest and stable growth. India’s share in world GDP is rising continuously. The 12th Five year plan which has become effective from 1st April, 2012 has new manufacturing policies which may result in quantum of shift in economic growth.
• Initiatives In Infrastructure Sector
The 12th Five year plan renews India’s emphasis on physical infrastructural growth by proposing huge investment in urban infrastructure, highways, railway corridors, electricity, etc. Infrastructure investment has grown hugely with an increased private sector participation the Government has highlighted the need for Public Private Partnerships (PPPs) and thus investment therein has increased
• Favourable Demographic Conditions
India has a very strong demographic advantage characterized by a strong intellectual base having a large pool of scientific and technical manpower in the world. Growing middle class with increasing aspirations, availability of cost effective labour, an English speaking workforce have further accelerated the pace of development.
• Well Regulated Vibrant Capital Markets, Strong Financial Sectors And Organized Banking And Credit Facilities
The following facts highlight the development of a strong, well regulated banking, finance and capital markets in India.
It supports new projects, expansions as well as acquisitions. The stock exchange allows companies to raise risk capital.
India has a very supportive structure of Venture capital and private equity funding.
The transformation of Banking service in India has been phenomenal from local branch banking to global presence and anytime anywhere banking. With the advancement of technology, banking system has become more fast, accurate. ATMs, Mobile Banking, SMS Banking and Net Banking is only the tip of an iceberg
The policies like financial inclusion has extended the banking network in rural areas.
Almost all the Indian Banks provide services to NRIs. Different types of facilities are available to NRIs in the form of NRO A/c, NREA A/c and FCNR A/c.
The Banks and financial institutions grant credit for setting up new projects or expansion and diversification and meeting working capital requirement.. The interest rates vary depending upon the merits of each case.
There are industry specific lending institutions for housing construction, tourism, etc. In addition, specific financial institutions, for the promotion of small scale industries also provide soft finance to eligible business entities
• Vast Untapped Market Opportunities
India’s market potential is yet to be fully tapped. With the income level rising, spending have also risen giving rise to market demand. The market here is good for both top line growth and profitability.
• Dynamic And Growing Service Sector
The service sector is taking the lead. Both financial and non financial service sectors have witnessed most formations. It is fairly a young population which has contributed to the growth of this sector. The IT and BPO sectors clearly prove this fact.
Sectors to look out for
IT Enabled services
Fast moving consumer goods(FMCG) and luxury sectors
Back office Operations
Infrastructure and allied industries
• Favourable Tax Regime And Conducive Regulatory Environment
India compares well with the advanced economies in investor protection. The transparency with which business is conducted here is superior to many other countries.
The Indian tax structure is quite simplified and Indian Government is working towards further simplification of this system. Proposal to Introduce Direct Tax Code (DTC) is an important step in this regards which will significantly bring down tax rates.
Many procedural changes and amendments in laws are being worked upon to reduce the burden of statutory compliances, achieve greater transparency and reduce the duration of various statutory processes like introduction of new Companies Bill, etc.
Introduction of GST (Goods and Service Tax) will bring uniformity and simplification in the Indirect tax regime
• The Best In The World Have Already Reached India
Leading world brands in various fields are already engaged in India like Microsoft, Sony, Nokia, IBM, Dell, etc.
Global R & D Hub: MNCs have already started operating large no. of R & D centres in India
Emphasis on Innovation: Process of innovation for the next customers has already begun. For instance, seeing the development of TATA Nano, many global automakers are entering into small car segment market.
Author is CEO of Neeraj Bhagat & Co. (neerajbhagat.com), a Chartered Accountant firm based out of New Delhi India. Firm helps foreign companies in setting up business in India and provides consultancy on various statutory requirements to be full filled for doing business in India.