DOING BUSINESS WITH INDIA
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India, with its vast natural resources, its large market, its skilled labour and its developed infrastructure has the potential to be an economic giant. A well-established democratic polity has been its traditional strength. The new economic policies are aimed at releasing India's huge untapped potential.
India welcomes direct foreign investment. The changes in economic policy announced recently are specifically aimed at attracting investment in 34 priority areas which include a large part of the industrial sector. But the red carpet being rolled out for investors is not enough by itself to bring them to India. They could also choose from a host of other destinations - East Europe, South-East Asia, Latin America,to name only a few. So why India? Because India offers advantages that few other countries can match. Advantages that make India a uniquely attractive country to do business with, to invest in.
India's population of 860 million makes it the world's second most populated country. It also means that a full sixth of mankind lives in India. Its huge middle-class, estimated at around 190 million, is burgeoning by the year. It is a reality which no large, truly multinational corporation can afford to ignore. India is where the future lies. A number of the world's largest corporations have already decided to participate in this future.
India's GNP stands at about $250 billion. The economy has grown at an average rate of over 5% throughout the 1980s. This is a continental sized economy moving steadily forward, and not all that slowly either. Comparison with Third World economies of similar size would place the performance of the economy in a more accurate perspective. Equally encouraging, the rate of growth itself has picked up considerably during the last decade.
India has among the developing world's most diversified industrial bases. Industry accounts for almost a third of GDP and the engineering, chemical and pharmaceuticals, cement, steel, electronics and textiles sectors are among the more well-developed sectors. Industrial growth rate was 8.4% in 1990-91 despite the adverse effect of the Gulf crisis and the growth rate for the 80s as a whole was over 8%.
India has a sophisticated financial system comprising both the money and capital markets, mutual funds, leasing, investment banks and other financial services. Several leading international banks are successfully operating in India. The stock market is booming and the total market capitalization of the secondary market is put at over Rs.700 bn. Almost 6000 companies having a paid-up capital of more than Rs. 300 billion are listed on the 20 stock exchanges which are served by 3,000 brokers and 20,000 sub-brokers. In the prevailing mood of optimism generated by the new policies, over 20 million investors have combined to keep the market in a sustained bullish phase. During six months from Sep. 1991 the total market capitalisation has gone by over 35%. Therefore capital market are likely to receive a further impetus as a result of number of market friendly measures initiated by the Government in recent months.
These includes:
- Permitting private sector mutual funds.
- Allowing foreign financial institutions such as pension funds to invest in the Indian capital market.
- Exempting investment in stocks from wealth tax.
India has the third largest pool of scientists and engineers in the world. Many of them are as qualified as the best anywhere. The Silicon Valley alone has over 5,500 Indian professionals, most of whom come from India's 150 engineering colleges and 1,800 polytechnics and industrial training institutes. An additional advantage is that the entire managerial elite is fluent in at least one international language- English. Where else in the world can you get similar highly qualified professionals for monthly salaries starting from US $200 per month?
Competitively priced managers are supplemented by the well-known advantage of India's skilled, low cost labour. Plus the low cost of land and building. At industrial estates and export-processing zones, concessional land is available on long term lease for less than $2 per annum. Built up industrial sheds can be had on rent for anything between $5-10 per annum and office space in metropolitan areas, though relatively more expensive, is still quite competitive when compared with other similar locations. Combine this with the abundance of natural resources and India's strategic location and the choice of India as the ideal production base for the entire south Asia, the Gulf and the Far-East is clear.
Development and modernization of the infrastructure is a priority area for the government. Major investment is being undertaken in the energy, transportation and communications sectors in particular. The energy sector alone accounted for investment amounting to Rs. 626 bn. during the period 1985-90. To give a further impetus, the power sector has been opened up to the domestic private sector and also to foreign investment. Completion of the on-going expansion programmes and the growing network of HVDC transmission systems would give India an efficient and low cost power grid.
If it is the bottom line which is the most important part, consider some recent statistics which show that not only do foreign companies in India tend to perform well in comparison with other countries, they also perform well when compared domestic Indian companies. A study by the US Department of Commerce showed, for example, that US companies in India earned better returns than those operating in quite a few other countries. Another study conducted by the Indo-American Chamber of Commerce examined 34 Indo-US ventures over an extended period and found a very high rate of average profitability.
Foreign Investments and Technical Collaboration
How
To Invest In India
India welcomes foreign direct investment. The new policies are directly aimed at
attracting foreign investment and removing hurdles in the path of domestic investors. This
section outlines the policy statements and the changes in procedure which flow from them.
The statement on industrial policy outlines the philosophy of the Govt. and its commitment
to liberalizing the economy through deregulation. The procedures for foreign investment
& technical collaborations flow from this policy (Para 39B&C). The highlight of
the policy is the promoted products category(Annex. III) where approval for up to 51%
equity investment proposals is automatic and where only an application to the Reserve Bank
of India is required. This procedure is also applicable to investment proposals involving
trading companies and hotels and the tourism related industry. Investment proposals
involving greater than 51% equity or involving products not in the promoted category
require approval from the Ministry of Industry. In addition, there is the specially
empowered Foreign Investment Promotion Board which can negotiate terms directly on major
proposals in their totality and free from any predetermined parameters. And there are
special facilities and incentives for export oriented units and investment in units
located in any of the export promotion zones.
FOR FURTHER INFORMATION REGARDING AUTOMATIC APPROVALS, WRITE TO:
CONTROLLER ,
EXCHANGE CONTROL DEPARTMENT,
RESERVE BANK OF INDIA,
NEW CENTRAL OFFICE BUILDING,
SHAHEED BHAGAT SINGH ROAD,
BOMBAY - 400023 (INDIA)
TEL: +91-22-2861602, 2860604
FAX: +91-22-2864667, 2861892
TLX: 011-82318/82455.
FOR PROPOSALS NOT COMING IN THE AUTOMATIC APPROVAL CATEGORY, WRITE TO:
JOINT SECRETARY,
SECRETARIAT OF INDUSTRIAL APPROVAL (SIA)
DEPARTMENT OF INDUSTRIAL DEVELOPMENT
MINISTRY OF INDUSTRY
UDYOG BHAWAN
NEW DELHI- 110001(INDIA)
TEL: +91-11-3014005
FAX: +91-11- 3011770
TLX: 031-6565
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