India is at once enticing and intimidating for investors. Its vast and diverse market attracts many. Its large bureaucracy, meanwhile, is considered a stumbling block for foreign investors. However, as many would agree, those impediments are slowly moving into the past. India is on a fast-forward mode on many indices.
What is Working for India?
According to the World Bank, it is now easier to start a business in India than it was before. Reforms in company incorporation mechanisms, the streamlining of the construction permit process, and the enabling of more straightforward cross-border trades are helping India be an attractive destination for foreign investors, NRIs included.
According to a UN Conference on Trade and Development (UNCTAD), India was ranked twelfth among the top twenty host economies in the world. India’s consumer market has already touched $1.5 trillion and is expected to be within touching distance of $6 trillion by 2030. These figures reflect the rise in India’s standing in the World Bank Ease of Doing Business Index. It climbed 14 places to rank 63rd among 190 countries in ease of doing business.
NRI Business in India
Telecommunications, service sectors, computer software, and hardware sectors are the most popular investment destinations for India’s FDIs. These sectors attract almost 36 percent of it. Meanwhile, the Indian government’s Make in India initiative is geared towards making more sectors attractive to foreign investors.
NRI Company Incorporation
NRIs generally start a business in India either as a private limited company or limited liability partnership (LLP) company. These options help, as they are globally popular legal business entities.
The Companies Act, 2013, governs private companies while the Limited Liability Partnership Act, 2008, (LLP Act) regulates the latter.
Incorporation of a Private Company
A company is incorporated online, with the whole process taking a few weeks in case of foreign investors. The time is generally spent preparing charter documents and authenticating the prescribed forms.
Documents for Incorporation
Copies of the passport and photo ID of the proposed shareholder(s) would suffice for charter documents. If it is a corporate entity that is the shareholder, then a resolution passed by the entity and the proposed name’s trademark is required.
When the proposed shareholders are non-residents, the Companies Act has individual requirements to authenticate prescribed documents. If the shareholder is from a country that is a signatory to the Hague Convention, then the documents should be notarized and apostilled. The U.S. is a Hague Convention signatory.
Sectors Open for FDI
The non-resident investors are well-advised to be abreast of the Indian government’s FDI policies. Though most sectors are open to non-residents through the automatic approval route, some sectors— like multi-brand retail trade or investments exceeding the prescribed in industries like defense, telecom, etc.—require government approval.
Financing the Business
Financing a business is another factor that requires careful consideration. Debt funding or equity investment, or a mix of both, can fund Indian companies with non-resident shareholders.
The debt from an overseas lender(s), though, cannot be used to purchase real estate, acquire shares, or for working capital purposes.
The appointment of a resident director, an auditors’ appointment, share certificate issuance, GST, and tax registrations are the other compliance requirements for starting a business.
Incorporation of LLP
The documentation, authentication process, and time to set up an LLP are similar to setting up a private company. However, to facilitate the process, the Ministry of Corporate Affairs has introduced “Form FiLLiP”, which significantly reduces timelines.
Finally, the new LLP should submit the partnership agreement with the Registrar of Companies within 30 days of incorporation.
Some Other Considerations
- At least two directors are required for a private company, and one of the directors should be a resident of India.
- According to the Companies Act and LLP Act, a resident should have stayed in India for more than 182 days.
Top Indian states for FDI
$319 billion in FDI made its way into the Indian economy between 2015–2020. The country attracted more than $74 billion in investments across sectors during 2019-20. According to an Observer Research Foundation report, the states with consistent FDI inflow are Delhi, Gujarat, Maharashtra, Tamil Nadu, Karnataka, and Andhra Pradesh. Meanwhile, Bihar, Madhya Pradesh, Rajasthan, Jharkhand, and Uttar Pradesh showed high volatility in FDI inflow.
