From opening up the economy for Foreign direct investments (FDI) in 1991 to ranking 63rd in World bank’s Ease of doing business index in 2020, India has gradually become a key investment destination for global companies. Over the years, the reformed, streamlined and liberal FDI investment policies implemented by the Government of India have made the operating conditions favourable. The bureaucratic regulations and formalities have also been simplified so that foreigners can start a business in India with ease. Read more on how a business can start a business venture in India.
Entry routes to Indian market
FDI entry by non-residents into India is regulated primarily through two routes depending upon the sectors and investment levels intended by businesses. A foreign citizen wishing to start a business in India can either take the approval (or government) route or the automatic route to start their business in India. The approval route requires a go ahead from government agencies that regulate and scrutinize the FDI investment under the stipulated conditions. The business startup has to submit their entry proposal to the respective administration for approval. This especially applies to an entity of a country that shares a land border with India or where the beneficial owner resides or holds citizenship of the said country. In an automatic route, a foreign national does not require any approval from the Government of India.
Types of Foreign Direct Investments in India
As stipulated by the Government of India, there are three types of Foreign Direct investments that a foreign national can look into while considering to start a business in the Indian market These are outlined below –
Horizontal FDI – for businesses whose operational model would remain the same as the parent company overseas with the Indian venture dealing in similar goods or services.
Vertical FDI – for businesses that intend to expand into their operations in India through a different level of the supply chain, but still remain related to the main business.
Conglomerate FDI – for businesses interested in undertaking business activities that are unrelated to the primary business model.
Platform FDI – businesses willing to expand their operations to India, with the goal of exporting the output from the foreign country and to a third country.
Methods of Foreign Direct Investment
Depending upon the entry route and the type of company they want to set up, non-resident investors can start a business in India by selecting the kind of entity they want to establish. A foreign company can consider the below options in their entry strategy to India –
Liaison office – to act as a representative body for marketing & branding of the parent company. It requires prior approval from Reserve Bank of India.
Branch office – to carry out all activities as the parent company, except manufacturing. Also requires advance approval from Reserve Bank of India.
Project office – for executing any short term or long time projects in India with the guidelines provided by Reserve Bank of India
Joint Venture – for a strategic alliance with an Indian associate as a private limited company, entering through automatic route or approval route.
Wholly owned subsidiary – to retain full legal control of your operations, products, and processes It can be set up as a private limited company and take automatic route or approval route.
Limited Liability Partnership – to avail a wide range of activities under approval route.
India provides a diverse business environment with an array of opportunities for foreign companies to venture into. At the same time, the policies for FDI investments are complex and multi-layered. It is suggested that foreign investors engage a consultancy that specializes in setting up new business in the country.
