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Investing in India

Restrictions to Investments in India

There are many opportunities for investments in India , even though it is still developing economy.  Many banks, both public and privately owned, offer aid to investors.  Although India has been loosening the rules and regulations of the government to promote foreign investment, there are still restrictions on what/how much one can invest in as a foreigner.

Restrictions on Investing in India

One section of Indian rule prohibits any investment of foreigners into certain areas of business.  These industries are: retail trades (except single-brand retail), atomic energy, lotteries, gambling and betting, housing and real-estate business, and certain types of agriculture.  No entry of any kind will be permitted to a foreigner in these fields.

Some sectors are allowed investment, but have it capped to some portion (normally 26%, 49% or 74%).  These amounts are chosen to both protect the right of foreigners to invest into the Indian market, while still ensuring that foreigners never fully establish control over these areas of business in India.

  • Industries limited to 26%: defense industries, print media, insurance
  • Projects limited to 49%: broadcasting, domestic airlines, infrastructure/service sectors
  • Products with 74% foreign ownership: establishment and operation of satellites, atomic minerals, exploration and mining of coal

Those that are not in this category can be fully owned by a foreign investor.  However, those that are fully owned by foreign investors will usually need to be given a license by ‘The Ministry of Commerce and Industry’ or approval from the ‘Foreign Investment Promotion Board’.  Also, retaining to the financial sector, one can only invest subject to approval by the Reserve Bank of India.  Both the limits on the ownership and approval are safeguards to protect Indian ownership of their market as a whole.

The government of India, in contrast to its limits on foreign investment in certain areas, strongly desires to have foreign capital put into their markets.  They have a well established financial system similar to our banks, where economic savings are effectively allocated among the ultimate investors.  The money is loaned out by various banks, financial institutions, non-banking financial companies and venture capital companies.

By – Domenic Gabriella for IndiaExports.com

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Investing in India

Benefits to Foreign Investing

American regulation on foreign investing as a global power is very slim.  Businesses often invest into business offshore or simply start a business in another nation like India for their superior talent, cost and quality over the domestic market.  Not to mention America’s Treasury for International Affairs has a standing policy to, “support U.S. economic prosperity by strengthening the external environment for U.S. growth.”

Benefits to Foreign Investing

There are, of course points to encourage foreign investing.  The largest is the tax loophole for companies doing business outside of the United.  This loophole is in the U.S. tax code allows domestic companies to defer taxes on revenue that those companies earn through their overseas subsidiaries. The catch is that the revenue must stay off the company’s US books in order for this loophole to apply. Such a feature can help a company that, if in the highest corporate tax bracket, would pay 35% in taxes on its net income, and instead invest into a foreign market where there will not be as high a tax rate, along with the exemption of American taxes on money not on the books overseas.

Investing in India

The Democratic base of both India and the United States also allows for an open amount of free trade, and continued discussions will only continue to remove any trade barriers between the two nations.  At the beginning of the month, President Obama visited for India’s State Department reception for Indian External Affairs Minister Krishna, for both discussions of future trade relations, as well as to promote the American-Indian trade relations.   U.S. officials have been frequenting India to try and increase the ease of trade between the two nations on a regular basis.

On a note of reflection, one could make the argument that India, not China will become the Asian superpower of the next few decades.  While China shows an amazing rate of growth, business and output, it is still a command economy and has much stricter limits on foreign investment with less sign of change than India.  Even as China leans towards a more capitalistic form of rule, without property rights or a change in the ruling body, one could expect to see a shift towards investment in India over China in the years to come.

By – Domenic Gabriella for IndiaExports.com