Advantages of investing in India (FDI)

FDI up to 100% in many sectors and activities which includes many manufacturing activities, non-banking financial services, hospital, private oil refineries, software development, electricity generation (non-atomic),transmission and distribution, roads & highways, hotel & tourism, research and development etc. Multiple forms of entry are allowed for a corporation depending on its requirements and needs. Different forms include entry through setting up a Joint Ventures, Wholly Owned Subsidiaries, Liaison or Representative Office, Project Office or Branch Office. A mature and favourable taxation system with low custom duties and excise duties and low corporate taxes. Numerous tax holidays or rebates depending on the sector and geographical location of investment provided. For an example, there is a tax holiday of ten years for foreign investment in infrastructure projects taken up in certain backward areas of North Eastern States and Sikkim, units located in specified zones, projects which are 100% export oriented etc. India has already entered into a Double Taxation Avoidance Agreement (DTAA) with 65 countries, under which the income generated in India will be taxed in India only and would not be re-taxed in the home country of the investor. Only the difference in the tax rate between the home country and India would be payable. Establishment of Foreign Investment Implementation Authority (FIIA) to assist in implementation of FDI approvals along with the formation of the Foreign Investment Promotion Board (FIPB) to assess FDI proposals and appointment of Grievances OfficerCum-Joint Secretary in the Ministry of Commerce and Industry to cater to the complaints of potential and current investors. Various rules and regulations to protect intellectual property rights such as The Trademarks Act, Patents Act, Geographical Indicators of Goods Act and The Designs Act. Liberal foreign exchange regulations, under the Reserve Bank of India. Huge availability of skilled workforce added by a low average age close to 25 years make India a suitable destination for investors To ensure up-to-date information on current policies and procedures, various points of call have been set up which are easily accessible. For example, the Secretariat for Industrial Assistance (SIA) has been set up for this purpose.

Disadvantages of investing in India (FDI)

Political risk is one of the main deterring factors towards FDI in India. Fact that India is the worlds largest democracy does add a sense of pride and security, but there is insurmountable instability present in Indian political system. All new governments have

certain policies which are different from the ruling government and frequent change in government may lead to changes in policy and increased uncertainty. Another very important factor that affects Indias FDI is the Bureaucracy in the system. In the FDI process Indian Government has already invested a lot of time but there is still a lot of room for improvement in the identification, approval and implementation process. Present security risk is another important factor that needs to be addressed with care and worked upon. Risk includes the geopolitical risk with Pakistan and the long dispute over the Kashmir issue. These have brought two countries armed with nuclear weapons to the brink of war numerous times. Other security risks include incidences of domestic terrorism in Assam, Manipur and Nagaland. Investors place extreme importance on maintaining their IP rights and with increased instances of piracy; this is an area where India needs further improvement to gain confidence of investors. India has begun to focus on instilling intellectual property rules and regulations but there is still a long road ahead. One main area for improvement in this regard is the enforcement of the laws, which is the most crucial part but at present is weakest in the country. Increased privatization of some important sectors would definitely add to the attractiveness of India as an FDI destination and India has already taken steps to privatize some key areas such as electricity, telecommunication etc. India has also take steps to increase the foreign holding capacity in financial sectors such as banking and insurance. Adequate infrastructure present in the country is definitely an added bonus to the investors. In India there is substantial lack of infrastructure around the country which includes lack of proper roads and highways, adequate supply of clean water, uninterruptible supply of electricity, etc. Lack of infrastructure may itself provide substantial investment opportunities, but if not materialise government will need to invest in infrastructure to attract investors.

Threat from other economies Though India at present is second most favourite destination for FDI behind China, but as given in the figure below it doesnt make to top 25 destinations for next 25 years. Reasons for each economy making to list are also given in the figure and because of this it is taking

TOP 25 FDI DESTINATIONS OVER THE NEXT 25 YEARS (Source: Global Finance)