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by Janaki Rege Catanzarite, Mark Twain called India an “extraordinary country,” and he was right. India, a country that was a dot on the financial map not long ago, has catapulted into the 21st century, experienced unprecedented growth and found itself in the global spotlight. India has even managed to stay largely unaffected by the slowdown in the global economy due to its strict control on interest rates and its reluctance to invest in sub-prime debt markets. India’s economy is now the fourth largest in the world. Its rapid growth has been possible through virtually unlimited opportunities coupled with liberalized foreign investment policies. Diverse and lucrative investment opportunities are found in almost all major sectors in India, including pharmaceuticals, healthcare, infrastructure, power, renewable energy and insurance. India’s need for equipment and services in these sectors exceeds billions of U.S. dollars annually. The pharmaceutical industry in India is now the third largest in the world in terms of volume. According to data published by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India’s pharmaceutical industry between September 2008 and September 2009 was $21.04 billion. The domestic market alone was worth $12.3 billion. The pharmaceutical industry is supported by India’s biotech sector, which, according to the India Brand Equity Foundation website, includes more than 325 companies and has generated revenues of approximately $3 billion in 2009-2010. During the past 18 months, the world’s top biotech and pharmaceutical companies have concluded major acquisitions and licensing deals in India. These companies are partnering with Indian companies to conduct clinical trials and contract research, and to develop therapeutics and diagnostics. Another rapidly developing investment opportunity is in the healthcare sector. The increasing health awareness in India augments a high demand for more sophisticated healthcare infrastructure. The opportunity in this sector is further enhanced by the penetration of health insurance and the rapid growth in private-sector companies owning and managing hospitals. Infrastructure, or the lack thereof, presents one of the biggest opportunities for investment. In July 2010, the Indian government asked U.S. investors to participate in its $600 billion infrastructure program over the next five years. The $600 billion has not been identified for one area of infrastructure development and could be invested in ports, communications, roads, hospitals or other projects. India’s ambitious plan to provide “power to all by 2012” presents yet another massive opportunity for investment. The plan requires the installed power generation capacity to be increased from the current 147,402 MW (approximate) to 200,000 MW by 2012. The ultimate aim of this plan is to increase the per capita availability of electricity by 1,000 kilowatts of energy by 2012 and to supply power to all at an affordable cost. These are a just a few of the many opportunities available for foreign investment in India. What investors need to knowAs attractive as these opportunities are, India is a complex country and doing business in India is not always easy. Several factors contribute to building a successful business in India, but the three main factors are: understanding India and Indians, knowing the investment routes and doing your homework. Understanding India and Indians Knowing the investment routes FDI is freely allowed in almost all sectors. FDI of 100% is permitted in several sectors, including pharmaceuticals and infrastructure, while in other sectors FDI is capped at various percentages. India is regularly expanding the sectors in which FDI is permitted. Currently, India is considering FDI in multi-brand retail, a sector that has been zealously guarded by the local mom-and-pop shops. The FVCI route enables foreign venture capital and private equity investors who register with the Stock Exchange Board of India (SEBI) to make private investments in India. The FVCI route has certain regulatory advantages over FDI. The FII route is often used by institutional investors, such as pension funds and mutual funds, to invest in listed Indian securities that trade on the Indian securities exchange by registering with SEBI as an FII or a sub-account that invests through an FII. Doing your homework The importance of due diligence cannot be emphasized enough. Most Indian companies do not have detailed information readily available, such as data about management, customers, etc. Disclosures are not always adequate by Western standards, and this hinders the ability to access critical and material information. Keep chipping away until all material information is unearthed. There are numerous regulatory approvals and licenses that are required before, during and after commencing business operations in India. Make a comprehensive list of the approvals and licenses required under the Foreign Exchange and Management Act, 1999; the (Indian) Companies Act, 1956; and the other applicable local, state and industry-specific laws. Ensure that appropriate filings with the regulators are made on time. To conclude, it is not always easy to do business with India, but the untapped investment opportunities that India presents are too good to be missed. If handled properly, most perceived difficulties of doing business in India can either be eliminated or substantially reduced. Janaki Rege Catanzarite is an Attorney with the U.S. law firm of Pepper Hamilton, LLP. Catanzarite practiced law in India for 11 years before joining Pepper. Her practice is concentrated on advising companies on transactional matters and formation of private investment funds, with a strong India focus. |
