As one of the fast-growing economies in the world, Foreign Direct Investment (FDI) in India is indeed growing at an exponential rate. But, the growth rate is disproportionate with some sectors witnessing astronomical growth while others are moving at snail’s pace.
Here, in this week’s post, we highlight the superstar sectors for FDI investments as per industry analysis in India. We also take a look at the restrictions, requirements and other challenges that you may encounter along the way.
What is the FDI Policy in India?
That’s a huge topic, and you can check out all the details in our last post. FDI has been allowed in India since 1991, with the opening of the market with the introduction of the FEMA (Foreign Exchange Management Act).
Can I Invest in all Sectors in India?
It depends. For instance, a few sectors like defense have an FDI limitation of 49%, while other sectors like telecommunications and power generation have zero limitations. On the other hand, there are other sectors like nuclear power, gambling, and lottery, where FDI is completely prohibited.
As noted above, check out our earlier post for detailed info on sector-wise FDI restrictions. With that out of the way, let’s focus on the best sectors for FDI in India.
1. Telecommunications
The number of Smartphone users in India is predicted to reach a whopping 442.5 million people by 2022. That’s a massive market for companies involved in telecommunications.
As noted above, there is no cap on the FDI investment in telecommunications and falls under the “automatic route,” meaning you don’t even have to get approval by the government or the RBI for your investments.
With that said, establishing a telecommunications network in the country requires massive capital. If you are ready to make that commitment, then this is indeed a lucrative opportunity.
2. Retail
Multi-brand retail trade is not open to FDI investors. On the other hand, single-brand retail is a viable and lucrative opportunity. There is no cap on the investment. However, unlike telecommunications, if you invest more than 49%, then you are required to obtain government approval.
Compared to the previous sector (telecommunications), retail doesn’t require massive investment and is considered less risky compared to other popular sectors.
However, gauging the market for retail is quite challenging. You have to consider several factors like differences in culture, tastes and customer preferences. This is where partnering with a local company like VEDAS SHAKHAA is a huge plus for you. We handle all the groundwork for you – right from analyzing and predicting market demands to helping you obtain all the necessary certifications, permissions and more.
3. Fashion
The fashion and lifestyle sector in India has seen massive growth since the turn of the new millennium. This sector covers a whole range of product segments like apparel, textiles, footwear, fashion accessories, jewellery and more.
With huge scope for domestic consumption and increased demand for both luxury and casual foreign brands, fashion is one of the most lucrative sectors for foreign investments in the country.
4. Construction
It’s traditionally one of the most preferred industries for FDI in India. Recently, the government of India has further relaxed FDI rules in the construction and real-estate sector to attract more foreign investments in the construction of housing, townships, hotels and other infrastructure.
The minimum cash investment in this sector has been reduced to USD 5 million, making it a great opportunity for small FDI investors.
5. Power Generation, Renewable Energy and Biomass
Despite being the fifth largest electricity producer in the world, India faces a massive power shortage. This means foreign investors have great opportunities to explore in the power sector to meet increasing demands. As noted above, there is no cap on FDI in electricity, meaning foreign players can capitalize on the demands of the market.
Cochin airport became the world’s first airport to be operated solely on solar power, and one of the biggest global solar power installations in Kumuthi, in Tamil Nadu. Investing in renewable energy in the country is incredibly quick, as this sector is a “white industry,” meaning you don’t have to spend time waiting on environmental clearances.
India has set an ambitious target to generate a massive 175GW from renewable sources by 2022, and the timing is just perfect for FDI in renewable energy. Solar, wind power, hydro-electric and biomass are all set to see a massive boom in the next couple of years to meet India’s growing energy requirements.
6. Automotive
India has recently become the most coveted destination for the world’s leading auto manufacturers. And not just that, in recent years the country has established itself as an emerging auto expert hub for both small commercial and heavy vehicles. Almost all major auto behemoths have set up auto manufacturing plants in the country, integrating India into the global supply chain.
A few prominent examples include – Suzuki’s export of Baleno cars made in India to Japan, Renault’s export of KWID from India to Mauritius, Volkswagen’s Vento exports to Mexico and Honda’s Jazz exports to South Africa.
7. Electronics Design and Manufacturing
Apart from emerging as a prime automobile manufacturing hub, India is also poised to become a global electronics manufacturing hub. India’s mobile phone manufacturing has risen from 60 million in 2014-15 to over 110 million in 2015-16. Over 72 new mobile handset and component manufacturers have set up shop in the country within the last two years.
From Chinese players like Gionee, Xiaomi to Korean giants including Samsung and LG, to homegrown mobile brands like Micromax and Lava, India is becoming the electronic hub capital of the world.
8. Pharmaceuticals
This is another massive sector that has unlimited demand and endless opportunities. With a large demographic and widespread availability of raw materials, India has emerged as a research and manufacturing hub of the world.
India has strongly positioned itself in the global pharmaceuticals supply chain and is the world’s biggest manufacturer of generic medicines. India recently saw major innovations in health care manufacturing in the country, with the nation’s first indigenously developed Rotavirus vaccine in the country launched in 2014.
9. Food Processing
Next, to renewable power generation, this is another sunrise sector in the country. Food processing plays a vital role in bridging the gap between agriculture and industry. Recently, the Ministry of Food Processing is working on building 7 Mega Food Parks and over 135 integrated cold chains located all across the country.
One major benefit of investing in the food processing industry is the ease of doing business. From custom clearance forms to a single dedicated investor, running a food processing business in India has its share of perks and benefits.
10. Water Distribution and Related Infrastructure
Population growth, climate change, pollution of rivers and ad-hoc tapping of groundwater is depleting India’s water resources like never before. Fortunately, both the government and the general public have woken up to the pressing needs of water infrastructure to ensure clean potable water to the masses and for agriculture. With increasing demand, foreign investments in the Indian water infrastructure will see increased returns and wide support from the government in the next few years.
11. Cybersecurity
Data is the new-age oil. With huge corporations dealing with massive volumes of customer data, there is a huge demand for cybersecurity professionals and infrastructure to analyze and protect digital data. This is one sector that will see huge growth in the next few years.
Are you ready to Enter in India? Reach out to VEDAS SHAKHAA to simplify your journey.