Commercial

 Invest in India

Commercial Services

India-Saudi Relations

Indian Companies in Saudi Arabia

Invest in India

Trade with India

Trade Fairs in India

India Business News

India Business Contacts

Doing Business with Saudi Arabia

Saudi Business Contacts

India-GCC Relations

Contact Us

• Why Invest in India
• The Indian Market
• The Indian Economy
• Foreign Investment Policy
• Foreign Direct Investment
• Industry
• Infrastructure
• Roads and Highways
• Electricity and Power
• Telecommunications
• Financial Sector
• Ports
• Electronics and Information Technology
• Sector Specific Guidelines For Foreign Direct Investment
• Some Important Addresses

Why Invest in India:  India is today one of the six fastest growing economies of the world. The country ranked fourth in terms of Purchasing Power Parity (PPP) in 2001. The business and regulatory environment is evolving and moving towards constant improvement. A highly talented, skilled and English-speaking human resource base forms its backbone.

The Indian economy has transformed into a vibrant, rapidly growing consumer market, comprising over 300 million strong middle class with increasing purchasing power. India provides a large market for consumer goods on the one hand and imports capital goods and technology to modernize its manufacturing base on the other.

An abundant and diversified natural resource base, sound economic, industrial and market fundamentals and highly skilled and talented human resources, make India a destination for business and investment opportunities with an assured potential for attractive returns.

Return to top

Far-reaching measures introduced by the government over the past few years to liberalise the Indian market and integrate it with the global economy are widely acknowledged. The tenth five year plan document targets a healthy growth rate of 8% for the Indian economy during the plan period 2002–07.

• India is the fourth largest economy in the world, and has the second largest GDP among developing countries, based on purchasing power parity.

• Strategic location - On the crossroads between the Middle East with its rich oil supplies and the rapidly growing economies in the Far East.

• Its 300 million strong middle class consumer market is the target for some of the world's biggest names for branded consumer goods.

• The market for consumer goods is estimated to be growing at 8% per annum.

• There are only 214 cars for every thousand Indian families, 169 refrigerators and 81washing machines indicating a virgin market waiting to be explored.

• Foreign investment is welcome, approval in some cases is required but is automatic in sixty categories of Industries.

• Skilled man-power and professional managers are available at competitive cost.

• India's large pool of scientific and engineering talents, second largest in the world, makes it an ideal place for knowledge based industries.

• Its IT and IT-enabled industries are already seen as a key source for quality infotech services to the world.

Return to top

• It has one of the largest manufacturing bases in the world, spanning almost all areas of manufacturing activities, supported by a huge base of mineral and farm resources.

• Sound, sophisticated and modern financial sector with a 250 year history of stability.

• Vibrant capital market with over 9,000 listed companies.

• Enterprises have freedom of entry, investment, location, choice of technology, production, import and export.

• Well balanced package of fiscal incentives offered by both Federal (also called Central) and state governments.

• Established rule of the law with independent legal infrastructure.

• A sophisticated accounting system.

• English is the language for business communication and is understood in almost all parts of the country.

• Rupee is convertible on Current Account at market determined rate.

• Free and full repatriation of capital, technical fee, royalty and dividends.

• Foreign brand names are freely used. No income tax on profits derived from export of goods.

• Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100 per cent Export Oriented units and units in Export Processing Zones.

• Corporate Tax applicable to the foreign companies of a country with which agreement for avoidance of Double Taxation exists, can be one which is lower between the rates prevailing in any one of the two countries and the treaty rate.

• Long history of being the only stable parliamentary democracy in the entire region.

  Return to top

The Indian Market

One of the important factors for the strong interest of foreign investors in India is the size and the potential for growth of the domestic market. Marked sociological changes brought about by rapid urbanisation, explosion of the electronic media, education and increasing domestic and foreign travel are changing the nature and composition of expenditure, with growing emphasis on brands, product quality, features and convenience.

The vast and growing Indian market is a reality. The increase in the number of households headed by salary earners, professionals and businesspersons, along with the emergence of a thriving consumer finance business, have led to a steep rise in the number of consumers with greater disposable incomes. Expenditure on consumer durables like washing machines, refrigerators and colour televisions has shown an impressive growth during the 1990s. Private consumption expenditure in services such as hotels and restaurants, home products like furniture and furnishings, consumer durables and personal transport has been steadily increasing, making India one of the larger consumers of white goods as also in the Fast Moving Consumer Goods (FMCG) segment. India offers one of the largest markets in the world for manufactured items of mass consumption such as clothing, footwear, detergents, cooking oil, etc. Markets for most manufactured products have exhibited strong growth rates over the past few years.

Rural areas, where over 70% of Indians live, have witnessed rapid market growth in recent times, driven largely by agricultural growth, income redistribution, and inroads made by the audio-visual media. The rural share of the market for durable goods has grown steadily over the last few years. The rural consumer in India does not limit himself to basic goods, and has been increasingly known to patronise goods earlier assumed to be higher up in the consumer chain, with white goods being a priority, and personal vehicles consumption also showing an upturn.

Return to top

India has an extensive sales and distribution network. It is estimated that there are over one million market intermediaries - wholesalers, stockists' transporters and retailers - involved in the distribution of a variety of consumer goods. Marketers use this network to access nearly 3,800 cities and towns and over half a million villages. While urban areas have a range of distribution outlets, from large supermarkets and superstores to the smaller neighbourhood retail stores, small shops that are part of the local supply network cater to almost every village in India.

The widespread sales and distribution network is supported by an equally extensive banking network. Consumer financing is an accepted form of consumer goods marketing in India. The presence of several non-banking finance companies engaged in leasing and hire purchase activities has given a fillip to consumer goods sales. The credit card market too has shown tremendous growth in recent years. The products of several international companies like Diners Club, Visa International, Master Card and American Express Bank are widely used in the country along with the cards offered by several domestic banks.

The Indian Economy

The Indian economy has, since 1991, undergone profound changes not only in its direction, but also its fundamental structures and underpinnings. The deliberate change from a command economy based on a socialist market model to that of a market economy with a human face has led to major readjustments. As a result, there has been greater reliance on technology, improvement of systems, streamlining of procedures relating to approvals, and general reduction in the involvement of the government in the business of running businesses. These changes have been reflected across the Indian economic landscape, resulting in a faster growing economy, with increasingly stable fundamentals. At the same time, the economy has also been able to integrate itself into the global economic mainstream, with participation in global multilateral institutions, and a willingness to accept new ideas and challenges.

Return to top

Given below are some broad indicators of the Indian economy over the past few years, which provide some insight into the general direction of the economy, as well as the impact of the current and ongoing reforms -

Population & National Income

Source: Centre for Monitoring Indian Economy (CMIE), New Delhi
Note - 1 US Dollar : 48 Indian Rupees in January 2002

Return to top

Foreign Investment Policy

India's economic policies are designed to attract significant capital inflows into India on a sustained basis and to encourage technology collaboration between Indian and foreign firms. Policy initiatives taken over the last few years have resulted in significant inflows of foreign investment in diverse areas of the economy. As a matter of fact, a recent survey of how foreign direct investment and foreign companies in India have performed has come out with findings that 87% found growth conditions in India to be 'attractive' vis-à-vis other countries; 74% found profit levels to be 'average' to 'good'; 54% are planning to augment their Indian operations; and, 75% found the legal framework in India to be 'good'. An inter-country comparison showed that 66% found the performance of their Indian operations to be in the range of 'average' to 'good'; 97% found the quality and availability of manpower to be 'absolutely superb'; 71% found market penetration to be 'reasonably easy'; another 71% found it easy to have two-way flow of funds and profits. This proves that those who have invested in India have had positive experiences, and this has provided the grounds for optimism for the future. India welcomes direct foreign investment in virtually every sector, except those of strategic concern. Even in this, there have been recent changes, with private investment allowed to a limited degree in defence production, thus opening up an important area for cooperation.

Return to top

Foreign Direct Investment

Under the foreign investment policy, two routes are available for foreign investors, depending upon the industry and the levels of investment contemplated. Additionally, another fast-track approach is now available through the mechanism of Special Economic Zones. Details of all these are given below -

Automatic Route

Companies proposing foreign investment under the automatic route do not require any Government approval, provided the requisite documents are filed with the Reserve Bank of India (RBI) within 30 days of receipt of funds. Some of the sectors recently shifted to the automatic route are given below, along with the FDI limits in them -

• 100% in drugs and pharmaceuticals compared to 74% earlier;

• 100% in hotels and tourism;

• 100% in courier services;

• 100% in the Mass Rapid Transit System (MRTS) in all major cities; and,

• 74% in airports.

• foreign investment limit in private banks has been raised to 74% under the automatic route to encourage foreign banks to set up subsidiaries in India,

Return to top

Foreign Investment Promotion Board (FIPB)

All other proposals for foreign investment, which are not covered under the automatic approval route, are considered for approval, on merits, by the FIPB. Composite proposals, i.e. proposals seeking other industrial approvals like industrial licence, technical collaborations, etc. along with approval for foreign investment, are given a composite clearance by the FIPB. Further, foreign financial/ technical collaborators with previous ventures/tie-up in India also have to apply to the FIPB for approval for setting up any new venture. All proposals for raising foreign equity or inducting new foreign equity in existing companies would need to be accompanied by a Resolution of the Board of Directors of the existing company and a consent letter from the Indian partner/ foreign collaborator.

The current liberalisation has included changes in the following sectors for FIPB approval -

• 100% in airports;

• 26% in the defence sector;

• 49% in banking subject to approval by the Reserve Bank of India (RBI); and,

• 76% in some areas of the telecom sector, particularly Internet Service Providers, Internet Gateways, Radio Paging Services and end-to-end bandwidth services.

Return to top

Special Economic Zones

In order to provide an internationally competitive environment to businesses, the Government of India has decided to set up Special Economic Zones (SEZ) in selected areas. SEZs can be set up in the public, private, joint sector or by the State Governments, with the minimum size of the SEZ fixed at 1000 hectares. These zones will have world-class infrastructure, and help promote export-oriented businesses.

The main benefits for those setting up SEZs in India include -

• No license required for import.

• Exemption from custom duty on import of capital goods, raw materials, consumables etc.

• Exemption from Central Excise Duty on procurement of capital goods, raw materials etc. from the domestic market.

• SEZ units have to be a net foreign exchange earner. No pre-determined foreign exchange earning or minimum performance requirement.

• Access to domestic market.

• Simplified Custom procedure.

• Trading activity for exports permitted.

• Fast track clearance of imports and exports.

• Ready infrastructure.

• No separate documentation required under Customs and Exim Policy.

• 100% FDI permissible for units in SEZs in manufacturing sector except few specified areas.

• No cap on foreign investment for SSI reserved items.

• Profits allowed to be repatriated freely without any dividend-balancing requirement.

• 70% of foreign exchange earnings can be retained in EEFC account.

• Attractive tax holiday upto 2010 as per Section 10A of the Income Tax Act.

  Return to top

Industry

Since 1991, the industrial sector has witnessed positive structural changes, improvements in productivity, modernisation and infusion of new technology. Companies have consolidated their areas of core competence, while several have tied up with foreign companies to acquire new technologies, management expertise and access to foreign markets. The Government has taken steps to put the industrial sector on an accelerated growth path. Steps taken include a cut in personal and corporate income tax rates, modification of the excise and customs duties to revive the manufacturing sector and further deregulation of interest rates with greater freedom to banks to assess credit requirements. The corporate sector was also allowed free access to GDR/ECB windows to obtain finance at globally competitive rates. Furthermore, the Government has decided to increase spending on infrastructure to kick-start the economy and has announced several measures to increase investment in the sector. The software industry in particular has shown great promise and is amongst the fastest growing sectors with an average growth of well over 50% over the last 5 years.

Return to top

Infrastructure

Infrastructure development has traditionally been reserved for the public sector. However, recognising the need for rapid growth and improvement in the quality of infrastructural facilities, private and foreign participation is being encouraged through a package of attractive incentives. Infrastructure sector is being given a concerted push, with the aim of providing an international level of infrastructure to India within a specified time frame. Towards this end, a number of incentives have been offered, and the following areas specific to infrastructure have undergone major revision of rules to make it easier for foreign investors to come into India -

Roads and Highways

An integrated National Highways Development Plan has been put in place. This envisages the construction of 87,000 km of highways and roads, including 13,000 km of expressways and highways to international standards. This is estimated to call for an investment of US$ 27 billion till the year 2006. The most ambitious part of this is the Golden Quadrilateral scheme, under which expressways will connect the four metropolitan cities of India -New Delhi, Mumbai, Kolkata and Chennai. This scheme is already under way, and contracts for some stretches have been awarded. Other contracts are to be finalised soon, with completion planned by the end of 2003.

For greater details, please visit the website of the National Highways Authority of India, www.nhai.org

Return to top

Electricity and Power

The power situation in India is one of supply not keeping up with demand, and huge investments in the power sector are envisaged over the next few years. As per present estimates, investments needed in the power sector over the next five years would amount to US$ 178 billion, for creating facilities for the generation of 1,11,500 MW of electricity.

The institutional framework in place for the power sector includes the following -

Central Electricity Authority: Responsible for developing a sound, adequate, uniform policy for control and utilisation of national power resources.

State Electricity Boards (SEBs): Constituted by the State Governments, SEBs have the broad function of generating, transmitting and distributing electricity in coordination with generating companies, the Government and any relevant agency. Some States have restructured their SEBs into generation and transmission companies.

Central and State Electricity Regulatory Commissions: Responsible for defining policies on subsidies and promoting efficient and environment friendly policies.

Power Grid Corporation of India: Responsible for evacuating power from central generating stations, inter-state transmission lines, formation of National Grid and operation of regional load dispatch centres. Other government agencies include the National Thermal Power Corporation (NTPC) and the Nuclear Power Corporation that are responsible for thermal and nuclear power generation respectively.

Return to top

Telecommunications

In the telecom sector, there is currently a shortfall of nearly 52 million lines, which need to be added on to the existing network of 22.64 million lines. These, as well as other projects, offer the opportunity for investment of US$ 55 billion. The telecom sector is one of the fast growing sectors in India, with potential for investment as India moves to strengthen its digital and telecom networks to move up the connectivity ladder over the next few years.

The institutional framework within which the telecom sector functions consists of the following -

Telecom Commission: Responsible for formulation of policies, operation, maintenance and development of telecom services and preparation of budgets, supervision of policy implementation, plans and controls.

Telecom Regulatory Authority of India (TRAI): Set up in 1997, TRAl's functions include effective interconnection between different operators and service providers, protection of consumer interests, ensuring compliance of licence conditions by all service providers, dispute settlement between the DoT and service providers.

Department of Telecommunications (DoT): Responsible for the provision of voice and non-voice telecom services throughout India, with the exception of Delhi and Mumbai In addition to the above, the Mahanagar Telephone Nigam Limited (MTNL) offers basic telecom services in Delhi and Mumbai, and the Videsh Sanchar Nigam Limited (VSNL) provides international telecom services in India.

Return to top

Financial Sector

A strong and vibrant financial and banking sector supports the growing Indian economy. There exists an extensive commercial banking network of over 63,000 branches, including over 150 branches of foreign banks. The sector also has a number of national and state level financial institutions, a large number of domestic and foreign institutional investors, investment funds, equipment leasing companies, venture capital companies, etc. Banks and financial institutions in India observe the highest international norms, they have adopted the international best practices.  Further, the country has a well-established stock market comprising 22 stock exchanges, with over 9,000 listed companies. Figures in the table below give an idea of the movements in the capital markets of India over the past few years -

Capital Markets

Source - Centre for Monitoring Indian Economy (CMIE)

Return to top

Ports

India is looking to increase its exports, and therefore needs world-class ports to handle the anticipated increase in traffic. Towards this end, a conscious decision has been taken to go in for major changes in the way ports in India are operated. The emphasis now is on the corporatisation of ports, with the private sector expected to play an important role as government slowly eases away its heavy involvement. There are also ample opportunities by way of construction of ports, and running them. The investments foreseen till the year 2006 are in the range of US$ 8 billion, with most expected to come from foreign investors with experience and expertise in handling international ports.

As for the institutional framework for the ports sector, the primary responsibility for the development and management of major ports rests with the Central Government. Administration of minor ports is the responsibility of the State Government. Individual Ports Trusts are responsible for the administration, control and management of major ports. The power to fix and revise tariffs has been entrusted to an independent authority, the Tariff Authority for Major Ports The tariff fixed by the authority shall be a ceiling and the developer shall be free to charge less than the notified tariff.

Return to top

Electronics and Information Technology

Information Technology (IT) has emerged over the past decade as one of the strongest areas of business to come out of India. An important part of the 'knowledge industry', IT in India has progressed by leaps and bounds, to establish India as an important centre for development of software solutions, as well as one of the most cost-efficient places for back office operations globally. The government has taken a number of measures to promote investment into this industry, including automatic approval for foreign equity in the software and electronics fields, automatic approval accorded for foreign technology agreements in all areas of electronics except aerospace and defence, subject to specified conditions

Return to top

Sector Specific Guidelines For Foreign Direct Investment