India’s economy continues to be one of the fastest growing in the world, swelling 8.2 percent in the year ended in March. This is considered its most rapid pace of growth in a decade and a half.
Powered by a high growth of the manufacturing sector, industrial growth touched 7.6 percent during the first quarter of the current financial year as against 5.7 percent during April-June 2003. The manufacturing sector grew by 7.9 percent during the first three months of the current fiscal as against six percent during the first quarter of last fiscal.
The country is among the five emerging biotech leaders in the Asia Pacific region. Singapore, Taiwan, Japan and Korea are the others on the list, according to an Ernst & Young global report on the sector. At present India is ranked third in the region based on the number of companies. Around 96 biotech firms are based in India.
India is expected to generate $5 billion in revenues and create more than one million biotech jobs over the next five years. This growth is expected to come on the back of increased partnering activity, transition to a product-driven model, growth in biogenerics market and government initiatives to encourage investment and expansion. The country’s position as a biotech player is assuming importance as it builds critical mass in terms of skills and capabilities. Propelled by strong growth in the pharmaceutical sector India’s foreign direct investment (FDI) jumped over 133 percent to $814 million during April-June 2004 as compared to $349 million in the corresponding quarter last year. FDI inflow during June registered nearly 125 percent growth at $380 million against 169 million during the same month last year.
These are a few examples to justify India’s increasing attraction from overseas investors. Newsweek International, in a cover story titled ‘The World’s Best Countries’ called India as the best place for foreign investors. It calls India’s governing institutions ‘much more mature’. China, it admits, attracts far more foreign investment annually as compared to India, but India as the largest democracy with its ‘transparent legislature and independent judiciary’ has world investors going ‘gaga’ over the huge tech-savvy market, says the weekly.
The AT Kearney Foreign Direct Investment (FDI) Confidence Index Report, which compares the ratings given by global investors for various countries, announced that the global investors considered India among six most attractive FDI destinations worldwide in 2003. The Manufacturing investors ranked India among the top six most preferred investment locations, while service sector investors ranked India as the fourth most attractive destination. India was also seen as the leading global hub for offshore business processing.
No wonder then that last year overseas investors pumped in more than $7.5 billion in India. Economic Intelligence Unit (EIU) has projected FDI flows to India to touch $13 billion in 2008. Eye-popping 10.4 percent GDP growth in the quarter ending in December has excited hopes that India will become the next regional economic powerhouse. Superior corporate performance explains much of India’s recent success. According to JP Morgan, listed Indian firms deliver a higher return on equity (RoE) than comparable elsewhere in Asia. Remarkably, Indian firms combine high RoEs with Asia’s lowest debt-to-equity ratios. India’s economic growth has rewarded investors unusually richly even by Asian standards.
The economic surge of today in the Indian economy has its seeds in the far-reaching economic reforms of deregulation and liberalization undertaken by the country since 1991, which have unleashed the enormous growth potential of the economy and a powerful entrepreneurial force. The strong macro-economic fundamentals such as robust increase in exports and low inflation and interest rates have helped India attain unprecedented high levels of economic growth and foreign exchange reserves, which have given more confidence and encouragement to the global investors.
The stable democracy and institutions, and a strong and transparent legal and accounting system built up over last 50 years have been major factors in emergence of India as a target of FDI inflows. The primacy of rule of law and independent judiciary and legal protection for intellectual property rights ensures the complete protection for the foreign investors. The Indian economy has proved its strength and resilience when there have been crises in other parts of the world including in Asia in recent years.
A large and growing market of one billion people of which 300 million are middle class consumers also attracts foreign investors. shopping malls, computers, etc.
There have been fundamental and irreversible changes in the outlook of business and industry and in the mindset of the Indians in general. Foreign investment can be done in all sectors of Indian economy except four sectors — retail trade, housing and real estate, agriculture and lottery and gambling. In most of the sectors foreign investors can go through the automatic route without need for any approvals.
The investor has to merely keep the Reserve Bank of India informed of the flow of funds and issue of shares. In some sectors such as courier services, gas pipelines and trading, prior approval is needed.
Some sectors have maximum limits on foreign investment, such as telecommunications, banking, mining, aviation, defense equipments, cable network, trading, print media and small-scale industries. Prior approval of the government is needed only for those cases, which need industrial license and those involving investment beyond the maximum limits. The Foreign Investment Promotion Board in a transparent, efficient, time-bound and predictable manner clear such cases.
The Department of Industrial Policy and Promotion is the nodal agency for information and assistance to foreign investors. Their website www.dipp.nic.in has comprehensive information for foreign investors and gives weekly update on proposals for foreign investment under consideration. It also gives information on projects available for foreign investors and contains online applications for clearances. The various state governments in India offer competitive incentives and attractions to foreign investors.