Tag Archives: foreign direct investment in india

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FDI in retail sector

Foreign Direct Investment (FDI) for a developing country like India is a major avenue of forex influx in the economy. It not only boosts the market performance but also provides a sense of security in case of unforeseeable events.

FDI in retail sector in India was restricted initially, but the dire need for forex lead to government liberalizing the policies of making investment upto 51% by way of FDI in ‘single brand’ retail sector and upto 49% equity participation in ‘multi brand’ retail sector, which further escalated steadily in retail sector.

Defining Retail Sector
Retail Sector is inclusive of small, medium to large shops that sell goods to the ultimate consumers for their personal consumption. Retailing to a customer who further sells those goods is not treated as consumer here. It encompasses all kinds of shops, from small groceries to supermarket chains and large departmental stores. In computing the definition of retail sector, traditional bricks-and-mortar shops mail-order and online businesses is also included.

Pros and cons of FDI in retail sector
Following are some advantages which will take place as a result of FDI entering the economy:

  • Overall economic growth: Entry of foreign companies in India will boost the infrastructure and real estate sector will be equally benefitted. Banks and Financial Institutions will also gain momentum as a result of FDI infusion in the economy.
  • Employment Opportunities: Following the trend and analyzing the vast possibility of business expansion, more business ventures will enter the market and create job opportunities for the vast population of the country.
  • Eliminating middlemen: Intermediaries dominate articulation between manufacturers or producers and final consumers resulting in loss of maximum share of profits of manufacturers or producers to the intermediaries. With the introduction of FDI, manufacturers or producers might be offered contractual supply of products, thus, eliminating the loss of profits to middlemen.
  • Benefitting ultimate consumers: Customers or end consumers will get access to a variety of international quality products at lower rates, compared to what they used to pay earlier in the market.

Introduction of FDI in the markets may lead to the following disadvantages:

  • Country’s share of revenue drained: FDI will drain out the country’s fair share of profits by diverting them to foreign countries, causing negative impact on India’s overall economy.
  • Domestic players crushed: Entry of big international players in the market might affect the performance of small domestic companies / individuals negatively. Small companies are not fully equipped to tackle the international company’s strategies and might lose their market share.
  • Jobs in other sectors affected: Many of the small business owners and workers from other functional areas may lose their jobs, as lots of people are into unorganized retail business such as small shops.

FDI policy in India:
Administration of Foreign Investment in India is regulated by the provision of the Foreign Exchange Management Act (FEMA) 1999 and FDI policy announced by the Government of India. The Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 are issued by the Reserve Bank of India (RBI) via a notification. From time to time, this notification has been amended.

The Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP) notified the FDI policy through Press Notes. Foreign investments are freely allowed in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be mandatory.

It is believed that FDI can prove to be powerful catalyst which can spur competition in retail industry. Also, organized retail sector is a budding phenomenon in India and leads to exponential growth of markets, despite all the downturns. Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements at click here 

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India: The nucleus for FDIs

Foreign businesses often channelize their funds to reap the benefits of fast growing economy, cheap labor and wide scope of earning increased returns in India. To capture and relish such benefits, FDIs are superintended towards India in huge proportions by different countries around the world. 

What is FDI?
Foreign Direct Investment (FDI) is generally termed as an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

India amidst top destinations for FDI
India ranks among the top 10 host economies for FDI, according to the United Nations Conference on Trade and Development (UNCTAD) 2018 World Investment Report. FDI inflows hit an all-time high of USD 44.5 billion in 2016, however, following the global downward trend, flows to India declined in 2017 to USD 39.9 billion.

In January 2018, the Indian government gave its approval to a number of major amendments aiming to further liberalise and simplify the national FDI policy. In the last three years, the government had already eased 87 FDI rules across 21 sectors. In 2018, India ranked 100th out of 190 countries in the Doing Business report published by the World Bank.

Russia contemplating investments in India
One such major step can be sighted by the Russian Direct Investment Fund (RDIF) moving towards investing in India eyeing to boost infrastructure funding. As mentioned by Kirill Dmitriev, CEO, RDIF in an interview that RDIF will sign two key deals at this annual summit on October 5, 2018:

  • Agreement with their partners in India to jointly invest in ports & logistics; and
  • Joint investment in mineral fertilisers, including the construction of production facilities and related infrastructure, as well as the introduction of advanced technologies in Russia and India. The agreement also provides for the supply of PhosAgro products to Indian partners on a long-term basis.

Growth spotted
The sectors attracting the greatest amounts of FDI in India include the services sector, followed by IT services and software, construction, the automobile industry and wholesale and retail trade.

FDI Equity Inflows by Country

Main Investing Countries 

 (January – March 2018)

%

 (April – June 2018)

%

Mauritius 34 33
Singapore 18 19
Netherlands 6 6
United States 6 6
Japan 7 7
Germany 3 3
United Kingdom 7 7
Cyprus 3 2
France 2 2
U.A.E. 2 2

Discerning the consistent and steady growth in the influx of FDIs, one can identify these to be a secure source of foreign funds entering in the economy subsequently. Thus, promoting all sectors in India.

Is it a lot to take in? Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements.

Source:

  1. https://en.portal.santandertrade.com/establish-overseas/india/foreign-investment
  2. http://www.dipp.nic.in/fdi-publications

 

 

Company incorporation in India

How a foreign company can incorporate a new company in India?

India is among the fastest growing economies in the world with immense human potential and a large market comprising of over 1.2 billion people. Opportunities in India has attracted a large amount of Foreign Direct Investment into the country and each year the amount of FDI inflow keeps increasing due to more number of foreign businesses starting their operations in India. In this post, the way to setup a business is in India is detailed for foreign companies.

Incorporation of a private limited company is the easiest and the fastest type of India entry strategy for the foreign nationals and for the foreign companies. Foreign direct investment of up to 100% into a private limited company or a limited company is under the automatic route, in which no permission form the Central Government is required. Hence, the incorporation of a private limited company as a wholly owned subsidiary of a foreign company or a joint venture is the cheapest, the easiest and the fastest entry strategy for the foreign companies and the foreign nationals into India.

Cost for Registering a Company in India

The cost for registering a business in India is relatively inexpensive. Registration of a company in India can also be completed within a few weeks, making India an easy place to start a business.

Mandatory documents required for Company Registration in India
In order to register a company in India, the foreign nationals are supposed to submit a copy of their passport along with an address proof (Driver’s License, Bank Statement etc.).

The copy of the original documents should be notarized by a Notary in the home country or by the Indian Embassy in the respective country where the foreign Director belongs to.

In case a corporate entity is aiming to become a shareholder in the Indian Company then the Board Resolution from the foreign company should authorize the investment in the Indian Company.

The Board Resolution that has been decided upon mutually among the Directors should be attached with a notarized copy of the incorporation certificate of the foreign company.

This is to be noted that the presence of any of the foreign Directors is not mandatory required in India at the time of incorporation in India. Thus, the foreign nationals have the flexibility of establishing and operating a business in India without even travelling to India.

If you have any query regarding this Click Here

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Doing Business in India

Doing business in India offers enormous opportunities for Foreign companies. However, India is a large and complex market. It should not be seen as one market, but a series of interconnected regional markets where the legislative and investment climate may change from one state to another.

It is wiser to be in India now…

  • Fastest growing economy in the world
    (Current: 7% , by 2018: 7.8%)
  • World’s third largest economy
    (Would double in size to US$ 4–5 trillion in a decade)
  • Taxes on companies has been reduced to 25%
    (For companies with annual turnover less than 50 Crores)
  • World’s second-largest telecommunication market
    (1058.86 million subscribers)
  • By 2020, retail market is expected to grow to US$ 1.1 trillion
    (growing at a high rate of 20%-25% p.a.)
  • World’s sixth largest pharmaceutical market by 2020
  • By 2050, India will have added 300 million people
  • Working age group will be more than 64% by 2021
    (15-59 years)
  • Growing urban markets
    (23.1 Million people shifting from rural to urban areas in two decades)
  • Low labour costs
    (Total labour force of nearly 530 million)
  • Purchasing power parity, India’s economy is third largest in the world
    (Current-$ 8.7 trillion, by 2025-$ 20 trillion )

Foreign Direct Investment into India

Automatic Route

  • All sectors other than sectors which are specifically prohibited or under approval route
  • Should comply with sector based investment and other conditions (i.e. sectoral caps)

Approval Route

100% FDI through Government approval route

  • Extraction of titanium
  • Publishing of scientific & technical magazines/specialty journals/ facsimile
  • Edition of foreign newspapers
  • Satellites (establishment & operation)
  • Pharmaceuticals (Brownfield)

100% FDI: Government approval required beyond 49%

  • Telecom Services
  • Broadcasting Carriage Services
  • Single Brand product retail trading

100% FDI: Government approval required beyond 74%

  • Existing projects of Airport

49% FDI : No Government approval required

  • Infrastructure Company in the Securities Market
  • Insurance
  • Pension Sector
  • Power Exchanges
  • Defense
  • Air Transport Services (Scheduled): 100% for NRI

49% FDI through Government approval route

  •  Broadcasting Content Services (except Up-linking & Down-linking
    of Non-‘News & Current Affairs’ TV Channels)
  •  Private Security Agencies

FDI limits less than 100%

  •  Banking (Private Sector): 74% FDI is allowed. However,
    Government approval is required beyond 49%
  •  Banking (Public Sector): 20% FDI is allowed with Government
    approval
  •  Multi Brand product retail trading: 51% FDI is allowed with
    Government approval
  •  Print Media: 26% FDI is allowed with Government approval

If you have any query regarding this Click Here

company formation in india

How to Register Foreign Companies in India

India is one of the fastest growing economies in the world with healthy resources and a large market base. In the past few years, there is a great boost in foreign direct investment in India (FDI) because of the changed regulatory environment in the past few years. Therefore, it is very easy for foreign nationals to start a business in India.

Sometimes people get often confused in “Indian Company” and “Foreign Company”. If a foreign national incorporates a company in India then it is an Indian Company. But when a foreign company set up a branch office in India then it is known as Foreign Company.

Foreign Direct Investment (FDI)

The amount/capital to be invested by any foreign national/NRI shall be classified as FDI in India. In 1990s, there was high number of restrictions on FDI in India where as today, there are amendments in all the rules and regulations of company formation in India.

FDI is classified as

  • Business where FDI is not allowed at all.
  • Business sectors where permission is required from Foreign Investment Promotion Board(FIBP)
  • Business where no permission required.

All foreign nationals/ NRI’s must go through FDI policy before company incorporation in India in order to check any restrictions, prohibition in the proposed business activity

Entry Strategy into Indian Market

A foreign company can commence operations in India by incorporating a company under the companies Act, 1956 through registration of company or establishing a branch or liaison office.

Establishing a private limited company is the easiest and fastest way to set up in India. FDI of up to 100% into a public limited or private limited is permitted under the FDI policy wherein no approval from RBI or central government is required. For the purpose of registration or incorporation, an application has to be filed with Registrar of companies (ROC). For more information please visit http://dca.nic.in.

Other entry strategy as a foreign company is to open a branch office, liaison office and Project Office. In this case, approval from RBI or central government is mandatory. Therefore, the time and money required for setting up a private limited or public limited company is much less than forming such offices.

Requirements for incorporation of company in India

In order to start a company in India, a minimum of two persons and an address are required in India. A company must have a minimum of two directors and   a minimum of two shareholders. According to Indian rules and regulations, one director must be both an Indian citizen and Indian resident.

One should establish a company with three directors which includes two foreign nationals and one local citizen. In this case, 100% of the shares of the Indian company can be held by foreign nationals/ NRI. The address in India is served as the registered office of the company.  Foreign companies establish their offices in metro cities like Delhi, Bangalore, Mumbai and Chennai etc.

Cost for company registration in India

Company formation services in India are inexpensive. The company formation process can be completed within few weeks. The incorporation process can be easy with the help of tax advisors in India. It would cost you some pennies but the whole process will be easy for you.

If you have any query regarding this Click Here