WHY FOREIGN COUNTRIES ARE INVESTING IN INDIA

Foreign Companies can set up their operations in India through

Liaison Office/Representative Office Project Office Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India. 1) Liaison office/ Representative office Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. The approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). 2) Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. 3) Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying/selling agents in India. Rendering services in Information Technology and development of software in India. Rendering technical support to the products supplied by the parent/ group companies. Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI). Branch Office on "Stand Alone Basis" Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.

BENEFITS
Companies invest in India because it is an emerging market due to following reasons:

Home-Grown Demand: While India will experience crashes, its strength is that its economy isnt export-driven. Rather, its an insulated market, which thrives on local demand, not the whims of the international markets or currency flows. Population: Unlike China, India doesnt have a population on the verge of anarchy if the government stops spending its reserves just to create make-do work. In addition, the countrys middle class is larger than the entire population of the United States, which allows it to generate a tremendous amount of internal economic activity.

Business Protection: Indias companies tend to thrive with less threat of competition from abroad, thanks to the countrys protective business policies

5 Reasons why foreign countries invest in India

1)

Cant ignore the resilience This resilience is clearly reflected in the fact that average economic growth rates have moved up and India has emerged as one of the fastest growing economies in the world. Going forward the benefits of these measures will become more pronounced as focus shifts to implementation. Coupled with the expected shift in the demographics which should see a larger share of the Indian population falling in the working class age bracket, the Indian economy can be expected to perform better over the next decade

2)

Renewed focus on agriculture, infrastructure In recent years there has been a renewed focus on two key but long ignored segments of the Indian economy? Agriculture and infrastructure. The focus on agriculture and related activities, which supports approximately 65 percent of the Indian population, should provide a new thrust area for economic growth. An overall improvement in infrastructure will add to the competitiveness of the economy. In the interim, as these projects are implemented, the economy will get a boost as investment demand will surge.

3)

Benefits of foreign direct investment Foreign direct investment (FDI) inflows have stagnated in recent years. But its significance cannot be lost. Not only does FDI augment domestic capital and help increase productive capacity of the economy, it also brings in with it world class technology, processes and products/services, and jobs. The benefits of these lessons are likely to be more pronounced in India,

which is way behind developed countries. This should help the economy boosting productivity and competitiveness.

4)

The global outsourcing boom Competitiveness in this sector would be sustained by declining infrastructure costs (a case in point is the declining telecom rates which are a key cost for BPOs) and ample supply of skilled manpower. Higher employment and better incomes would once again contribute significantly to overall economic growth. Some examples of the kind of outsourcing work that could find its way to India: research and development for various products and services (including pharmaceuticals), manufacturing of auto parts and complete IT departments and networks.

5)

Well-regulated and deep capital markets The Indian stock and debt markets (including banks and mutual funds) are well regulated by the Securities and Exchange Board of India and the RBI. Redressal measures are well laid out and this makes it easier to protect ones interest. In terms of infrastructure the Indian institutional framework is improving rapidly, backed by a strong financial system. By some measures Indian markets compare with the best globally. In terms of choice, the Indian markets are right up there. Be it stocks, mutual funds, deposits or life insurance. The market is deep and liquidity is no major concern for individual investors. India today offers a great investment opportunity.

Role of Foreign Direct Investment (FDI)

Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy. India stands fourth largest economy in FDI.

FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

During 2000-10, the country attracted $121 billion as FDI. The total FDI equity inflow into India in 2008-09 stood at 122,919 crore (US$ 27.9 billion), a growth of 25% in rupee terms over the previous period.