The coronavirus outbreak has most likely plunged the globe into a severe recession. Because “the epidemic impacted the whole globe at the same time,” the abrupt suspension of commercial activity threatens to produce economic pain so intense and long-lasting that it might take years to recover. However, India was still the most popular investment location at the time.
Due to economic reforms and a large customer base, India has emerged as one of the world’s fastest-growing economies and a popular investment location. According to the second advance estimates (SAE) for 2020-21, India’s real GDP (at current prices) in FY21 was Rs. 195.86 lakh crore (US$ 2.71 trillion). At the same time, the per capita income in FY21 was predicted to be Rs. Rs. 127,768 (US$ 1,765.43).
Finance Minister Nirmala Sitharaman told CEOs of major US firms that India’s ongoing broad-based reforms make the country an appealing destination for international investment. However, other factors make India a desirable travel destination. Here’s the complete guide to become an qualified foreign investor.
Why is India an attractive market for investment?
The Reserve Bank of India defines FDI as the acquisition of 10% or more of a publicly traded business’s equity by an individual or a foreign-based company (or any foreign investment in Indian stock market) in an unlisted entity. Since the start of economic liberalization in 1991, the Indian government has simplified the country’s investment rules and established favorable initiatives, making India an attractive investment destination for international investors. Following that, considerations such as substantially cheaper labor, unique investment benefits such as tax exemptions, a favorable business climate, and a rapidly rising customer base entice international corporations to invest in India.
Key Statistics on Total FDI Inflow
In FY20-21, India drew record FDIs of US$ 81.72 billion, a 10% increase over the previous fiscal year. India received US$ 22.5 billion in FDI in the first four months of FY21-22. For FY20-21, computer software and hardware emerged as the leading industry, accounting for 55% of total FDI inflows, followed by building infrastructure (16%) and services (11%). Furthermore, despite the continuing COVID-19 epidemic, India has been able to attract FDI owing to China’s economic shift and favorable government policies implemented in the nation. Singapore is India’s leading source of FDI, followed by the United States and Mauritius. Singaporean FDI grew by 25% in 2020-21 compared to 2019-20. Gujarat, Maharashtra, and Karnataka garnered the most FDIs out of all states in India.
Recent Government Initiatives to Increase Foreign Direct Investment
In recent months, the government has loosened FDI requirements in sectors including defense, PSU oil refineries, telecom, power exchanges, and stock exchanges to entice foreign investment in Indian stock market. Mr. Piyush Goyal, the Minister for Commerce & Industry and Minister for Consumer Affairs, Food, and Public Distribution, stated at the United States-India Business Council’s (USIBC) 46th Annual General Meeting and India Ideas Summit in October 2021 that India is preparing to boost investments, streamline the tax regime, liberalize FDI policies, and encourage technological innovations. The following are some of the most recent projects launched by the government:
Existing policies in many industries must revise: In July 2020, India modified its civil aviation FDI policy, allowing non-resident Indian citizens to acquire up to 100% (up from 49% before) of Air India via the automatic method. FDI may be made via two channels: the mechanical and government routes. The RBI or the government does not need to approve the qualified foreign investor or the Indian firm under the Automatic method. Prior clearance from the government, the Ministry of Finance, and the Foreign Investment Promotion Board (FIPB) are necessary under the Government route.
Coal, Media, and Civil Aviation – In December 2020, India will enable non-coal corporations to compete for coal mines, allowing them to operate in the coal mining industry. The nation also liberalized the digital news media and defense sectors, allowing for up to 26% foreign ownership in the former through the government approval route and up to 74% via the automatic method in the latter.
A new policy in the space industry is expected to be implemented. Since September 2021, the government has first required all FDIs in the space sector to receive government permission, but the industry wants the investment to be made automatically. Mr. K. Sivan, Chairman of the Indian Space Research Organization, has indicated that India would soon open its domain industry to private players in response to international corporations’ interest in investing in this space. The Netherlands, for example, has shown an interest in working with India on the miniaturization of satellites, components and subsystems, and nanosatellites.
It was announced in October 2021 that India would soon allow 20% foreign investment in Life Insurance Corporation (LIC). In March 2021, India lifted the FDI cap on insurance businesses from 49% to 74%; however, LIC was not eligible for this policy since it is a unique entity constituted by an act of parliament. Under the new approach, qualified foreign investor will be allowed to seek a share without requiring government permission.
In October 2021, the government authorized 100% FDI in the telecom services industry through automated procedures. The new rules will apply to all telecom services and infrastructure providers. In addition, the government cut bank guarantees for licensing deals to 20%.
Below are the reasons why foreign investors invest in India:
FDI NORMS RELAXATION
Higher FDI inflows into India have come from the government’s activities on the fronts of FDI policy revisions, investment facilitation, and ease of doing business, with a total FDI inflow of US$ 72.12 billion from April to January 2021. Furthermore, the government has relaxed regulations in numerous areas and increased the FDI ceiling in many businesses. There are relaxations in payment gateways also. Like Paypal is the best payment gateway for international transactions.
With 47 percent of the population under 25, India has one of the world’s youngest. It equates to a workforce that will be engaged and productive for an extended time. Compared to other Asian nations, the government still has a significant advantage due to cost arbitrage.
THE MARKET’S SIZE
The enormous and growing middle class in India, which is prepared to spend, is a massive pull for firms trying to expand outside established economies. Consequently, India has the world’s third-largest economy regarding purchasing power parity. As a result, retail behemoths such as Amazon, Walmart, and Apple are focused on the Indian market.
The economy is thriving and is expected to continue for the next two years. The domestic economy is strong enough to sustain demand, and inflation, although higher than the target of 4%, is still manageable. Rising crude oil prices are causing alarm in the United States, but they are also causing concern throughout the globe.
India’s real GDP growth for FY22 is predicted to be 11%, according to the Economic Survey 2020-21. In January 2021, the WEO forecasts 11.5 percent growth in FY22 and 6.8 percent growth in FY23. According to the IMF, India will be the fastest-growing economy in the next two years.
So, what exactly makes India so appealing to qualified foreign investor? For starters, there is a developing economy and several prospects for international enterprises seeking to establish a presence in Asia and other emerging regions. The country’s administration is also aggressively wooing foreign corporations and has successfully lured them to do business there.
One of the reasons for India’s rising attractiveness as a location for foreign direct investment is its low-cost manufacturing. Many observers expect the country to become one of Asia’s top performers since it has maintained strong growth rates while keeping inflation under control. Analysts believe that, despite specific corporate governance difficulties, investors should stay optimistic about their chances of success in India. Follow tyke international, and start Invest international today.
Nikitha is a techie girl who loves to write about anything that is directly or remotely connected with technology. From hardcore tech stories to the overall influence of technology in life, Sunder is passionate about all things internet. When he is not surfing the internet, he is busy grooving on his favorite beats.