India attempts to encourage investments from foreign residents. The following are among the reasons that foreign investors are attracted to India:
A good command of English at the management and technical levels.
Extremely low labor costs.
A tremendous buyers' market in India itself that derives from a population of a billion.
An expectation of a sharp increase in the buying power of Indian residents, a fact that is influenced by rapid increases in wages in India.
An extremely high technological ability in India that finds expression, among other matters, in the nuclear industry and hi-tech services provided in India for foreign companies.
In the 9 months ending December 2005, foreign direct investments (FDI) that were approved in India totaled 3.7 billion dollars. Dupont, GM, Motorola, Intel and Microsoft are among the many foreign companies who invested in India, The FDI in 2002-2005 was mainly in the electrical equipments- approximately 17%, transportation industry, telecommunication and service sector, about 10% each.
Despite the economic reforms carried out in India since 1991, foreign residents' investment are still restricted. These restrictions relate to specific sectors where there is maximum imposed on investments made by foreign residents. These are subject to one of two options. The first is entry to an "automatic track" in which there is no need for prior approval. The foreign investor in an existing company must report his holding to the central bank (RBI) within 30 days of issue of the shares. The second option relates to investments outside the "automatic track" and they require the prior approval of the Indian Government. The approval, if granted, is on a separate basis for each class of investment.
Figures as to the maximum limit allowed for foreign investors in the various sectors are as itemized below. It should be pointed out that in certain instances a higher maximum is approved when the investors are non-resident Indians (NRI). Insurance - up to 26% of the cost on the automatic track. Banks - up to 20% in banks owned by the State and up to 49% in private banks. Real estate -foreign residents are not allowed to invest in retail real estate transactions or in the purchase of agricultural land. Commerce - foreign investors may not invest in commerce but an investment of up to 51% is permitted in export-oriented commercial ventures.
A foreign investment of up to 100% is permitted in IT such as software other than in the defense and space industries.
Special Economic Zones (SEZ) and Development Zones
India has a number of Special Economic Zones (SEZ). The SEZ zones are considered as foreign territory in all that concerns taxes and customs. Companies in the SEZ are eligible for a total exemption from tax for the first 5 years and a 50% exemption from the tax due for the next five years.
Entrepreneurs who supply infrastructure resources in the SEZ are eligible for a 10 - year exemption from tax.
Industrial concerns - Export Oriented Undertakings (EOU), if the total production is intended for export, regardless of the company's location in India, are entitled to an exemption from taxes for 10 years as well as to an exemption from import taxes.
Companies carrying scientific research are also eligible for 10 years tax exemption.
