Corporate FDI in India on the Rise After Regulatory Liberalization

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MNCs are betting that India is going to fly

Op-ed Commentary: Chris Devonshire-Ellis, Dezan Shira & Associates

Foreign direct investment (FDI) in India from the multinational corporation (MNC) level is on the rise with some substantial acquisitions in recent months following the relaxation of several FDI ceilings across a variety of industry sectors. Illustrating this is Etihad’s US$336 million purchase of 24 percent of Jet Airways (the FDI cap into the aviation sector was recently lifted to 49 percent).

Meanwhile, several sectors have been liberalized to 100 percent permitted FDI, albeit with the requirement that approval is given from the Reserve Bank of India on a case-by-case basis. The sectors include single-brand retail, asset reconstruction and telecommunications. Defense, monitored by the Indian Cabinet Committee of Security, is currently limited to 26 percent, but with the caveat that up to 100 percent may be approved should the equipment be state of the art technology.

FDI caps have also been liberalized to permit up to 49 percent investment in petroleum and natural gas, commodity and stock exchanges, and power stations.

FDI caps in areas such as multi-brand retail have been lifted to 74 percent – provided the foreign investor also invests in back-end infrastructure. This is a crucial area of concern for India due to its lack of decent supply chain facilities. This has resulted in the appalling statistic that 30 percent of India’s agricultural produce rots before ever reaching market – a terrible waste in a country poised to become the world’s most populous nation. FDI reforms are key to improving India’s production capabilities and security in many areas – not just for defense and food.

A number of existing foreign investors already in the India market have begun moves to further increase their shareholdings with existing Indian partners to the maximum level – a sure sign that global corporations are betting that the Indian opportunity is starting to gain serious traction. Unilever for example, similar to Etihad in the aviation sector, is increasing its stake in its Indian JV to the maximum permitted – an acquisition that is costing the U.S. giant US$5.4 billion.

This strategy is being repeated by the likes of Colgate-Palmolive, Procter & Gamble, Nestle and Castrol, who are all intent on raising the bar in their Indian equity holdings of their own subsidiaries. Indian equity prices are generally deflated, the rupee is fairly weak and the Indian market is growing rapidly. In addition to this, the ability to buy into your own subsidiary means no due diligence is required and the products are already well understood by the parent company.

According to the World Bank, FDI into India is expected to grow by 13 percent during 2013.

In terms of mid-cap companies and smaller foreign investors, Dezan Shira & Associates‘ are seeing a significant increase in the numbers of enquiries received by the firm from companies interested in the Indian market. This is driven by three issues – the realization that India possesses a consumer middle class of some 250 million people, the growing cost of doing business in China, and the green shoots of consumer growth that are finally beginning to appear in the United States, parts of Europe and certainly across Asia.

Global MNCs, with all their resources, are now targeting India as the place to be for achieving future growth in their business models. It is about time medium-sized corporations began to prepare to do the same, because those huge corporations will soon be reaching out to their global suppliers to assist them in India as well.

Chris Devonshire-Ellis is the Managing Partner for Dezan Shira & Associates in India. The firm provides foreign direct investment advice, including legal structuring and tax planning for foreign investors throughout India. Established in 1992, the practice has 17 offices throughout Asia. Please email the firm’s India offices at or visit

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