Investment climate in India has considerably improved since the economic reforms of 1991. This can be largely attributed to the relaxation in FDI (Foreign Direct Investment) norms across sectors of the economy. The last five year period between 2014 and 2019 has witnessed an unprecedented growth rate of 69 percent in FDI flows to India. As a result, India has now climbed to the 77th position in the club of top 100 countries on ease of doing business (EoDB), and ranks first globally in greenfield investments. As of March 2019, the cumulative FDI flows to India stand at 609.8 billion USD with Mauritius being the top FDI player, and service sector FDI as the top contributor at 18 percent.
Here are the top five reasons for the phenomenal increase of FDI during the last five years that’s given India the tag of a hot destination for investment:
India’s growing middle class forms nearly 45 percent of consumer base of its large economy. The Indian middle class also has a purchasing power that encourages more global players to capture and capitalize on the retail and service sector markets.
India’s demographic dividend reflects that nearly 50 percent of its population is below the age of 25 years, making it one of the youngest countries in the world. This also indicates that there’ll be no dearth of a young and active labour force for a long time to come.
Relaxation in FDI norms
The Government of India is working towards a blueprint to realise its target of $ 100 billion worth of FDI inflows. A slew of measures taken by the Indian government to relax the FDI norms has reaped rich dividends in the form of increased FDI flows. Some of these measures are listed below:
- Allow 100 percent FDI in single retail brand through automatic route.
- Facilitate investment of foreign airlines in Air India up to 49 per cent directly or indirectly with government approval.
- Allow 100 percent FDI in marketplace model of e-commerce.
- Relaxation of government approval for FDI up to an extent of 100 per cent in Real Estate Broking Services.
- Improving single window clearance system for fast-tracking approvals.
- Definition of ‘medical devices’ amended in FDI policy.
- Considering all NRI investments as domestic investments.
New Bankruptcy Framework
Another reason for the rise in FDI flows is its new bankruptcy framework, i.e., the Insolvency and Bankruptcy Code(IBC), 2016, that has led to asset divestment. Some of the big names of Indian manufacturing sector, especially in the steel industry, have been up for auction. As a result, foreign investors with deep pockets are pouring funds into them.
Special tax benefits are given to companies setting up in certain notified regions of India in the north and the north-east. Businesses involved with manufacturing, production of goods and certain services or companies undergoing substantial expansion between 2017-2027 can deduct 100 percent of profits from their taxable income for a period of 10 years. Similarly, Special Economic Zones (SEZs) have been set up throughout the country in order to promote a competitive environment and industrial progress. Developers and occupiers of SEZs enjoy substantial long term tax holidays and concessions like import duty exemption, refund of IGST on imported goods, refund of input GST on procured goods and services, etc.which are worth exploring when establishing an operation in India.
While India being a hot destination for FDI with its increased inflows definitely boosts the economy, it is also an apt time to invest in mutual funds and boost your personal finances. Invest in mutual funds that are equities or sector-based stocks since their movement and growth are dependent on the stock market performance which is indicative of the foreign investment in the country. Deciding to invest in mutual funds is half the task completed, but selecting the right mutual funds to invest in, serves the purpose. Buying mutual funds online is a good idea, and it is recommended to browse through multiple mutual funds on trusted online platforms like Finserv MARKETS, before buying the right ones.
At Finserv MARKETS, you can open a free mutual fund account with no brokerage involved, and invest in top-rated mutual funds that suit your risk appetite and investment goals with zero commission. With a mutual fund account on Finserv MARKETS, you can opt for systematic investment plans (SIPs) of top-rated mutual funds. You also receive detailed portfolio summaries and insights into the performance of your investments.
Mutual fund investments, like every other investment option, entails a certain element of risk. But, there’s no good return with a risk. However, the risk can be minimized if you gain some mutual fund knowledge with a thorough online research, before you start managing your investments.
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