WHY TO INVEST IN INDIA

Overview
India is one of the fastest emerging economies today. In
fact, it is ranked higher than Russia, Italy, or UK. It also
ranks second amongst the developing nations. Thus, the
purchasing power capability of India makes it an area of
immense potential. It also offers a wide array of options
and avenues to pursue.

Despite political uncertainty, infra-structural deficiencies,

and bureaucratic hassles, India presents an optimistic
scope for overseas investment and is taking necessary
steps to attract more foreign investors. No business,
irrespective of its size, that is aiming to become a global
player can afford to ignore the Indian market.

India's Business Potential

The huge potential of India lies in the fact that it offers a
very large customer base to tap into. With the population
of India running into the billions, the scope this offers is
tremendous. And as the nation is continuously growing by
amassing higher GDP growth, the standard of living is also
rising. So, the per capita incomes of an average middleclass Indian today is more than what it used to be.

Thus, India offers huge potential for businesses, and a

great plus is that there are still more areas that are to be
explored and that can be gained from. Especially as the
average Indian keeps vying to reach higher, India is the
country to look to for your future endeavors.

Why to Invest in India

India is in the stage of economic development that China was in a

decade
ago.
There
isa
lot
of
room
for
growthin
urbanization,gross
domestic
product
(GDP)and
business
expansion. Foreign investment companies have already given
billions to India's real estate and health care industries with the
expectation of increases in profitability. Indias government has set
plans to reduce thecorporate taxrate from 30 to 25% over the
next four years in an effort to attract business activity. The World
Bank forecasts an increase in India's GDP by 7.9% in 2016.
TheInternational Monetary Fund (IMF)projected a 2016 growth
rate for India of 7.5%. The IMF stated that India is in a highly
favorable position for economic growth.

The Indian economy has witnessed a paradigm shift since

the last decade and is on a robust growth trajectory. Today,
the Indian economy boasts a stable annual growth rate,
booming capital markets, and rising foreign exchange
reserves.
According to the Asian Development Bank's (ADB) report
titled Asia Capital Markets Monitor, the equity market in
India, with a market capitalization of approximately US$
1667.71 billion,has emerged as the third-largest equity
market, behind China and Hong Kong, in the emerging
Asian region.

1.
2.
3.
4.
5.
6.
7.
8.

Size of India
Economic growth
Diversity
Demographics
High Savings
Domestic economy
A robust financial sector
Quality of Investment Markets

Size of India
India's GDP is currently US$1.3 trillion, making it the 8th
largest economy in the world. However, in PPP terms, which
recognizes India's low cost base, the GDP notionally rises to
three times this amount (US$3.8 trillion), it will become the
third largest economy in the world (after the USA and China)
in PPP terms. However, despite representing 7.5% of Global,
India attracts less than 0.5% of investment inflows. An
anomaly which is unlikely to continue for much longer!

Economic growth
India's economy is currently growing by 8.75% per annum and
this GDP growth rate is expected to increase to 9% - 10% per
annum for each of the next 10 years. India's GDP will grow
five times in the next 20 years, and GDP per capita will almost
quadruple.

Diversity
The Indian economy offers investors exposure to a wide range
of opportunities from consumer goods and pharmaceuticals to
infrastructure, energy and agriculture. With its strong services
sector (comprising 50% of India's economy), particularly in
knowledge-based services (IT, software and business services)
India has proved that industrialization and the export of
commodities and resources is not the only path to rapid
economic development.

Demographics
India is one of the youngest countries in the world, with an
average age of 25 and likely to get younger. India's workingage population will increase by 240 million over the next 20
years. With a population of 1.2 billion, a strong work ethic,
high levels of education, democracy, English language skills
and an entrepreneurial culture, India is poised to dominate
the global economy in the next 20 years.

High Savings
With a savings rate of 37% of GDP, India's domestic savings
fuels most of its investment requirements, and only 20% of
India's total public debt is sourced from foreign borrowing.
With significant investment to be made in upgrading India's
poor infrastructure in the next 10 years (estimated to be
US$1.7 trillion) India's Government is taking various steps to
further encourage private and foreign investments.

Domestic economy
India's domestic consumption, generally led by the private
sector, has played a significant role in India's growth and is
expected to remain firm as more people enter the workforce
and the emerging middle classes. India's wealthiest
consumers (those earning US$1m or more in PPP terms) will
increase by 40 million in the next 10 years! Every sector
within India's consumer market is booming, making India far
less vulnerable to external shocks and pressures than other
emerging markets.

A Robust financial sector

India has a robust, diversified and well regulated financial
system which has allowed it to weather the global financial
crisis without any major difficulties and present an image of
quality, resilience and transparency. India's banking sector is
strong, with top quality balance sheets, high levels of
competition (there are around 80 banks in India) and strong
corporate governance.

Quality of Investment Markets

The Bombay Stock Exchange is the second oldest in the world
(165 years) and offers investors a low cost, highly efficient,
modern and well governed environment in which to prosper
from India's extraordinary economic growth. The Indian stock
market has generated investment returns of over 15% per
annum for the last 10 years and experts expect this rate to
increase in the next decade. More significantly perhaps, Indian
investors have doubled their money over the last 3 years at a
time when many have lost money in almost every other
market.

The Indian consumer market will grow

2.5 times by 2025

Consumer spending in India grew from US$ 549 billion to US$

1.06 trillion between 2006 and 2011, putting India on the path
to becoming one of the worlds largest consumer markets by
2025. Indias consumption is expected to rise 7.3 per cent
annually over the next 20 years. By 2040, nine out of every
ten Indians will belong to the global middle class group with
daily expenditures ranging between US$ 10 and US$ 100 per
person in todays purchasing power parity terms.

Seventy per cent of this expenditure will be on discretionary

items like entertainment, healthcare, communication,
education, personal products, services and so on. The
absolute number of Indias middle class will touch 1 billion by
2039, with its influence on global middle class consumption
captured in the figure below.

This rise of Indias new middle class is globally significant as it will

usher fundamental changes in India and around the world by
triggering waves of innovation in the production, distribution and
delivery of goods and services, including government services.
Innovations - like the US$ 2200 Nano car by Tata Motors, the
inexpensive hand-held electrocardiogram (ECG) machine from GE
Healthcare, a low-cost water purifier called Tata Swach by Tata
Chemicals, a battery-powered ChotuKool refrigerator by Godrej, and
a mobile phone application called Nokia Life Tools by Nokia for rural
consumers to access agricultural, educational and entertainment
content - are some examples of frugal engineering that are primarily
aimed at the Indian market, but will likely find buyers in many other
parts of the world as well.

Government Initiatives

Budget 2016-17 has proposed several reforms in FDI Policy in areas

of insurance and pensions, asset reconstruction companies and
stock exchanges, such as easier governing and fund raising norms,
clarification of tax related matters and higher FDI limits.
In order to make India a more attractive foreign investment
destination, the Ministry of Finance is planning to introduce the
residency permit policy, which will allow key executives of foreign
companies making investments worth US$ 2 billion or more in
India, to avail various facilities such as special package on upscale
housing, residency permits allowing long stay in the country, and
cheap rates for utilities.

The Department of Industrial Policy and Promotion (DIPP) has

allowed 100 per cent foreign direct investment (FDI) in asset
reconstruction companies (ARC) under automatic route, which will
help to tackle the issue of declining asset quality of banks.
Mr. Shaktikanta Das, Secretary, Department of Economic Affairs,
Ministry of Finance outlined Government of India's plans to
liberalize FDI rules by putting more sectors under the automatic
route, which will fast track FIPB process thereby making India an
attractive investment destination.

The Government of India has amended the FDI policy

regarding Construction Development Sector. The amended
policy includes easing of area restriction norms, reduction of
minimum capitalization and easy exit from project. Further, in
order to provide boost to low cost affordable housing, it has
indicated that conditions of area restriction and minimum
capitalization will not apply to cases committing 30 per cent
of the project cost towards affordable housing.

The Government of Karnataka has approved three investment

proposals worth Rs 2,211 crore (US$ 329 million), which
includes that of PepsiCo and Biocon for setting up their new
production facilities in the state, and one expansion project
proposal of Manyata Promoters Private Limited.

The Government of India has recently relaxed FDI policy in 15

sectors, such as raising the foreign investment limit for some
sectors, easing the conditions for others and putting many on the
automatic route for approval. The sectors that benefited from the
relaxation include defense, real estate, private banking, defense,
civil aviation, single brand retail and news broadcasting. The new
rules provide for easier exit from investment in the construction
sector while foreign investment limit in defense and airlines was
allowed up to 49 per cent through the automatic route. Banks
were allowed fungible FDI investment up to 74 per cent, which
means that FII investment in private banks can rise to this limit.

The Government of India recently relaxed the FDI policy

norms for Non-Resident Indians (NRIs). Under this, the nonRepatriable investments made by the Persons of Indian Origin
(PIOs), Overseas Citizens of India (OCI) and NRIs will be
treated as domestic investments and will not be subject to FDI
caps.

The government has also raised FDI cap in insurance from 26

per cent to 49 per cent through a notification issued by the
DIPP. The limit is composite in nature as it includes foreign
investment in the form of foreign portfolio investment, foreign
institutional investment, qualified foreign investment, foreign
venture capital investment, and non-resident investment.

Indias cabinet cleared a proposal which allows 100 per cent

FDI in railway infrastructure, excluding operations. Though the
initiative does not allow foreign firms to operate trains, it
allows them to invest in areas such as creating the network
and supplying trains for bullet trains.

India is likely to grant most favored nation (MFN) treatment to

15 countries that are in talks regarding an agreement on the
Regional Comprehensive Economic Partnership (RCEP), which
would result in significant easing of investment rules for these
countries.

The Government of India plans to further simplify rules for

Foreign Direct Investment (FDI) such as increasing FDI
investment limits in sectors and include more sectors in the
automatic approval route, to attract more investments in the
country.

FDI Initiatives

India has one of the most liberalized FDI policy regimes in the
world. Government has put in place an investor-friendly policy
on FDI, under which FDI, up to 100%, is permitted, under the
automatic route, in most sectors/activities. Significant
changes have been made in the FDI policy regime from time
to time, to ensure that India remains increasingly attractive
and Investor-friendly.

In the light of the importance of foreign direct investments for

economic growth and development, the government
announced key FDI reforms in the defense and railways
sectors. The entire range of rail infrastructure was opened to
100% FDI under the automatic route, and in defense, sectoral
cap was raised to 49%. To boost infrastructure creation and to
bring pragmatism in the policy, the Government reviewed the
FDI policy in the construction development sector also by
creating easy exit norms, rationalizing area restrictions and
providing due emphasis to affordable housing.

To give impetus to the medical devices sector, a carve out

was created in FDI policy on the pharmaceutical sector and
now 100% FDI under automatic route is permitted. The
Government, in order to expand insurance cover to its large
population and to provide required capital to insurance
companies, raised the FDI limit in the sector to 49%. Pension
sector has also been opened to foreign direct investment up
to the same limit. The FDI policy provisions pertaining to NRI
investment have also been clarified by providing that for the
purposes of FDI policy, investment by NRIs on nonrepatriation basis under Schedule 4 of FEMA (Transfer or Issue
of Security by Persons Resident Outside India) Regulations will
be deemed to be domestic investment at par with the
investment made by residents.

Government has undertaken a number of steps to improve

Ease of Doing Business in India. Amongst the other important
steps, Ministries and State Governments have been advised to
simplify and rationalize the regulatory environment through
business process reengineering and use of information
technology.

These measures are expected to increase FDI, which

complements and supplements domestic investment.
Domestic companies are benefited through FDI, by way of
enhanced access to supplementary capital and state-of-arttechnologies; exposure to global managerial practices and
opportunities of integration into global markets resulting into
accelerated domestic growth of the country. Further, as FDI is
largely a matter of private business decisions, global investors
normally take time to assess a new policy and its implications
in the context of a particular market before making
investment.