foreign-investment-in-india.pdf

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WHY FOREIGN COUNTRIES ARE INVESTING IN

INDIA

Foreign Companies can set up their operations in India

through

Liaison Office/Representative Office

Project Office

Branch Office

Such offices can undertake any permitted activities. Companies have to register

themselves with Registrar of Companies (ROC) within 30 days of setting up aplace of business in India.

1) Liaison office/ Representative office

Liaison office acts as a channel of communication between the principal placeof business or head office and entities in India. Liaison office cannot undertakeany commercial activity directly or indirectly and cannot, therefore, earn anyincome in India. Its role is limited to collecting information about possible

market opportunities and providing information about the company and itsproducts to prospective Indian customers. It can promote export/import from/toIndia and also facilitate technical/financial collaboration between parentcompany and companies in India. The approval for establishing a liaison officein India is granted by the Reserve Bank of India (RBI).

2) Project Office

Foreign Companies planning to execute specific projects in India can set uptemporary project/site offices in India. RBI has now granted general permission

to foreign entities to establish Project Offices subject to specified conditions.Such offices cannot undertake or carry on any activity other than the activityrelating and incidental to execution of the project. Project Offices may remitoutside India the surplus of the project on its completion, general permission forwhich has been granted by the RBI.

3) Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are

allowed to set up Branch Offices in India for the following purposes:


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Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian

companies and parent or overseas group company. Representing the parent company in India and acting as buying/selling

agents in India. Rendering services in Information Technology and development of

software in India. Rendering technical support to the products supplied by the parent/ group

companies. Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its ownbut is permitted to subcontract these to an Indian manufacturer. Branch Officesestablished with the approval of RBI may remit outside India profit of the

branch, net of applicable Indian taxes and subject to RBI guidelines Permissionfor setting up branch offices is granted by the Reserve Bank of India (RBI).

Branch Office on "Stand Alone Basis"

Such Branch Offices would be isolated and restricted to the Special Economiczone (SEZ) alone and no business activity/transaction will be allowed outside

the SEZs in India, which include branches/subsidiaries of its parent office inIndia. No approval shall be necessary from RBI for a company to establish a

branch/unit in SEZs to undertake manufacturing and service activities subject tospecified conditions.

BENEFITS

Companies invest in India because it is an emerging market due to followingreasons:

Home-Grown Demand: While India will experience crashes, its strengthis that its economy isnt export-driven. Rather, its an insulated market,which thrives on local demand, not the whims of the internationalmarkets or currency flows.

Population: Unlike China, India doesnt have a population on the vergeof anarchy if the government stops spending its reserves just to createmake-do work. In addition, the countrys middle class is larger than theentire population of the United States, which allows it to generate atremendous amount of internal economic activity.
http://www.investmentu.com/2009/December/top-emerging-market-investments.htmlhttp://www.investmentu.com/2009/December/top-emerging-market-investments.html


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Business Protection: Indias companies tend to thrive with less threat ofcompetition from abroad, thanks to the countrys protective business

policies

5 Reasons why foreign countries invest in India

1) C ant ignore the resilience

This resilience is clearly reflected in the fact that average economic

growth rates have moved up and India has emerged as one of the fastest

growing economies in the world. Going forward the benefits of these

measures will become more pronounced as focus shifts to

implementation. Coupled with the expected shift in the demographicswhich should see a larger share of the Indian population falling in the

working class age bracket, the Indian economy can be expected to

perform better over the next decade

2) Renewed focus on agriculture, infrastructure

In recent years there has been a renewed focus on two key but long

ignored segments of the Indian economy? Agriculture and infrastructure.

The focus on agriculture and related activities, which supports

approximately 65 percent of the Indian population, should provide a new

thrust area for economic growth. An overall improvement in

infrastructure will add to the competitiveness of the economy. In the

interim, as these projects are implemented, the economy will get a boost

as investment demand will surge.

3) Benefits of foreign direct investment

Foreign direct investment (FDI) inflows have stagnated in recent years.

But its significance cannot be lost. Not only does FDI augment domestic

capital and help increase productive capacity of the economy, it also

brings in with it world class technology, processes and products/services,

and jobs.

The benefits of these lessons are likely to be more pronounced in India,


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which is way behind developed countries. This should help the economy

boosting productivity and competitiveness.

4) The global outsourcing boom

Competitiveness in this sector would be sustained by declining

infrastructure costs (a case in point is the declining telecom rates which

are a key cost for BPOs) and ample supply of skilled manpower. Higher

employment and better incomes would once again contribute

significantly to overall economic growth. Some examples of the kind of

outsourcing work that could find its way to India: research and

development for various products and services (includingpharmaceuticals), manufacturing of auto parts and complete IT

departments and networks.

5) Well-regulated and deep capital markets

The Indian stock and debt markets (including banks and mutual funds)

are well regulated by the Securities and Exchange Board of India and the

RBI. Redressal measures are well laid out and this makes it easier to

protect ones interest. In terms of infrastructure the Indian institutional

framework is improving rapidly, backed by a strong financial system. By

some measures Indian markets compare with the best globally. In terms

of choice, the Indian markets are right up there. Be it stocks, mutual

funds, deposits or life insurance. The market is deep and liquidity is no

major concern for individual investors. India today offers a great

investment opportunity.

Role of Foreign Direct Investment (FDI)

Government of India recognizes the key role of Foreign Direct Investment(FDI) in economic development not only as an addition to domestic capital butalso as an important source of technology and global best practices. TheGovernment of India has put in place a liberal and transparent FDI policy. India

stands fourth largest economy in FDI.


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FDI up to 100% is allowed under the automatic route in most sectors/activities.FDI policy in India is reckoned to be among the most liberal in emergingeconomies. FDI Policy permits FDI up to 100 % from foreign/NRI investorwithout prior approval in most of the sectors including the services sector under

automatic route. FDI in sectors/activities under automatic route does not requireany prior approval either by the Government or the RBI. This automatic routehas been permitted in townships, housing, built-up infrastructure andconstruction development projects including housing, commercial premises,hotels, resorts, hospitals, educational institutions, recreational facilities, andcity- and regional-level infrastructure.


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During 2000-10, the country attracted $121 billion as FDI. The total FDI equityinflow into India in 2008-09 stood at 122,919 crore (US$ 27.9 billion), a

growth of 25% in rupee terms over the previous period.
http://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupee

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