What factors to consider before investing in Indian Market
The Indian economy is emerging as one of the most potential markets for foreign investments. Currently, the gross domestic product of the country stands at USD 694.93 billion. Furthermore, there has been an increase in foreign direct investments across various industrial sectors in recent years. This has led to a 5 times YOY growth in the Private Equity Venture Capital sector. Also, research states that India will become one of the top 3 economic powers globally in the next 10 to 15 years, which will lead to Global Giants investing in India.
Backed by the robust democracy and strong partnership, India opened doors to lucrative business opportunities. However, the market is highly competitive, and strategic planning is imperative. Foreign investors, therefore, must consider collaborating with reliable consultants for an end-to-end market entry services. This will help in the process of business implementation in India and ensure unmatched growth.
The following section enlists 7 things that foreign investors must consider while investing in India.
FDI Terms and Limits
Foreign firms need to collaborate with a reliable business expansion consultant to ensure that they invest in a sector where FDI is permitted. Indian economy runs with regulated exchange control. This means any inbound or outbound foreign investments are officially regulated.
Currently, foreign investment is permitted via the automatic Route for most industrial sectors. However, certain sectors like atomic energy, real estate, tobacco, etc., are totally prohibited. Furthermore, some other sectors have a specific cap on the amount of or local sourcing requirements. Therefore, to avoid investment risk, it is crucial to undertake a thorough check.
Foreign firms must also obtain tax advice from contract manufacturing partners in India. In India, several factors about tax imposition frequently change with altering market dynamics. Foreign investors must be aware of the “Indirect Transfer Tax” levied on certain transactions that occur outside India.
Furthermore, foreign firms need to consider some ancillary investment protection or dispute resolution benefits. This can occur by choosing some jurisdictions with a bilateral investment treaty with India to route an equity investment.
Types of Investments
There are various types of investments via which foreign firms can enter the Indian market. Funds from foreign companies can be invested either in shares, properties, management, or collaboration. Based on this, foreign investments in India can be classified into Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and Foreign Institutional Investment (FII).
To understand which type of investment will work profitably for their respective business interest, foreign organizations must consult with market entry services. This will help them undertake strategic planning and ensure better ROI down the line.
Regulatory & Statutory Compliances
There are several stringent regulatory and statutory compliances that every new firm entering the Indian market needs to abide by. Some of them include The Contract Labour Act – 1970 (CLRA), The Minimum Wages Act-1948, The Payment of Wages Act-1936, and more. These regulatory compliances take place across 3 strata which include the central, state, and local administration.
Foreign investors must take help from the top business expansion consultant to understand and fulfill these rules and regulations for safe investment procedures.
In a secondary transaction that involves a foreign firm and an Indian company, If the foreign investor wants to invest in a certain industrial sector by purchasing shares of the unlisted Indian company, they will have to pay a fair market value of the respective shares. An internationally accepted pricing method is used to calculate the cost of such shares.
Foreign investors must be mindful of such pricing guidelines as set by the exchange control to avoid investment risks in the long run. For fair insights, it is highly imperative to consult a market entry services provider.
There are different structures of investing in India. For instance, there is the payment of stamp duty which varies across different states in India. Foreign investors must consult with a leading incubation support service in India to better understand the requisite stamp duty.
Furthermore, for business transfers or asset transfers, a foreign investor needs an Indian representative to act as the acquirer. The representative company can be a subsidiary of the foreign investor in certain sectors where 100% FDI is allowed. It will be of great help for foreign firms if they collaborate with contract manufacturing partners in India.
It is also highly imperative for foreign firms to review their exit rights. In India, for M&A exit rights, RBI restricts “downside protection” for all equity instruments that a particular Indian company issues to foreign investors. Consequently, there cannot be any contractual agreement for guaranteed returns to a foreign investor in India.
Furthermore, in an initial public offering (“IPO”), foreign investors must ensure they are not classified as a “promoter. This will help them avoid the 3 years lock-in restrictions and all the disclosure obligations levied on Indian promoters.
Importance Of Business Expansion Consultants while Investing in India
Without a fair insight into the Indian market, it will be impossible for foreign firms to decide the type of investment, exits strategy, or other essential market entry elements that work best for them. This is where the importance of consultants offering business implementation in India comes to play.
Business expansion consultants like Tecnova will help foreign firms thoroughly research, analyze and understand the above-stated factors and customize their India entry strategies. These firms offer end-to-end business incubation support service in India, which includes:
- Expansion and growth advisory
- Greenfield manufacturing set up
- Complete IT support
- Company incorporation and regulatory compliances
- Human resource services
- India Sourcing and vendor development and more.
With a massive growth in various industrial sectors, the Indian economy is offering a competitive scope from profitable business investment and development. However, it is essential to consider undertaking thorough research on multiple aspects of market entry and investments for successful business set-up, operation, and sustainable business growth. For comprehensive support, it would prove beneficial to collaborate with contract manufacturing partners in India and acquire personalized solutions.
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