India Calling: A look at legal & regulatory regime relating to investment in India
India, a land of opportunities, is one of the few countries in the world which has demonstrated a sustained economic growth despite a not-so-good global economic scenario. India is blessed with two of the most important factors for economic growth – abundance of natural resources and a deep consumption market.
India has a fairly liberalized foreign investment regime and a regular revamp of the foreign direct investment policy on a continuous basis has ensured that India stays on top of the development scenario. India offers multiple options and avenues for a foreign investor to invest into businesses in India and / or to set up business presence in India. Depending upon an investor’s preference and business objective, there are various options to have difference kinds of business presence viz. representative office, branch office, liaison office, project office, joint venture, wholly owned subsidiary or other forms of direct and indirect investments.
Certain forms of business presence like representative office, branch office, and project office require prior approval of the banking and foreign exchange regulator in India i.e., the Reserve Bank of India (“RBI”). The foreign investment in business entities is primarily regulated under the provisions of the Foreign Exchange Management Act, 1999 (“FEMA”) and the Foreign Direct Investment Policy (“FDI Policy”) issued by the Government of India, from time to time. The FDI Policy and the FEMA contemplate foreign investments in Indian companies under two routes viz., automatic route and approval route. Most of the investment attractive sectors like IT, ITES, software services, manufacturing, construction development, infrastructure etc., are under the automatic route. The sectors where the foreign investment is subject to approval route require prior approval of the Government of India. The foreign investment can also be made in form of debt in accordance with policy relating to the external commercial borrowing as contemplated under the FEMA.
Since the time the Indian economy was opened up for foreign investment in the year 1991, there has been a significant evolution in the FDI regime. Except for few strategic and core sectors, almost all the sectors have been opened up for foreign investment. In several sectors foreign investment upto to the extent of 100% is allowed, thereby making it possible to set up completely foreign owned ventures in India. Under the FDI Policy, foreign investors can invest into Indian business using various investment instruments like equity shares, convertible preference share, convertible equity shares etc. Subject to compliance with certain investment conditions, exit is also convenient and does not contemplate any lengthy and complicated process.
India offers an open investment regime with a stable legal and taxation system The financial and the capital market in India is also very deep and mature, offering investors and other entities a very effective and competent infrastructure. The Government of India is also constantly working towards rationalizing the process of setting up business in India and has undertaken several notable steps to improve the ease of setting up and doing business in India. The recent legal and taxation reforms like coming into effect of the Insolvency and Bankruptcy Code and the Goods & Services Tax clearly demonstrate India’s resolve to emerge as one of the most business friendly jurisdictions in the world. The flagship programs of the Government of India like ‘Made in India’ and ‘Digital India’ have only added to the impetus and have
clearly demonstrated India’s resolve to make India as one of the most attractive investment destinations in the world.
Given the Government initiatives like Start-up India and Digital India, the start-up culture in India is also witnessing a tremendous boom. This offers immense investment opportunities for investors who wish to be part of this new phenomenon wherein young ventures, with disruptive business propositions, are changing the way businesses are run and are creating great value for all the stakeholders.
India is on the path of being an economic superpower and therefore it is imperative for global entrepreneurs and investors to have pie of the India’s growth story.
