Change in attitude
The Indian government has resolved to make India a business-friendly destination. Though it is still early to judge, it would be worthwhile for investors to understand the initiatives that the government has taken up until now. The government has based its approach on transforming manufacturing on three pillars under its “make in India” initiative:
- Improving the business environment
- Enabling manufacturing
- Opening up foreign direct investment (or FDI) in key sectors
The current establishment will try to strengthen these pillars by making business easy and by de-licensing and deregulation. It has made the process of applying for industrial license and industrial entrepreneur memorandum online through eBiz, a government-to-business (G2B) services portal.
The government intends to reduce the difficulty of collecting information relating to starting and operating a business in India. It will also provide services like applying for and managing licenses, registrations and regulatory filings through this portal, thus eliminating the need to visit various departments for fulfilling these requirements.
An ease in this process will make sectors like defense and manufacturing attractive and will attract foreign money. This would be positive for companies that make up the portfolios of ETFs like the WisdomTree India Earnings Fund (EPI), the PowerShares India Portfolio (PIN), the iShares S&P India Nifty 50 Index Fund (INDY), the iShares MSCI India ETF (INDA), and the EGShares India Infrastructure ETF (INXX).
How foreigners invest in India
In India, foreign investors can invest in Indian companies via two routes: the automatic and government route. Under the automatic route, neither the investor nor the Indian company requires any approval from the central government.
Under the government route, approval of the Indian government is required and the Foreign Investment Promotion Board (or FIPB) considers proposals up to 12 billion rupees, or ~$200 million. The Cabinet Committee on Economic Affairs (or CCEA) reviews projects that exceed this figure.
As the table above shows, there are certain sectors where FDI is not permitted. In the next article, we’ll look at the changes the government has made in FDI limits in other sectors.