India as investment destination

exclave designed to have 18 bridges and seven tunnels upon completion. Access to a string of new hotels in the region will then be much improved, with two Atana hotels already operating there – Atana being Oman’s own- brand, run by the tourism ministry.

India as investment destination

On the back of liberal economic policies and reforms, and improving macroeconomic fundamentals, India has emerged as one of the fastest growing economies in the world and an attractive investment destination. Today, India holds a vital position in the global economic market. In fact, it serves as one of the major forces for businesses. The GDP is expected to reach US$ 5 trillion by 2025, achieving upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. The country’s diversity indeed raises the demand for a varied choice of products. Thus, the Indian market attracts other countries to magnify their ties with the country15 . While many of the growing economies confront a rapidly greying population, India’s tech-savvy and educated young population is fulfilling the demand for skilled workers worldwide. The considerable low operation charges — starting from infrastructure to phones, internet and inexpensive labour force to set up a business — all make India a welcoming market for foreign clients to set up a business. The working-age population is calculated to cross the one-billion mark by 2030. Out of a total population of 1.31 billion, 767 million fall in the age group between 15 and 64 years. The nation also has a well-regulated financial system that opens the gateway for developed markets across the globe for multiple investments. The growing influence of India can be seen on various levels – an equal partner in the BRICS, a co-founding member of various international organizations, including the United Nations, the Asian Development Bank, New Development BRICS Bank, and the G-20. It is also well-known for founding the Non-Aligned Movement.In the recently concluded India Ideas Summit, Prime Minister Modi has invited businesses to seize investment opportunities in India. The potential of growth of certain sectors such as healthcare, infrastructure, defence, energy, civil aviation and insurance are particularly high with capacity for greater returns and dividends for a foreign investor. Doing business in India, which is Asia’s third-largest economy after China and Japan, is a profitable option as the majority of the industries and sectors are almost untapped and hence the fear of facing stiff competition is less: If you want returns with reliability, India is the place to be. If you want

15 India Brand Equity Foundation. https://www.ibef.org/economy/indian-economyoverview

demand with democracy, India is the place to be. If you want stability with sustainability, India is the place to be. If you want growth with a green approach, India is the place to be. India’s growth has the potential to catalyse global economic resurgence. Any achievement by India will have a multiplier impact on the world’s development and welfare. We will do whatever it takes to make India the engine of global growth resurgence.

Prime Minister Narendra Modi16

According to UK India Business Council’s ‘Doing Business in India Report 2020’, 66% of the surveyed businesses have stated that they prefer an easier form of doing business and prefer India for its progressive reforms and improvement in business environment. India ranked 63rd out of 190 countries in the 2020 Doing Business report published by the World Bank, a significant improvement from the previous year’s spot, when it ranked 77th. As such, India joined the list of 10 most improved economies for the third year in a row. The country has conducted a remarkable reform effort, and given the size of the country’s economy, these reform efforts are particularly commendable: India is targeting to achieve a rightful place in the comity of nations. The Government is working as a team, breaking departmental silos. There are large business opportunities in the country and bold decisions are being taken to empower the businesses to think big and bold as well as explore unchartered territories and businesses. Commerce and Industry Minister Piyush Goyal17 Numerous foreign companies are setting up their facilities in India on account of various government initiatives like ‘Make in India’ and ‘Digital India’ launched by Prime Minister Narendra Modi. ‘Make in India’ initiative was launched with an aim to boost the country’s manufacturing sector and increase the purchasing power of an average Indian consumer, which would further drive demand and spur development, thus benefiting investors. The ‘Startup India Movement’ has further strengthened the Foreign Direct Investment (FDI) in the country to foster business partnerships. Through this initiative, the government empowers startup ventures to boost entrepreneurship, economic growth and employment across India. Besides, the government has also come up with ‘Digital India’ initiative, which focuses on three core components:

16 From his speech during the Virtual Global Investor Roundtable with leaders of top pension and sovereign wealth funds, November 6, 2020. https://www.pmindia.gov.in/en/ news_updates/pms-address-at-the-virtual-global-investor-roundtable/ 17 Business World. (2020, November 12). ‘Piyush Goyal invites global investors to invest in India’.

creation of digital infrastructure, delivering services digitally and increase digital literacy. ‘Atmanirbhar Bharat’, which translates to ‘self-reliant India’ or ‘selfsufficient India’, is a policy formulated by the Modi government to make India “a bigger and more important part of the global economy”, pursuing policies that are efficient, competitive and resilient, and being self-sustaining and self-generating. The initiative aims to boost the country’s manufacturing sector and increase purchasing power of an average Indian consumer. This is expected to spur both demand and development, thus benefiting investors. As part of the programme, numerous government decisions have taken place, boosting scope for private participation in numerous sectors, increasing FDIs. The five pillars of ‘Atmanirbhar Bharat’ are stated as economy, infrastructure, technology-driven systems, vibrant demography and demand: Under this vision, we do seek to forge closer investment and technology partnership with our friends and partners, including Oman. We see huge opportunities for Omani companies to benefit from India’s growth. In particular, we see opportunities in infrastructure sector where government envisages investments to the tune of US$ 1.4 trillion by 2025. There are huge opportunities in sectors such as power, transport, water and sanitation, renewable energy, education, health and even in real estate sectors.

Munu Mahawar, Indian Ambassador in Oman18 Even as most economies all over the world are facing a slump following the outbreak of the COVID-19 pandemic, strong signs of economic revival are visible in the Indian economy. India has registered its first-ever trade surplus in June 2020 when export marginally inched up by US$ 0.79 billion against imports. India enjoys stable and positive ratings from major credit rating agencies around the globe and has a total foreign exchange reserve of US$ 481.89 billion. The International Monetary Fund (IMF) projects India to be the fastest growing major economy in 2020. Although it foresees the economy contracting by 10.3% in 2020 due to the impact from the coronavirus pandemic, the global agency expects the economy to rebound with 8.8% growth the following year and regain its position as the fastestgrowing emerging economy19 . Rating agency Moody’s Investors Service has forecast the GDP for 2021 as 8.6%, from 8.1% projected earlier. The country is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion

18 Personal interview. 19 Business Standard. (2020, July 16). ‘India posts trade surplus in 2020 after 18 years’.

by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group report. India has also overhauled its FDI policies to incentivize international investments in the country. FDI is a non-debt resource for the economic development of the country. Inflow of FDI to a country not only brings the required injection of money into domestic industries but also brings in the inflow of technology, knowledge, skills and expertise that enhances capacities and competitive capabilities of domestic businesses. The influx of investment into India has hugely improved since the liberalisation, privatisation and globalisation reforms of 1991 when the government opened up the Indian economy for expanding the role of private and foreign investments. Since then, India has now become an attractive FDI destination becoming one of the top five host economies for FDI in the developing Asia region. Under ‘Make in India’, 25 key industrial sectors have been identified including food processing, automobile, automotive, textile, leather, pharmaceuticals and chemicals. Dedicated policy impetus and relaxed FDI norms are provided to foster high-speed growth in these sectors. What makes India an investment destination? According to Jose Chacko, Partner, Crowe Oman, “India is projected as the land of unlimited opportunities. There are multiple reasons to invest in India”20. The ‘Ease of Doing Business’ initiatives by the Government of India have also been instrumental in smoothing the pathways for obtaining the required regulatory approvals, thereby facilitating the attraction of foreign investors to India. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI in India grew by 13% to a record of US$ 49.97 billion in the 2019-20 financial year. The country had received FDI of US$ 44.36 billion during April-March 2018-1921 . The DPIIT shows that attracted maximum foreign inflows during 2019-20 include services (US$ 7.85 billion), computer software and hardware (US$ 7.67 billion), telecommunications (US$ 4.44 billion), trade (US$ 4.57 billion), automobile (US$ 2.82 billion), construction (US$ 2 billion), and chemicals (US$ 1 billion). The highest FDI flow of US$ 51 billion — an increase of 20% — was registered in 2019 compared to 2018. FDI stock, according to UNCTAD, reached US$ 427 billion in 2019, representing a rise of more than US$ 220 billion when compared to 2010. During 2019, India has relaxed administrative regulations for foreign investors in some industrial sectors by abolishing the requirement

20 Personal interview. 21 Financial Express. (2020, May 28).

for approval by the Reserve Bank of India under certain conditions. India is going to be the most attractive emerging market for global partners (GP) investment in 2021, as per a market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA) in 2020. The five years from 2015 accounted for over half of the FDI received by India since the liberalization era of the early 90s, propelling India to top three Greenfield FDI destinations. Interestingly, these investments came in diverse sectors ranging from highly sophisticated areas such as Research and Development Centres for engineering, consumer internet, biotechnology, and pharmaceutical multinationals to resource-intensive industries such as food processing, chemicals and petrochemicals. India also attracted large scale investments in labour-intensive manufacturing process of electronics assembly, textiles, and footwear industries. One of the major reforms over the years for the Indian agriculture sector is the inflow of FDIs. Owing to favourable numbers from Indian agriculture, the sector has been of prime focus for the Indian government, post-independence. This also falls in line with the memorandum of economic development and poverty reduction for the government. The Government of India, under the National Agricultural Policy, promotes private sector participation in the agricultural sector through the concept of contract farming and land leasing. This is to allow accelerated technology transfer, capital inflow and assured

market for crop production, especially that of oilseeds, cotton and horticultural crops.

Foreign direct investments in India22

With impetus on developing industrial corridors and smart cities, the Indian government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for industrial development and will promote advance practices in manufacturing.

Credit: India Brand Equity Foundation

As a part of its ‘Doing Business in India Guide’ series, ‘Invest India’ regularly collates information kits in response to various investor queries. These are across various elements of investor interest such as taxation, incorporation of business and business guidelines, government policies, visa guidelines, sector and state specific information packs. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others23 . Foreign direct investments in India can be made through the following routes: 1. The automatic route: FDI is allowed without government or the Reserve Bank of India (exchange control regulator) permission. 2. The approval route: FDI is only permitted with the prior government permission. As per the process, the application for FDI is thereafter forwarded to the respective ministry, which in turn may approve or reject the application in consultation with DPIIT.

22 UNCTAD. Note: Greenfield 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.

23 Invest India. Information on investments in India is attributed to this government portal. https://www.investindia.gov.in/

India has become one of the most attractive destinations for investment in the manufacturing sector. The sector plays a key role in the economic growth and development of the nation. The government understands that promoting manufacturing in India will help create more jobs in the sector, which contributes around 15% of the country’s GDP, and will give a further push to India’s export numbers. This booming sector has evolved through several phases – from the initial industrialisation and the license raj to liberalisation and the current phase of global competitiveness. Today, Indian manufacturing companies in several sectors are targeting global markets and are becoming formidable global competitors. India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish themselves there.

The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. Until recently, under the Foreign Investment Policy, the sectoral cap for foreign investment in an Indian entity engaged in the defence sector was 100% with investment beyond 49% being subject to government approval, depending on wherever it was likely to result in access to modern technology or for other reasons. However, under the economic stimulus package, the government proposes to raise foreign investment limits in an Indian defence sector entity from 49% to 74% under the automatic route, with the objective to invite greater foreign investment. The Indian government plans to spend US$ 130 billion on military modernization in the next five years, as achieving self-reliance in defence production is a key target for the Government of India. The Government has opened up the defence industry for private sector participation to provide impetus to indigenous manufacturing. The opening up of the industry also paves the way for foreign original equipment manufacturers to enter into strategic partnerships with Indian companies. Annual turnover by the private sector in defence and aerospace sector in 2018-19 was US$ 2.4 billion. The Indian space sector has become the latest industry to possibly join the ongoing trend of relaxed FDI regulation in India. Currently, all FDI proposals for Indian space companies are subject to approval from the department of space. While a foreign investor can technically invest up to 100% under the existing Indian space regulation, any such transaction requires approval by the government first. Under the Foreign Investment Policy, 100% foreign investment is permissible

in an Indian entity establishing greenfield pharmaceuticals manufacturing facilities and foreign investment in an Indian entity having facilities for manufacturing of pharmaceuticals products is permitted up to 74%, under automatic route, and beyond 74% under approval route. The scheme is intended to promote more foreign investment in the pharmaceutical industry and ensure greater research and accessibility of affordable medicines, building manufacturing capacities, introduction of new technologies and employment generation. In the beginning of 2020, the government eased the FDI norms for the aviation sector, allowing 100% foreign direct investment into Indian airline operators under the automatic route. As per the policy, foreign airlines are allowed to invest under government approval route in Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. India’s food ecosystem offers huge opportunities for investments with stimulating growth in the food retail sector, favourable economic policies and attractive fiscal incentives. The food and grocery market in India is the sixth largest in the world. Food and grocery retail market in India further constitutes almost 65% of the total retail market in India.

The Government of India, through the Ministry of Food Processing Industries (MoFPI), is also taking all necessary steps to boost investments in the food processing industry. The government has sanctioned 37 food parks funded under the Mega Food Parks Scheme, 18 are operational and 19 are under implementation as of February 27 2020. India is expected to be the world’s third-largest automotive market in terms of volume by 2026. The industry currently manufactures 26 million vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycles in April-March 2020, of which 4.7 million are exported. India holds a strong position in the international heavy vehicles arena as it is the largest tractor manufacturer, second-largest bus manufacturer and third largest heavy trucks manufacturer in the world. India is emerging as the hub for digital skills. The country spends US$ 1.6 billion annually on training workforce in the sector. The industry is the largest employer within the private sector, employing 3.9 million people. India is transforming into a digital economy with over 450 million plus internet subscribers, second to China.

The Indian IT industry has more than 17,000 firms, of which over 1,000 are large firms with over 50 delivery locations in India. The country’s cost competitiveness in providing IT services, which is approximately 3 to 4 times more cost-effective than the USA, continues to be its unique selling proposition in the global sourcing market.