Invest in India

India has 17 official languages, 6 major religions, and ethnic diversity more broad than continental Europe

A solid understanding of the Indian market is crucial to understand the dynamics of Asian growth. India is the second most populous and seventh-largest country in the world in terms of geographic area. According to International Monetary Fund (IMF), India is also the fourth largest economy in purchasing power and twelfth by international exchange rates as of 2006. India’s rapid progress in the last decade, especially in information technology, has done wonders to raise its standard of living. While India's rapid growth rates are expected to continue, India's per-capita GDP today is actually lower than Africa's.

Investment climate

Among European and Western investors, India is an investment magnet in spite of a sprawling bureaucracy, a weak central government, and choked infrastructure. Indian politics was heavily influenced by Gandhi's brand of social democracy, which entrenched democratic freedoms, but also spawned a massive tax-and-regulate complex that has stifled Indian growth. Political complexity and corruption remain major problems today, and foreign investors in India have little patience for the incessant demands of "the Raj," as the Indian regulatory complex is known. However, there is consensus among elites of both the Congress-led (leftist) and BJP (rightist) coalitions that economic liberalization must be the long-run objective of government policy. After initial panic when the rightist BJP suffered a surprising defeat in India's last election, investors breathed a sigh of relief when the Congress coalition stated its commitment to economic liberalization.

Economic policy reform

India’s economic policies have been changed to attract more capital inflows into India. Policy regarding foreign direct investment has changed as follows:

• 100 % foreign equity permitted in many industries.
• No need for the foreign investor to have a domestic partner.
• No need for repatriation of profits and capital investment in India.
• Automatic authorization for majority foreign equity participation up to 74% in certain key areas and up to 50% in others.

Foreign direct investment (FDI) flows

As previously mentioned, India has become the second-most favored destination for foreign direct investment after China. The steps of setting up the Foreign Investment Implementation Authority and the Foreign Investment promotion Board under the finance ministry have led a big surge of FDI inflows. The country watched a nearly six-fold increase in Foreign Direct Investment (FDI) inflows to US $2.04 billion in December 2006, from $350 million in the same period of 2005. This marked India's highest recorded FDI inflow in a single month, and also surpassed FDI in China, Japan, and South Korea. Annually, FDI has surged 100 percent, from US$3.75 billion in 2004-05 to $7.231 billion by November 2006. However, according to the Indian Finance Ministry, this does not include reinvestment in India by foreign firms, so it underestimates aggregate FDI. Economists in India estimate that the total FDI will be US$12 billion during 2007, as compared to $5.5 billion in the previous fiscal year.

Inflation

Inflation is regarded as a major challenge to India's economic development. The economy in India has been growing dramatically in recent years. As one might expect, the growth rate in production and employment has put some upward pressure on inflation, notably with regard to prices of food and manufactured goods. The Wholesale Prices Index (WPI) in the country as of January 6th, 2007 had reached 6.1 percent.

The inflation rate in India in terms of WSI has also begun to rise again, stoking rate-increase fears among Indian investors:

Living standard

The methods of measuring poverty differ from country to country. According to the Planning Commission in India, India's levels of both rural and urban poverty are colossal. The Planning Commission estimated the number of persons lacking the minimum daily calorie intake (2400) at approximately 19.3 % of the total population. Nonetheless, India's improvements from even the late 1970's have been enormous, as the following table indicates.

Source: Planning Commission