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In this page: FDI in Figures | What to consider if you invest in India | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information

 

FDI in Figures

According to UNCTAD's 2021 World Investment Report, FDI inflows reached an all-time high of USD 64 billion in 2020, registering a 27% increase compared to 2019 (where FDI had reached USD 51 billion). The stock of FDI reached USD 480 billion in 2020. India ranks 5th among the top 20 FDI host economies and the largest host in the sub-region; the country historically accounts for 70-80% of inflows into the region.
In the midst of India's struggle to contain the COVID-19 pandemic, robust investments through acquisitions in ICT (software and hardware) and construction supported FDI. Cross-border mergers and acquisitions increased by 83% to USD 27 billion, with large deals involving ICT, healthcare, infrastructure and energy. Major transactions included the acquisition of Jio Platforms by Jaadhu (US) for USD 5.7 billion, the acquisition of Tower Infrastructure Trust by Brookfield (Canada) and GIC (Singapore) for USD 3.7 billion and the sale of Larsen & Toubro India's electrical and automation division for USD 2.1 billion. The merger of Unilever India with GlaxoSmithKline Consumer Healthcare India for USD 4.6 billion also contributed.
During the year, India has relaxed administrative regulations for foreign investors in some industrial sectors by abolishing the requirement for approval by the Reserve Bank of India under certain conditions. 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. Singapore, Mauritius, the Netherlands, Japan, the U.S., the U.K., France and Germany are the main investing countries in India. Investments were mainly oriented towards services, computer software and hardware, telecommunications, trade, the automobile industry, construction, chemicals.

India ranked 63rd out of 190 countries in the last Doing Business report, published in 2020 by the World Bank, a significant improvement from the previous year's spot, when it ranked 77th. As such, India joined the list of 10 most improved economies for the third year in a row. The country has conducted a remarkable reform effort, and given the size of the country's economy, these reform efforts are particularly commendable. Since the implementation of these reforms, more than 2,000 companies have used  the new law. Global investors typically focus on India mainly because of its demographics, but also for its stable barometers, whether it be inflation, fiscal deficit or growth. However, the country still has several restrictive laws on foreign investment, excessive bureaucracy, and high levels of corruption. Still, given India’s growing demographics, and huge e-commerce and technological markets, activity in both areas are expected to grow in the following years. Among the biggest investments that occurred in recent years is the merger Sony Pictures Networks India, a subsidiary of Sony Pictures Entertainment Inc., and Zee Entertainment Enterprises for USD 1.575 billion.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 50,55864,07244,735
FDI Stock (million USD) 426,959480,228514,292
Number of Greenfield Investments* 701403455
Value of Greenfield Investments (million USD) 29,78823,97615,727

Source: UNCTAD, Latest available data.

Note: * Greenfield 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.

 

FDI EQUITY INFLOWS BY COUNTRY AND INDUSTRY

Main Investing Countries FY 2020/21 (April 2020-March 2021), in %
Mauritius 28.0
Singapore 22.0
USA 8.0
Netherlands 7.0
Japan 7.0
United Kingdom 6.0
Germany 2.0
UAE 2.0
Main Invested Sectors FY 2020/21 (April 2020-March 2021), in %
Services sector (including financial, banking and insurance) 16.0
Computer software and hardware 13.0
Construction 10.0
Telecommunications 7.0
Trade 6.0
Automobile industry 5.0
Chemicals 3.0

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry - Latest available data.

 
Form of Company Preferred By Foreign Investors
Partnership or Private Limited.
Form of Establishment Preferred By Foreign Investors
Joint Venture company
Main Foreign Companies
India is an investment-friendly nation and has attracted the attention of leading multinational organizations, such as Vodafone, Amazon, Unilever, Samsung, Adidas, Lotte, DHL, Mercedes-Benz, Toyota, Garnier, Panasonic, LG, Microsoft, IBM, Nestlé, Coca-Cola etc.
Sources of Statistics
Ministry of Finance
Department of Industrial Policy and Promotion
India Brand Equity Foundation

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What to consider if you invest in India

Strong Points

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.
Weak Points

Some of the principal disadvantages for FDI in India :

  • Lack of adequate infrastructure slowing down the development of this country-continent
  • Cumbersome and slow administrative procedures at the federal level hindering any economic reform (bureaucratic red tape)
  • Labour regulations remaining rigid and among the most complex in the world
  • High corporate debt and non-performing assets (NPA)
  • Net importer of energy resources
  • Weak public finances
Government Measures to Motivate or Restrict FDI
The 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.

In order to position India as a global hub for Electronics System Design and Manufacturing (ESDM) and push further the vision of the National Policy on Electronics (NPE) 2019, three schemes namely the Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0) have been notified.

For more information, consult the website of Invest India, the official Investment Promotion and Facilitation Agency of the Government of India.

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Protection of Foreign Investment

Bilateral Investment Conventions Signed By India
India 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 UNCTAD
The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. India is involved in 8 cases as Home State of claimant and in 25 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement
ICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency
India is a member of MIGA Convention.
 
Country Comparison For the Protection of Investors India South Asia United States Germany
Index of Transaction Transparency* 8.0 5.8 7.0 5.0
Index of Manager’s Responsibility** 7.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 7.0 7.4 9.0 5.0

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.

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Procedures Relative to Foreign Investment

Freedom of Establishment
Guaranteed, with some exceptions.
Acquisition of Holdings
Foreign ownership of Indian companies is governed by the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (Foreign Investment Regulations). The government has gradually liberalised the foreign investment provisions. The current Foreign Investment Regulations allow 100% foreign investment in most sectors open to private investment in India (Automatic route). However, there are certain areas that require prior government approval before a foreign investment can be made, or where less than 100% foreign ownership is permitted (Government route).
Obligation to Declare
Mergers and acquisitions are generally governed by the Companies Act, 1956 and the sector-specific law.
Competent Organisation For the Declaration
Department of Industrial Policy and Promotion
Requests For Specific Authorisations
Some foreign investments may require prior government approval (government route) such as FDI in defense sector (subject to security clearance and guidelines of the Ministry of Defence), print media sector, security agencies, telecom services sector (subject to the licensing and security conditions as specified from time to time by the Department of Telecom, Ministry of Communications), multi-brand retail trading sector, brownfield pharmaceuticals sector.

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Office Real Estate and Land Ownership

Possible Temporary Solutions
Offices, showrooms, warehouses, industrial premises. Visit the websites of Eay Offices and WeWork for further information.
The Possibility of Buying Land and Industrial and Commercial Buildings
There are certain restrictions on foreign ownership or occupation of real estate in India. For more information, click here.
Risk of Expropriation
There have been few instances of direct expropriation since the 1970s. India has concluded multiple BITs with various countries. These BITs contain reciprocal protections for the purpose of encouraging, promoting and protecting investments in each other's territory by the companies based in either country.

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Investment Aid

Forms of Aid
Several 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 Domains
Power, ports, highways, electronics and software, scientific R&D, manufacturing of energy-saving, environmental-protection and pollution-control equipment.
Privileged Geographical Zones
Special economic zones (SEZs) in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Companies located in Special Economic Zones (SEZs) can benefit from an income tax exemption for ten years (100% exemption for the first five years and 50% for the following five years) on profits from exports in the year in which the business unit starts production or starts operations.
Free-trade zones
Consult the list of the Special Economic Zones (SEZ) in India.
Public aid and funding organisations
Industrial Development Bank of India (IDBI)
Power Finance Corporation Limited
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Export-Import Bank of India
Indian Renewable Energy Development Agency Ltd.
Asian Development Bank
The World Bank
Multilateral Investment Guarantee Agency
International finance Corporation
 
 

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Investment Opportunities

The Key Sectors of the National Economy
There are 12 champion sectors: modular furniture, toys, food processing like ready-to-eat food, agro-chemicals, textiles like man-made fibres, air conditioners, capital goods, pharma and auto components
The services sector is by far the most dynamic in India. It accounts for 48.9% of GDP. India is the fourth largest agricultural power in the world. Agriculture accounts for 18.3% of GDP and employs 43% of the active population (World Bank). 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 and contributes 3% to global chemical industry. Finally, the sectors of new technologies (software) and telecommunications are booming. India is the world’s largest BPM destination, which represent 8% of India’s GDP (Invest India).

For more information, visit Invest India.

High Potential Sectors
Airport 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 Programmes
India has been privatising its large, mostly non-profitable public sector: telecommunications, public infrastructure, airways, ports, etc.
Tenders, Projects and Public Procurement
Tenders Info, Tenders in India
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

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Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
The government exercise control through sector-specific restrictions on foreign investments in sensitive sectors, such as defence and media, but also railways, 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.

Moreover, foreign investment in India is prohibited for the following sectors or activities: lottery businesses, gambling and betting, chit funds, nidhi companies, trading in transferable development rights, real estate business or the construction of farm houses, manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes, activities or sectors that are not open to private sector investment, such as atomic energy and railway operations, foreign technology collaboration in any form, including licensing for franchises, trade marks and brand names. Management contracts are also prohibited for lottery businesses and gambling and betting activities.

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Latest Update: November 2022