Foreign Direct Investment in India

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FDI in Figures

Thanks to its many assets, especially a high specialization in services, with skilled, English-speaking and inexpensive labor force, and a potential market of one billion inhabitants, India is a country that welcomes more and more foreign investment.  The inflow of FDI in India registered a record of  USD 40 billion in 2008, and the FDI has remained, since then, very stable.  In the context of the global economy crisis, the foreign investors tried to limit their exposition in the surging markets.  However, there was not a decline of FDI in India.  According to the UNCTAD report, India is placed in third position in terms of FDI inflows in 2009.


Country Comparison For the Protection of Investors

  India South Asia United States Germany
Index of Transaction Transparency* 7.0 4.4 7.0 5.0
Index of Manager’s Responsibility** 4.0 4.4 9.0 5.0
Index of Shareholders’ Power*** 7.0 6.3 9.0 5.0
Index of Investor Protection**** 6.0 5.0 8.3 5.0

Source: Doing Business

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.

Foreign Direct Investment 2007 2008 2009
FDI Inward Flow (million USD) 25,001 40,418 34,613
FDI Stock (million USD) 105,790 123,294 163,959
Performance Index*, Ranking on 141 Economies 111 82 63
Potential Index**, Ranking on 141 Economies 84 84 -
Number of Greenfield Investments*** 695 965 742
FDI Inwards (in % of GFCF****) 6.3 9.6 6.6
FDI Stock (in % of GDP) 8.8 9.6 12.9

Source: UNCTAD

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.

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Why You Should Choose to Invest in India

Strong Points
- A three-tiered democratic system that ensures a stable polical environment;
- a well developed administration and an independent judicial system;
- a vast geography making India a repository of resources;
- an unparallel resource of an educated, hard-working and skilled work force, which includs engineers, management personnel, accountants and lawyers;
- a ever growing consumer base making it one of the world's largest markets for manufactured goods and services;
- a dynamic and robust financial system consisting of a comprehensive banking network, a number of financial institutions both at the national and State levels as well as a vibrant financial market;
- an economy that will continue to grow despite the international economic crisis.
Weak Points
- The corruption (particularly at the federal level)
- political pressures;
- restricted FDI in certain sectors;
- the weakness of infrastructures;
- inadequate security & safety in certain areas.
Government Measures to Motivate or Restrict FDI
The government has set up tax and non-tax incentives to establish new industrial entities in specific sectors, which include energy, ports, highways, electronics and software. The government has also created special areas dedicated to export, called export-processing zones (EPZs) or special economic zones (SEZs), to encourage foreign investment.
The central government development banks and state industrial development banks offer medium to long-term loans and sometimes invest their own capital in new projects.
However, the government has set sector-specific ceilings on foreign assets in certain industries, such as basic and cellular telecommunications services, banking, retail and civil aviation.
For more details visit: Investment Commission of India.
Bilateral Investment Conventions Signed By India
Bilateral investment treaties with the United Kingdom, France, Germany, Canada, Malaysia, and Mauritius. UNCTAD allows you to visualize the list of conventions signed by India.

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Procedures Relative to Foreign Investment

Freedom of Establishment
Various approvals and clearances are required such as permission for land use in case the factory is located outside an industrial area; environmental site approval; registration under State Sales Tax Act and Central and State Excise Acts; and consent under Water and Air Pollution Control Acts.
Acquisition of Holdings

Acquisitions by private arrangement would be contractual agreements between the parties and would take the form of: share acquisitions; asset transfers; or spin off or slump sale.

Obligation to Declare
Mergers 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 Organization For the Declaration
Department of Industrial Policy and Promotion
Requests For Specific Authorizations
Environment clearance from the Ministry of Environment and Forest for investment of foreign capital in fields like petrochemicals complexes, petroleum refineries, cement thermal power plants, bulk drugs etc.
Find Investment Service Providers in India on

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