Foreign Direct Investment is the key investment option one should consider while strategizing for the India market. Since the economic reforms of 1991-92, today we see India entering into ‘opportune’ time for serious investments, the government legislative majority & political agenda, along with global economic scenario – all indicate an analysis into consideration by the global sales executives. Simultaneously, the global sales executives, of foreign firms, must take into consideration the population demography India offers, in their board meetings evaluation.
Let’s have a look at few key developments which have taken place around us and understand the direction in which the Indian economy is heading:-
Sectors which come under up to 100% Automatic Route are:
- Infrastructure Company in the Securities Market: 49%
- Insurance: up to 49%
- Medical Devices: up to 100%
- Pension: 49%
- Petroleum Refining (By PSUs): 49%
- Power Exchanges: 49%
Sectors which come under up to 100% Government Route category are:
- Banking & Public sector: 20%
- Broadcasting Content Services: 49%
- Core Investment Company: 100%
- Food Products Retail Trading: 100%
- Mining & Minerals separations of titanium bearing minerals and ores: 100%
- Multi-Brand Retail Trading: 51%
- Print Media (publications/ printing of scientific and technical magazines/ specialty journals/ periodicals and facsimile edition of foreign newspapers): 100%
- Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%
- Satellite (Establishment and operations): 100%
- Single brand retail: up to 100%
There are a few industries where FDI is strictly prohibited under any route. These industries are:-
- Atomic Energy Generation
- Any Gambling or Betting businesses
- Lotteries (online, private, government, etc)
- Investment in Chit Funds
- Nidhi Company
- Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)
- Housing and Real Estate (except townships, commercial projects, etc)
- Trading in TDR’s
- Cigars, Cigarettes, or any related tobacco industry
FDI norms relaxed for single brand retail, digital media, and contract manufacturing
The government relaxed foreign direct investment (FDI) rule for foreign single brand retailers and also permitted foreign investment in contract manufacturing and coal mining. With new rules, to boost domestic manufacturing:
- 100% FDI in contract manufacturing under automatic route
- 100% FDI in commercial coal mining & related processing
- So far 100% FDI under automatic route was only allowed for captive coal production. It has now been decided to permit 100% FDI for not just commercial coal mining but for associated processing infrastructure as well, including coal washery, crushing, coal handling, and separation
- 26% FDI has been allowed in digital media.
- 100% FDI is allowed in single-brand retail
- Companies in the single-brand space can also start online retailing without opening brick-and-mortar stores first, something that was not allowed earlier.
- whenever the foreign investment exceeds 51% , the mandatory local sourcing norm (30%) kicks in
- As for the single-brand decision, the Department for Promotion of Industry and Internal Trade (DPIIT), the nodal body for investment-related policy, will now also count local sourcing in phases. It will be counted as an average of the total value of the goods purchased by a retailer in the first five years in a single block. After that, the sourcing norms will kick in annually.
- 100% FDI in commercial coal mining & related processing
According to the Commerce Minister Mr. Piyush Goyal Investors now want to open manufacturing centres globally, Goyal said. ‘’They are looking at India to make products for the Indian markets as well as for exports. We have till now focused on those that retail in India, but the country gets a double advantage when investors export from India.’’
Indian government is also considering strengthening the existing policy framework into the other coal mining issues like : sub-scale size of mines, challenges relating to land acquisition and getting statutory clearances, law and order challenges in coal belt will also be factors considered by large foreign players before deciding to invest in Indian coal sector.
Another key development to be taken into factor is the change in the corporation tax which has been reduced to an all-time low:
Corporation tax is a direct tax imposed on the net income or profit that enterprises make from their businesses. Companies, both public and privately registered in India under the Companies Act 1956, are liable to pay corporation tax. This tax is levied at a specific rate according to the provisions of the Income Tax Act, 1961.
In a major move, the government reduced the corporate tax rate from the existing 30-25% (depending on the turnover thresholds) to 22% (effective rate 25.17%, including surcharge and cess) for all the domestic companies, subject to them not availing of a specified list of exemptions. These include, among others, exemptions available to units in special economic zones, deductions for certain scientific research expenditure, additional depreciation available on fresh investments and the losses, if any, attributable to such deductions.
The minimum alternate tax (MAT), introduced to facilitate the taxation of zero-tax companies, will also not be applicable to companies availing of the reduced rate of taxation. MAT has been reduced from 18.50% to 15%(effective rate 17.01%).
The finance minister also announced an expansion in the scope of corporate-social responsibility (CSR) activities. The companies can now spend 2% of the money on state or Union govt incubators, PSUs, state universities, IITs, public-funded entities.
We, at the MCG, facilitate exploring this ‘opportune’ time for global sales executives, while understanding the scarce budget allocation they have to work with and the right information they require to succeed. Get in touch at [email protected]