The Indian market is on the rise. Investment opportunities are emerging within various industries and sectors. Being well-versed in the growing trends, business leaders are capitalizing on new technologies and tax rates. This may result in a substantial return on investment.  

Industrial Growth Trends in the Indian Market

Arguably, three interrelated factors position India as a global economic leader. First, economic and financial institutional level reforms are beginning to take effect. Implemented in 1991, these reforms focus on the privatization and development of a robust industrial base. In addition, the reforms focus on the liberalization of rules governing foreign direct investment. 

Second, the Indian services sector has become a global leader. This is mainly due to the strength of its IT (information technology) services industry. The IT services industry accounts for more than 60% of the country’s GDP. The Indian nascent life sciences industry is producing even greater returns for India. Third, 300 million middle-class persons make up the domestic consumer market. This represents an enormous market opportunity for domestic and foreign companies and investors alike.

The following industries are experiencing tremendous growth in India:

IT Services

This industry’s strong reputation is based primarily on software development and IT-enabled services/business process outsourcing. In employing over 700,000 people, the IT services industry lists as clients more than 50% of Fortune 500 companies. This industry exports services to over 133 countries. Analysts project that India continues to maintain its market-leading position in this sector over the next decade.

Life Sciences

India is a party to the Agreement on Trade-Related Aspects of Intellectual Property and the Patent Co-operation Treaty. Also, India is a member of the WTO and a signatory to the General Agreement on Tariffs and Trade. As a condition to its participation in the preceding, India reformed its patent protection regime. These reforms meet, and in some cases exceed international patent protection standards. Although the legal remedies for patent infringement remain a work in process. 

Western companies increasingly collaborate with Indian partners for pre-clinical, drug discovery, clinical, and manufacturing services. This is due to several reasons. First, India has its global patent protection standards in place. Second, India has over 67 FDA-approved pharmaceutical manufacturing facilities. And finally, India has an experienced life sciences industry built upon a strong (pre-2005) generics sector. Apart from pharmaceuticals, biotechnology, health care, and information management companies continue to bolster India’s developing life science reputation.

Consumer Products

The Indian retail industry is ~$350 billion per year (growing at 30% a year). This industry has approximately $20 million retailers and $40 million employees (EY Tax and Business Guide). Most of this anticipated growth potential centers around the absence of, and a trend toward, organized multi-unit retail establishments. These establishments create potential foreign investment opportunities. This is especially true in light of the liberalization of foreign direct investment caps on the retail industry. There is a growing wave flooding the Indian retail marketplace. Taking part in this wave are global retailers, private equity funds with a retail focus, and restaurants. Also, single-brand retailers, hospitality companies, and credit card companies. Finally, mortgage companies, automobile manufacturers, and other consumer goods are also a part of this wave. One exciting and high growth sector of India’s retail industry is the wine market. This market is growing at nearly 30% per year.

Infrastructure Related Industries

In the past, India required investment of over $300 billion to modernize. Items requiring modernization include its roads, ports, airports, power generation, water treatment facilities, and other infrastructure. Almost every Indian state is developing several large infrastructure projects. One of the largest is the Golden Quadrilateral Project. This project connects Delhi, Mumbai, Chennai, and Calcutta by way of over 5,846 kilometers of highway. The Indian government has liberalized foreign direct investment restrictions in many infrastructure-related sectors. This is done to stimulate the required capital investment for such projects.

Opportunities for Foreign Investors

The Indian government’s economic reforms focus on the liberalization of foreign direct investment. Foreign investors are permitted to purchase, through specific channels, publicly-traded Indian securities and non-publicly traded securities of Indian companies. The Securities Exchange Board of India (“SEBI”) regulates foreign investments in publicly traded Indian securities. 

Registering with SEBI

Investors register with SEBI as a foreign institutional investor (“FII”) or as a sub-account holder of an FII to make their investments. However, this scheme is under review by SEBI. This is done through a pooling of interests vehicle or investments in a derivative instrument (a participatory note).

Government consents required for investments in non-publicly traded securities depend on the type of investment. Investments in non-publicly traded securities may be subject to the “automatic approval” procedure. With this procedure, a foreign investor does not need to obtain approval before making such an investment. In such cases, the company issuing securities to a foreign investor must send a notice. The company must send the notice within thirty days after such issuance to the Reserve Bank of India (the “RBI”). 

The Foreign Investment Promotion Board

Foreign investments that do not fall under the “automatic approval” procedure must register with the Foreign Investment Promotion Board. Examples of such investments include those in:

• (i) sectors that require industrial licensing, 
• (ii) the financial services sector, 
• (iii) certain agricultural sectors, 
• (iv) sectors in which a foreign investor has an existing Indian venture, and 
• (v) excess of sector-specific foreign investment caps.

The Foreign Investment Promotion Board does not permit investments in industries such as atomic energy.

The Foreign Exchange Management Act

In India, foreign investments are repatriated only through a foreign account held in compliance with the Foreign Exchange Management Act 1999. The Indian Rupee is freely convertible into foreign currency for trade and current account purposes. This is subject to a negative list of prohibited transactions or requires prior approval. Foreign investors must pay applicable taxes. After the payment of applicable taxes, foreign capital invested in India is generally allowed to be repatriated. If the invested capital was approved on a repatriation basis it can be repatriated along with capital appreciation. If not, repatriation of equity capital is permitted only on liquidation or transfer of shares and compliance with RBI requirements. India does not tax the recipients of dividends paid by Indian corporations.

Many American portfolio investors looking to participate in India do so through U.S.-based funds. This is to circumvent the ordeal of directly complying with the preceding requirements. Investors can choose from over twenty U.S.-based funds. And, such funds range from $10 million to $1 billion. The minimum investments range from $250,000 to $1 million. Keep in mind that several of these funds are closed to new investors. However, new funds with credible investment teams appear frequently. The main risk involved with such an investment is determining which fund is most credible and best positioned to achieve its investment goals. This is because investments contemplated under this arrangement are made through a U.S. entity.

Doing Business on a Global Scale 

Companies worldwide can take advantage of the business market and the growing trends in India. Bagchi Law has extensive experience assisting clients in closing global deals. Additionally, Bagchi Law supports its clients in completing business proceedings in India and other international markets. We can help you leverage the market while gaining an understanding of the various investment opportunities. 

We have an intimate understanding of the Indian business sector and legal environments. This is based on our firm’s experience advising clients on doing business in India. As a result, through such experience, our firm can effectively help clients mitigate risks and avoid potential pitfalls associated with doing business in India.

If you’re ready to expand your business into India’s promising economy, schedule a consultation with a member of Bagchi Law today.