Bureau of Economic and Business Affairs
July 5, 2016

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Executive SummaryShare    

In May 2014, the Narendra Modi-led Bharatiya Janata Party (BJP) won the world’s largest democratic election, defeating a Congress Party-led coalition that been in power for the past decade. At the time, the 2014 election marked a turning point in investor sentiment, as a fractured minority government, seemingly unable to advance essential economic reforms, was displaced in favor of a government that had won on a platform of economic growth. Additionally, the monetary stewardship of Raghuram Rajan, the respected Governor General of the Reserve Bank of India, further boosted investor sentiment.

The Modi government has prioritized economic growth to fulfill its electoral promises and to address the Indian electorate’s high expectations. Initially, the government focused on streamlining bureaucratic decision making and raising FDI limits in certain sectors—including defense and railway infrastructure. Modi also called for foreign and domestic companies to support his signature initiative, “Make in India”—a branded campaign to attract international capital to the country’s struggling manufacturing sector. He also set a goal for India to rise rapidly in the World Bank’s Ease of Doing Business rankings. The government has continued to relax FDI restrictions in a wide variety of sectors as part of the government’s efforts to further open the economy. Most recently, the government approved up to 100 percent foreign investment in civil aviation, defense, certain sectors of e-commerce, and the pharmaceutical sector. Additionally, the government eased requirements for some retailers to source “state-of-art” technology in India could be particularly beneficial to high-tech companies such as Apple, although underlying supply chain constraints remain.

However, the government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through Parliament. This has resulted in many investors retreating slightly from their once forward-leaning support of the BJP-led government. For example, the government failed to muster sufficient political support on a land acquisition bill in Parliament—all but ending its chance of passage in the near term—and is still negotiating with opposition parties the details of a Goods and Services Tax Bill, which if not watered down in negotiations, could streamline India’s convoluted tax structure and provide an immediate boost to GDP.

Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated. There are few quick fixes to the structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localization requirements, restrictions in many services sectors, and massive shortages of electricity that hinder India’s economic growth potential. Recognizing that the gains from a massive, positive terms-of-trade shock due to lower oil prices that India has benefitted from may not be repeated in the current global economic environment, the Finance Ministry has slightly reduced the official growth outlook for next year.

India’s political system is highly decentralized. Investors must be prepared to face varied political and economic conditions across India’s twenty-nine states and seven union territories, including differences in the quality of governance, regulation, taxation, labor relations, and education levels. Although India prides itself on its rule of law, the country ranks 178 out of 189 in the World Bank’s Ease of Doing Business Report in the category of Enforcing Contracts. Its courts have cases backlogged for years, and by some accounts more than 30 million cases could be pending at various levels of the judiciary.

Despite the challenges, the opportunities are immense for foreign companies operating in India, although many highlight that success requires a long-term planning horizon and a state-by-state strategy to adapt to the complexity and diversity of India’s markets. India’s infrastructure needs are estimated at $1.5 - $2 trillion over the next 5-7 years, offering excellent opportunities for U.S. companies to participate in India’s development, provided appropriate mechanisms for financing are developed. For example, in June 2015, PM Modi launched a program to build 100 Smart Cities. Indian conglomerates and high technology companies are generally equal in sophistication and capability to their international counterparts, while certain industrial sectors, such as information technology, telecommunications, and engineering are globally recognized for their innovation and competitiveness.

Table 1



Index or Rank

Website Address

TI Corruption Perceptions index


76 of 168

World Bank’s Doing Business Report “Ease of Doing Business”


130 of 189


Global Innovation Index


81 of 141

U.S. FDI in partner country ($M USD, stock positions)


$28 billion

World Bank GNI per capita



Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) or $4,125 or less (2015). A list of countries/economies with MCC scorecards and links to those scorecards is available here: Details on each of the MCC’s indicators are available here:




MCC Gov’t Effectiveness



MCC Rule of Law



MCC Control of Corruption



MCC Fiscal Policy



MCC Trade Policy



MCC Regulatory Quality



MCC Land Rights Access



MCC Natural Resource Mgmt




1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Attitude toward Foreign Direct Investment

Since coming to power, the BJP-led government took a number of steps to ease FDI restrictions in sectors including insurance, defense, railways, construction, civil aviation, certain sectors of e-commerce, pharmaceuticals, and medical devices. While the government appears generally friendly to FDI, many sectors of the economy retain equity limits for foreign capital, which has proven to be a deterrent to investment. The long-awaited Insurance Act, which raises caps on FDI from 26% to 49%, also mandates that insurance companies retain “Indian management and control.” Many sectors also require multi-step processes for central and state government approval. While India has progressively opened up to FDI, the overall attitude remains mixed. Outside of pensions, insurance, and defense, the government is empowered to raise FDI limits up to 100% without Parliamentary approval, yet in sectors such as multi-brand retail, the government has taken an anti-FDI stance. While considered pro-business, much of the BJP party’s constituency is comprised of shop-owners and other small business owners who could potentially suffer losses under a liberalized multi-brand retail regime.

Other Investment Policy Reviews

2014 OECD review:

2015 WTO Trade Policy Review:

2015-2020 Government of India Foreign Trade Policy:

2015 Government of India FDI policy circular:

Laws/Regulations on Foreign Direct Investment

There are two channels for foreign investment entering India: the automatic route and the government route. Investments entering via the automatic route are not required to seek overall approval from the central government. The investor is expected to notify India’s Central Bank- the Reserve Bank of India (RBI) - of its investment using the Foreign Collaboration - General Permission Route (FC-GPR) form within 30 days of inward receipts and issuance of shares: The title “automatic route” is a misnomer since investments in most sectors require some amount of interaction with the government at both the state and national levels.

Investments that take the government route are subject to authorization from the principal ministry involved and potentially the Foreign Investment Promotion Board (FIPB - The rules regulating government approval for investments vary from industry to industry, and the approving government entity varies depending on the applicant and the product. For example, the Ministry of Commerce and Industry’s (MOCI) Department of Industrial Policy and Promotion (DIPP) oversees single-brand product retailing investment proposals, as well as proposals made by Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs). An NRI is an Indian citizen who has resided overseas for six months or more for any purpose. An OCB is a company, partnership, firm, or other corporate entity that is at least 60% owned, directly or indirectly, by NRIs, including overseas trusts. MOCI’s Department of Commerce approves investment proposals from export-oriented units (i.e., industrial companies that intend to export their entire production of goods and services). The FIBP, led by the Ministry of Finance (MOF) and MOCI, approves most other investment applications.

Business Registration

Businesses can be registered online through the Ministry of Corporate Affairs website - After the registration, all new investments require a number of industrial approvals and clearances from different authorities such as the Pollution Control Board, Chief Inspector of Factories, Electricity Board, and Municipal Corporation (locally elected entities). To fast track the approval process for investments greater than USD 200 million, the previous government established a Cabinet Committee on Investment (CCI) in December 2012, chaired by the Prime Minister. The CCI approved over 100 projects worth more than USD 60 billion, but foreign investors and many economists complained that these projects nonetheless stalled in central and state-level bureaucracies. In December 2014, the new government approved the formation of an Inter-Ministerial Committee led by the DIPP to fast track investment proposals from the United States. Business Chamber and sources within the government have reported that the Inter-Ministerial Committee has been meeting informally and on an ad-hoc basis as they receive reports from business chambers and affected companies of stalled projects.

The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry is the investment promotion agency that helps facilitate foreign investments. The DIPP caters to all investors, including foreign investors.

Industrial Promotion

Banking: Aggregate foreign investment from all sources in all private banks is capped at 74%. For state-owned banks, the foreign ownership limit is 20%. According to the 2011 road map for foreign bank entry, there are three distinct methods for entering the Indian banking sector. First, one may establish a branch in India. The second method is to establish a wholly-owned subsidiary (foreign banks can have either branches or subsidiaries). The third is to establish a subsidiary with total foreign investment of up to 74%. Foreign investors are legally permitted to acquire an ailing bank, though to date, the RBI has not authorized this type of transaction. Foreign institutional investment (FII) is limited to 10% of the total paid-up capital and 5% in cases where the investment is from a foreign bank/bank group. In December 2012, Parliament passed the Banking Regulation (Amendment) Act. The Act increased the cap on voting rights for investors from 10 to 26% in private sector banks, and from one to 10% for public sector banks (PSBs), to make voting rights commensurate with economic ownership. The government recently signaled its intent to divest PSBs, i.e. to partially privatize PSBs to help in their re-capitalization efforts, particularly in light of new Basel 3 capitalization requirements. For the time being, however, divestment plans remain at the discussion stage.

Non-Banking Financial Companies (NBFC): 100% FDI is allowed via the automatic route. NBFCs can participate in the following activities: merchant banking, underwriting, portfolio management, financial consulting, stock-broking, asset management, venture capital, credit rating, housing finance, leasing and finance, credit card businesses, foreign exchange brokerages, money changing, factoring and custodial services, investment advisory services, and micro and rural credit. All investments are subject to the following minimum capitalization norms: USD 500,000 upfront for investments with up to 51% foreign ownership; USD 5 million upfront for investments with 51% to 74.9% ownership; USD 50 million total, with USD 7.5 million required up-front and the remaining balance within 24 months for investments with greater than 75% ownership. Wholly foreign-owned NBFCs with a minimum capitalization of USD 50 million are allowed to set up unlimited numbers of subsidiaries for specific NBFC activities, and are not required to enlist additional capital. RBI regulates and supervises the NBFCs.

Manufacturing: 100% FDI is allowed in most categories of manufacturing; however, the government maintains set-asides for micro and small enterprises (MSEs), defined as companies with less than USD 1 million in plant and machinery assets. Any investment in manufacturing that qualifies as MSE must enter via the government route for FDI greater than 24%. Since 1997, the government has steadily decreased the number of sectors it protects under the national small-scale industry (SSI) policy. At its peak in the late 1990s, more than 800 categories were protected. The most current list is publicly available at The 2011 National Manufacturing Policy (NMP) provides the framework for India’s local manufacturing requirements in the Information and Communications Technology (ICT) and clean energy sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Limits on foreign ownership and control vary by sector and industry. Embassy New Delhi can provide on request a detailed table on FDI limits by sector.

Privatization Program

The Government of India has not generally privatized its assets to the extent of allowing changes in management. Instead, the government has adopted a gradual disinvestment policy that dilutes government stakes in public enterprises without sacrificing control. Such disinvestment has been undertaken both as fiscal support and as a means of improving public sector undertaking (PSU) efficiency. Despite the financial upside to disinvestment in loss-making PSUs, the government has generally shied away from these efforts, as they have led to job losses and therefore engender political risks.

In recent years, the government has begun to look to disinvestment proceeds as a major source of revenue to finance its fiscal deficit. The government has budgeted $8.5 billion in disinvestment for its fiscal year that runs April 2016-March 2017, but has also missed its disinvestment targets each of the past four years. Foreign institutional investors (FIIs) can participate in these disinvestment programs subject to the limits set-24% of the paid up capital of the Indian company and 10% for NRIs/PIOs. The limit is 20% of the paid up capital in the case of public sector banks. There is no bidding process. The shares of the PSUs being disinvested are sold in the open market.

Screening of FDI

Foreign Direct Investment (FDI) screening is undertaken by the Foreign Investment Promotion Board (FIPB), a Government of India entity that purportedly provides single window clearance for FDI proposals. The FIPB board consists of a chairman—normally Secretary in the MOF Department of Economic Affairs—and members from the MOCI Department of Industrial Policy & Promotion, the MOCI Department of Commerce, and the Ministry of External Affairs’ Economic Relations Division. The Board is empowered to co-opt Secretary-level government functionaries and other top officials of financial institutions, banks, and professional experts, as required. The Minister of Finance approves FIPB decisions on investments up to USD 750 million (INR5000 crores), while larger investments require approval from the Cabinet Committee on Economic Affairs (CCEA).

Competition Law

The Competition Commission of India (CCI) is a statutory body responsible for enforcing the Competition Act of 2002. The CCI, first established in 2003, began functioning in May 2009. The Act is in consonance with international standards, prohibiting anti-competitive agreements and abuse of dominant position by enterprises. The Act regulates combinations (acquisition, acquiring of control, and mergers and acquisition) that cause or are likely to cause an appreciable adverse effect on competition. The CCI has also taken on the charge of protecting consumer interests, and it has come out with a number of orders that creatively interpret definitions of dominant position and cartel formation to protect consumer interests. In 2014, the CCI imposed a USD 400 million penalty on 14 auto companies that had been found guilty of indulging in anti-competitive practices in the sale spare parts.

2. Conversion and Transfer PoliciesShare    

Foreign Exchange

The Indian rupee (INR) extended its losses from 2014 by falling about 4.75% against the dollar in 2015. According to market experts, factors such as U.S. Federal Reserve rate hike worries, the Chinese yuan devaluation in August, and foreign funds outflows dampened sentiment towards the currency, resulted in a two-year low.

The RBI, under the Liberalized Remittance Scheme, allows individuals to remit up to USD 250,000 per fiscal year (April-March) out of the country for permitted current account transactions (private visit, gift/donation, going abroad on employment, emigration, maintenance of close relatives abroad, business trip, medical treatment abroad, studies abroad) and certain capital account transactions (opening of foreign currency account abroad with a bank, purchase of property abroad, making investments abroad, setting up Wholly Owned Subsidiaries and Joint Ventures outside of India, extending loans). The INR is fully convertible only in current account transactions, as regulated under the Foreign Exchange Management Act regulations of 2000 (

Foreign exchange withdrawal is prohibited for remittance of lottery winnings; income from racing, riding or any other hobby; purchase of lottery tickets, banned or proscribed magazines; football pools and sweepstakes; payment of commission on exports made towards equity investment in Joint Ventures or Wholly Owned Subsidiaries of Indian companies abroad; and remittance of interest income on funds held in a Non-Resident Special Rupee Scheme Account ( Furthermore, the following transactions require the approval of the Central Government: cultural tours; remittance of hiring charges for transponders for television channels under the Ministry of Information and Broadcasting, and Internet Service Providers under the Ministry of Communication and Information Technology; remittance of prize money and sponsorship of sports activity abroad if the amount involved exceeds USD 100,000; advertisement in foreign print media for purposes other than promotion of tourism, foreign investments and international bidding (in excess USD 10,000) by a state government and its PSUs; and multi-modal transport operators paying remittances to their agents abroad. RBI approval is required for acquiring foreign currency above certain limits for specific purposes including remittances for: maintenance of close relatives abroad; any consultancy services; funds exceeding 5% of investment brought into India or USD 100,000, whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

Capital account transactions are open to foreign investors though subject to various clearances. NRI investment in real estate, remittance of proceeds from the sale of assets, and remittance of proceeds from the sale of shares may be subject to approval by the RBI or FIPB.

Foreign institutional investors (FIIs) may transfer funds from INR to foreign currency accounts and back at market exchange rates. They may also repatriate capital, capital gains, dividends, interest income, and compensation from the sale of rights offerings without RBI approval. The RBI also authorizes automatic approval to Indian industry for payments associated with foreign collaboration agreements, royalties, and lump sum fees for technology transfer, and payments for the use of trademarks and brand names. Royalties and lump sum payments are taxed at 10%.

The RBI has periodically released guidelines to all banks, financial institutions, NBFCs, payment system providers regarding Know Your Customer (KYC) and reporting requirements under Foreign Account Tax Compliance Act (FATCA)/ Common Reporting Standards (CRS). The government as per notification dated July 7, 2015 ( amended the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, (Rules), for setting up of the Central KYC Records Registry (CKYCR)—a registry to receive, store, safeguard and retrieve the KYC records in digital form of clients.

Remittance Policies

Remittances are permitted on all investments and profits earned by foreign companies in India once taxes have been paid. Nonetheless, certain sectors are subject to special conditions, including construction, development projects, and defense, wherein the foreign investment is subject to a lock-in period. Profits and dividend remittances as current account transactions are permitted without RBI approval following payment of a dividend distribution tax. The RBI has usually approved such transactions without delay.

Foreign banks may remit profits and surpluses to their headquarters, subject to compliance with the Banking Regulation Act, 1949. Banks are permitted to offer foreign currency-INR swaps without limits for the purpose of hedging customers’ foreign currency liabilities. They may also offer forward coverage to non-resident entities on FDI deployed since 1993.

3. Expropriation and CompensationShare    

India's image as an investment destination was tarnished in 2010 and 2011 by high-profile graft cases in the construction and telecom sectors, exacerbating existing private sector concerns about the government’s uneven application of its policies. In 2014, the Supreme Court of India cancelled 214 out of 218 coal blocks allocated since 1993. Apart from the cancellations, the Supreme Court ordered that operational mines pay a penalty of INR 295 (USD 5) for every ton of coal previously extracted. In October 2012, India's Supreme Court cancelled 122 telecom licenses and the authorized spectrum held by eight operators under what came to be known as the 2G scandal.

There is now more clarity on the regulatory front. The government is auctioning spectrum licenses and has clearly stated its intent to eliminate retrospective taxation proposals. India also has transfer pricing rules that apply to related party transactions. On the indirect taxation front, a comprehensive Goods and Services Tax (GST), that could reduce complexity and eliminate multiple taxation policies, could eventually be introduced in India if it can clear Parliamentary hurdles. The Land Acquisition bill has since been withdrawn from Parliament. Acquiring land in India continues to be complicated process and businesses feel that the lack of a proper legal framework to determine adequate compensation for acquired land and the lack of the legal stipulation to take care of rehabilitation and resettlement of displaced citizens will create hurdles, especially when businesses have to get approvals from 70% of the landowners.

The Government has introduced a “Make in India” program and investment policies designed to attract foreign investment, while ‘Digital India’ has opened up new avenues for the growth of the IT sector. Incentives being given to startups are intended to enable them to commercialize and grow. The 100 Smart Cities project has also opened up new avenues for a large number of industries and investment opportunities. The U.S. Government continues to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses. India would benefit from providing a secure legal and regulatory framework for the private sector, as well as institutionalized dispute resolution mechanisms that expedite resolution of commercial disagreements.

4. Dispute SettlementShare    

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

Foreign investors frequently complain about the overall lack of contract sanctity. According to the World Bank's Ease of Doing Business Report, it takes nearly four years on average to resolve a commercial dispute in India, the third longest average rate in the world. Indian courts are understaffed and lack the technology necessary to resolve an enormous backlog of pending cases—estimated by the UN at 30-40 million cases nationwide (

In an attempt to align its adjudication of commercial contract disputes with the rest of the world, India enacted the Arbitration and Conciliation Act, based on the United Nations Commission on International Trade Law model in 1996. Judgments of foreign courts are enforceable under multilateral conventions like the Geneva Convention. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial disputes settlement.

India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). It is not unusual for Indian firms to file lawsuits in domestic courts in order to delay paying the arbitral award. Seven cases are currently pending, the oldest of which dates to 1983. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

The Permanent Court of Arbitration (PCA, The Hague), and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi to provide an arbitration forum to match the facilities offered at the Hague, but at a lower cost. Since that time, no progress has been made in establishing the office.

In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In his budget speech in February 2015, the Finance Minister announced the government’s intention to propose a Public Contract Bill, aimed at streamlining the resolution of public contract disputes. Another proposal aims to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes. The government expects to introduce legislation following consultation with stakeholders.


According to the World Bank, it takes an average of 4.3 years to recover funds from an insolvent company in India, compared to 2.6 years in South Asia and 1.7 years in OECD countries. The Companies Act adopted by the UPA government in 2013 introduced major changes to bankruptcy law, in both the procedures and the institutions involved. Under the law, the revival or liquidation of “sick companies” will be undertaken by a National Company Law Tribunal (NCLT) composed of legal and technical experts and presided over by a High Court judge. The new law does not, however, provide for U.S. style Chapter 11 bankruptcy provisions. The current Finance Minister announced a proposal to introduce Chapter 11-type bankruptcy mechanisms during his budget speech in February 2015. Further, in December 2015 during the parliament’s winter session, the government introduced the Insolvency and Bankruptcy Code legislation in the parliament. The bill seeks to provide a framework for time bound resolution of corporate bankruptcy and ensure that stakeholder interest is protected and the assets are put to use quickly. It also seeks to consolidate and amend the laws relating to reorganization and insolvency resolution and will also apply to partnership firms and individuals.

Investment Disputes

India has received 17 notices under its Bilateral Investment Treaties (BIT). In 2011, White Industries of Australia won an award of 4.08 million Australian dollars in foreign arbitration against Coal India under the auspices of the Indo-Australian Bilateral Investment Protection Treaty. Most recently, the British oil company Cairn has invoked the India-UK Bilateral Investment Treaty to contest a retroactive taxation reassessment of USD 1.6 billion plus interest and penalties. Discussions are also underway in the dispute initiated by Vodafone against retrospective capital gains taxation, and firms including IBM and Royal Dutch Shell have been involved in similar disputes over retroactive taxation of transfer pricing.

International Arbitration

The Government of India circulated a new model BIT in April 2015 for two weeks of public comment and in January 2016 the Ministry of Finance put out is Model BIT Text in the public domain. The Ministry of Finance said that the revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs). A number of provisions have been introduced to protect the sovereign from investment disputes. Foreign investors will not have access to BIT arbitration, if the contracts they have entered into with local investors or the government provide exclusively for legal recourse in India. As many as 17 companies or individuals – including Vodafone International Holdings BV, Deutsche Telekom, Sistema, Children's Investment Fund, and TCI Cyprus Holdings – have served arbitration notices on India under BITs after their investments faced adverse policy action. Several investors have also challenged the legality of a Supreme Court decision to cancel telecom licenses.

ICSID Convention and New York Convention

Though India is not a signatory to the International Centre for Settlement of Investment Disputes (ICSID Convention), current claims by foreign investors against India can be pursued through the ICSID Additional Facility Rules, the UN Commission on International Trade Law (UNCITRAL Model Law) rules, or through the use of ad hoc proceedings.

Duration of Dispute Resolution – Local Courts

According to the World Bank’s Ease of Doing Business Report, enforcement of contracts takes an average of 1,420 days in India. This includes an average of 20 days for filing the dispute, 1,095 days for trial, and 305 days for enforcement of judgments. As a percentage of the total claim, dispute resolution will cost the litigant an average of 39.6%.

Under Indian law, the following types of disputes cannot be settled by arbitration, but must be settled through civil suits: matters of public rights; proceedings under the Foreign Exchange Management Act that are quasi-criminal in nature; validity of IPR granted by statutory authorities; taxation matters beyond the will of the parties; and disputes involving insolvency proceedings.

Arbitration is the preferred mode of commercial dispute resolution in India. In April 2009 the London Court of International Arbitration (LCIA), launched its first independent subsidiary in India.

Alternate Dispute Resolution (ADR)

Since formal dispute resolution is expensive and time consuming, many businesses are resorting to methods including ADR for resolving disputes. The most commonly used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act (based on the UNCITRAL Model Laws of Arbitration). Experts agree that the ADRM techniques are extra-judicial in character and emphasize that ADRM cannot displace litigation. In cases that involve Constitutional or criminal law, traditional litigation remains necessary.

Dispute Resolutions Pending

India has seen a significant number of disputes in the recent past, many of which have made headline news globally. Finance Minister Arun Jaitley in his FY2014-15 budget speech announced that tax demands of USD 65 billion are under dispute and litigation, before various courts and appellate authorities. An increasing backlog of cases at all levels reflects the current state of India’s legal apparatus, and the need for reform in dispute resolution. The dispute resolution infrastructure is characterized by an inadequate number of courts, benches and judges; inordinate delays in filling judicial vacancies; and only 14 judges per million people in India. Almost 25% of judicial vacancies can be attributed to procedural delays.

5. Performance Requirements and Investment IncentivesShare    

Performance Requirements

New guidelines were released to revise the policy on Preferential Market Access (PMA) through a notification dated Dec 23, 2014. Major differences between the latest PMA guidelines versus the one which was released in the initial PMA policy dated Dec 10, 2012 are as follows:

1. Current guidelines are emphasizing PMA implementation with an objective to promote domestic manufacturing whereas the older guidelines supported the PMA implementation on the premise of national security aspects linked with the procurement of equipment.
2.. Current guidelines on PMA implementation are applicable to just hardware procurement; services are beyond its purview, whereas Older guidelines were applicable to both products and services
3. Older guidelines pertaining to PMA allowed only OEMs to bid, whereas the new guidelines also allow authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products to bid for government orders provided:

a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
b. The bidder shall furnish the Affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed
c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.

4. In the new guidelines, there is a maximum ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3000 approx.) or 1% of the value of the Domestically Manufactured Electronic Product (DMEP) being procured (subject to a maximum of Indian Rupees 500,000 ($7500 approx.)), whichever is higher.

To make India a global player in the field of Electronics Manufacturing and to offset disabilities faced by industries for reliable infrastructure, an Electronics Manufacturing Clusters (EMC) scheme was notified via notification no. 252 dated October 22, 2012, to provide support for the creation of world-class infrastructure for attracting investments in the Electronics Systems Design and Manufacturing (ESDM) Sector. For effective functioning of the scheme, a set of guidelines for operationalization of the EMC scheme were issued on April 15, 2013. The guidelines for EMC contains the requisite project parameters, detailed terms and conditions of the scheme along with applications forms for making preliminary and final applications. The EMCs scheme provides grant assistance for setting up both Greenfield and Brownfield EMCs across the country. The financial assistance under the scheme is in the form of grant-in-aid only. The Scheme is open for 5 years for receiving applications from the date of notification.

Investment Incentives

India deferred a controversial General Anti Avoidance Rule (GAAR) by two years. Initially set to come into effect this year, the change tightens rules for foreign investors who are registered in countries with double taxation exemption agreements with India. India also extended a concessionary rate of 5% for so-called withholding taxes on debt investments by foreign investors by two years, until July 1, 2017. India had cut the tax on income from debt investments to 5% from 20% in 2013.

Research and Development

The GOI allows for 100% FDI in research and development through the automatic route.

Data Storage

The GOI does not require IT providers to turn over source code or provide access to surveillance. The Draft National Telecom M2M Roadmap, which has not been implemented and is currently undergoing a public comment period, states that “all M2M gateways and application servers serving customers in India, needs to be located in India only. The draft policy also proposes that foreign SIM cards should not be permitted in devices to be used in India.

6. Protection of Property RightsShare    

Real Property

Several cities, including the metropolitan cities of Delhi, Calcutta, Mumbai, and Chennai have grown according to a master plan registered with the central government’s Ministry of Urban Development. Property rights are generally well-enforced in such places, and district magistrates—normally senior local government officials—notify land and property registrations. Banks and financial institutions will provide mortgages and liens against such registered property.

In other urban areas, and in areas where illegal settlements have been built up, titling remains unclear. As per the GOI Department of Land Resources, the Indian government has launched a National Land Records Modernization Program (NLRMP) to clarify land records and provide landholders with legal title. The program requires the government to survey an area of approximately 2.16 million square miles, including over 430 million rural households, 55 million urban households, and 430 million land records. The government acknowledges the enormity of the task and has not yet provided an estimate as to when the work will be completed.

Traditional land use rights, including communal rights to forests, pastures, and agricultural land, are sanctioned according to various laws, depending on the land category and community residing on it. Relevant legislation includes the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, the Tribal Rights Act, and the Tribal Land Act.

Foreign and domestic private entities are permitted to establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices, and liaison offices, subject to certain sector-specific restrictions. The government does not permit foreign investment in real estate, other than company property used to conduct business and for the development of most types of new commercial and residential properties. FIIs can now invest in initial public offerings (IPOs) of companies engaged in real estate. They can also participate in pre-IPO placements undertaken by such real estate companies without regard to FDI stipulations.

To establish a business, various government approvals and clearances are required including incorporation of the company and registration under the State Sales Tax Act and Central and State Excise Acts. Businesses that intend to build facilities on land they own are also required to take the following steps: register the land; seek land use permission if the industry is located outside an industrially zoned area; obtain environmental site approval; seek authorization for electricity and financing; and obtain appropriate approvals for construction plans from the respective state and municipal authorities. Promoters also need to obtain industry-specific environmental approvals in compliance with the Water and Air Pollution Control Acts. Petrochemical complexes, petroleum refineries, thermal power plants, bulk drug makers, and manufacturers of fertilizers, dyes, and paper, among others, must obtain clearance from the Ministry of Environment and Forests.

The Foreign Exchange Management Regulations and the Foreign Exchange Management Act set forth the rules that allow foreign entities to own immoveable property in India and convert foreign currencies for the purposes of investing in India. These regulations can be found at Foreign investors operating under the automatic route are allowed the same rights as a citizen for the purchase of immovable property in India in connection with an approved business activity. India ranks 138 out of 189 for ease of registering property in the World Bank’s Doing Business Report (

In India, a registered sale deed does not confer title ownership and is merely a record of the sales transaction. It only confers presumptive ownership, which can still be disputed. Actual title is established through a chain of historical transfer documents that originate from the land’s original established owner. Accordingly, before purchasing land, buyers should examine all the link documents that establish title from the original owner. Many owners, particularly in urban areas, do not have access to the necessary chain of documents. This increases uncertainty and risks in land transactions.

Beginning December 31, 2014, the government passed a Land Acquisition Amendment ordinance intended to meet the objectives of farmer welfare and meet the strategic and developmental needs of the country. However, the government has faced stiff resistance from opposition parties on legitimating the ordinance, as it negates the previous Land Acquisition law’s social impact assessment and consent requirements (i.e. necessitating the consent of specified shares of landowners prior to the invocation of eminent domain). The government is currently not pursuing the bill in Parliament, but will ask state governments to push through amendments to their own laws to simplify land acquisition procedures.

Intellectual Property Rights

Engagement with India on Intellectual Property Rights (IPR) continues, primarily through the Trade Policy Forum’s Working Group on Intellectual Property. Overall preexisting weaknesses in India’s IP regime include lack of enforcement, weak judicial processes, and continued delays in the release of India’s National IPR Policy. While the U.S. Government is encouraged by enhanced engagement with the Government of India, that engagement has not yet translated into significant, sustainable progress and/or actions on IPR that were anticipated earlier in the current administration. India has adequate copyright laws, but enforcement is weak and piracy of copyrighted materials is widespread. India was listed on the Priority Watch List in USTR’s Special 301 report for 2015. The country is home to several “Notorious Markets” across the breadth of the country, according to USTR’s latest report in February 2015.

The current government has made some progress in fulfilling its mandate to build a cleaner, more market-oriented, and more competitive India. The government has made changes to some of its policies, including on Foreign Direct Investment, tariffs, and customs procedures, and improving access for U.S. trade and investment to the Indian market. Prime Minister Modi’s courtship of multinationals to invest and “Make in India” has not yet addressed longstanding hesitations over India’s lack of effective IPR enforcement. The USG met repeatedly with Government of India (GOI) officials and industry stakeholders on IPR in 2015, including visits to India by officials from USTR, and the Departments of State, Commerce, and Agriculture. The Modi government has been very willing to engage in discussions with the U.S. government and U.S. industry on IPR in 2015. India has made efforts to streamline its IP framework through administrative actions and capacity building.

Parliament recently passed the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, which enables the creation of Commercial Courts and Commercial Divisions and Commercial Appellate Divisions within India’s High Courts. These measures are aimed at improving the ease of doing business in India and facilitating smooth and prompt resolution of commercial disputes, including IPR. The U.S. government has advocated for the creation of anti-camcording legislation, which would have a significant impact on stopping digital piracy in India. This legislation would also improve India’s ease of doing business rankings, as well as send a signal to investors and entrepreneurs that the government values transparency, predictability, and the rule of law. As of early 2016, Indian government interlocutors said that an anti-camcording bill is currently being circulated for inter-ministerial discussions and could be introduced in the next session of Parliament.

Pharmaceutical and agro-chemical products can be patented in India. Plant varieties are protected by the Plant Varieties and Farmers’ Rights Act. Software embedded in hardware may also be patented. However, the interpretation and application of the patent law lacks clarity, especially with regard to several important areas such as compulsory licenses, pre-grant opposition provisions, and the scope of patentable inventions (e.g., whether patents are limited to new chemical entities rather than incremental innovation). In 2012, India issued its first compulsory license for a patented pharmaceutical product. In the case of Natco vs. Bayer, an Indian generics company sought and was granted a compulsory license under India’s laws to make a generic version of Bayer’s liver and kidney cancer drug, Nexavar. However, India has not issued a single compulsory license since. Indian law does not protect against the unfair commercial use of test data or other data submitted to the government during the application for market approval of pharmaceutical or agro-chemical products. The Pesticides Management Bill (2008), which would allow data protection of agricultural chemical provisions, stalled in the previous Parliament.

Indian law provides no statutory protection of trade secrets. The Designs Act allows for the registration of industrial designs. The Designs Rules, which detail classification of design, conform to the international system and are intended to take care of the proliferation of design-related activities in various fields. India’s Semiconductor Integrated Circuits Layout Designs Act is based on standards developed by WIPO; however, this law remains inactive due to the lack of implementing regulations.

Customs officers have ex-officio authority to seize and destroy counterfeit goods, though rights holders must pay for storage and destruction of counterfeit materials. India offers all types of counterfeit goods for sale; the seven most vulnerable sectors for IPR crime include automotive parts, alcohol, computer hardware, fast-moving commercial goods (FMCG) for personal use, FMCG packaged foods, mobile phones, and tobacco products. India is slowly experiencing a marginal improvement in its IP protections, both in the ease of registering IP and in the ease of enforcement.

In multilateral negotiations and the WTO TRIPS Council, India, together with other countries, presses demands for unlimited technology transfer that could lead to coercion of private rights holders, weakening their property rights. These outcomes could undermine innovation, trade, and investment in IP-intensive products and services that are critical parts of the response to climate change, sustainable economic development, and other challenges. By advancing such positions, the Indian government is creating uncertainty with respect to its commitment to create a domestic environment that will encourage innovation and investment in high technology industries.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at

Resources for Rights Holders

Contact at U.S. Embassy
U.S. Patent & Trademark Office, Foreign Commercial Service

Country/Economy resources:

Madhvi Kataria
American Chamber of Commerce in India (AMCHAM)
Associate Director
2652 5201 / 02; 2652 5203; 98102-02213

You can find a list of lawyers at the U.S. Embassy website:

7. Transparency of the Regulatory SystemShare    

Despite progress, the Indian economy is still constrained by conflicting rules and a complex bureaucratic system that has broad discretionary powers. India has a decentralized federal system of government in which states possess extensive regulatory powers. Regulatory decisions governing important issues such as zoning, land-use, and the environment vary between states. Opposition from labor unions and political constituencies slows the pace of land acquisition, environmental clearances, and investment policy.

The central government has been successful in establishing independent and effective regulators in telecommunications, securities, insurance, and pensions. The Competition Commission of India (CCI), India's antitrust body, has taken up its enforcement powers and is now taking cases against cartelization and abuse of dominance, as well as conducting capacity-building programs for bureaucrats and company officials. Currently the commission’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for a search and seizure operation. In June 2011, the government enacted rules governing mergers and acquisitions. The Securities and Exchange Bureau of India (SEBI) enforces corporate governance and is well regarded by foreign institutional investors. The RBI, which regulates the Indian banking sector, is also held in high regard. Some Indian regulators, including SEBI and the RBI, engage with industry stakeholders through periods of public comment, but the practice is not consistent across the government.

The Companies Act adopted in 2013 brings India’s corporate governance rules in line with international standards with regards to transparency and audit procedures. The new government made several amendments to the act in 2014 to make it more investor friendly.

8. Efficient Capital Markets and Portfolio InvestmentShare    

The S&P BSE SENSEX index – India’s benchmark 30-share index – ended the year about 5% lower at 26,117. The Sensex hit a record high of 30,024 on March 4 bolstered by a surprise interest rate cut by RBI, the second inter-meeting interest rate cut in less than two months. However, on September 8 on back of concerns of a China slowdown and domestic monsoon worries, the Sensex hit a low of 24,833. Market capitalization of the BSE was at USD 1.5 trillion on December 31, 2015. The Securities and Exchange Board of India (SEBI) is considered one of the most progressive and well-run of India’s regulatory bodies. According to the World Bank Ease of Doing Business Report, India has climbed from number 49 in 2012 to being number eight this year on the parameter of shareholder protection. SEBI regulates India’s securities markets, including enforcement activities, and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC). SEBI oversees three national exchanges: the National Stock Exchange, BSE Ltd., and Metropolitan Stock Exchange. On September 28, 2015, the Forwards Market Commission, the commodities market regulator, was merged with SEBI. The move was directed towards infusing confidence in the commodity market, which had collapsed after the $900 million National Spot Exchange scam broke out in 2013. With the merger, SEBI is tasked to deal with three more national commodity exchanges: the Multi Commodity Exchange, National Commodity & Derivatives Exchange Limited, and the National Multi-Commodity Exchange.

Unlike Indian equity markets, local debt and currency markets remain relatively underdeveloped, with limited participation from foreign investors. Indian businesses receive the majority of their finance through the banking system, not through capital markets. Although private placements of corporate debt have increased, India’s corporate bond market is around 14% of GDP as compared to bank assets (89% of GDP) and equity markets (80% of GDP).

Foreign investment in India can be made through various routes, including: FDI, Foreign Portfolio Investor (FPI), and venture capital investment. The FPI route provides access to a wide range of foreign portfolio investors, including foreign institutional investors (FIIs), FII sub-accounts, Qualified Foreign Investors (QFIs), and Non-resident Indians (NRIs). FIIs are divided into two categories: regular FIIs, which invest in both equity and debt; and 100% debt-fund FIIs. Eligible FIIs include the following: overseas pension funds, mutual funds, banks, foreign central banks, sovereign wealth funds, endowment and university funds, foundations, charitable trusts and societies, insurance companies, re-insurance companies, foreign government agencies, international and multilateral organizations, broad-based funds, asset management companies, investment managers, and hedge funds. FIIs must be registered and regulated by a recognized authority in their home country; as a result, many U.S.-based hedge funds cannot register as FIIs. “Sub-account” refers to any person residing outside of India on whose behalf investments are made within India by an FII. These include foreign individuals and corporations, broad-based funds, proprietary funds under the name of a registered FII, endowment and university funds, and charitable trusts and societies. NRIs are not eligible to apply as sub-accounts. The revised FPI regulations (that combine existing FIIs, FII sub-accounts, and QFIs into a new class termed as FPI) issued in January 2014 by SEBI have made registration of foreign investors much simpler and require foreign investors registered to register with designated depository participants like NSDL and CDSL.

In 2015, foreign fund flows into Indian stocks have been the lowest in the past four years. FIIs invested nearly USD 9.56 billion in the Indian debt market in 2015. Keeping in line with the 2014 trend, FII investment in debt outpaced that in the equity market, as most debt inflows have gone to government securities. FIIs invested USD 6.89 billion in Indian debt as against USD 2.67 billion in equities in 2015.

Indian equity markets have few restrictions on capital flows, but do limit foreign ownership stakes. FIIs and sub-accounts can own up to 10% and 5% respectively of the paid-up equity capital of any Indian company. Aggregate FPI investment in an Indian company is capped at 24%, unless specifically authorized by that company’s board of directors. All investor classes are permitted to sell short, except for NRIs. Investors must, however, maintain a minimum margin requirement.

In 2014, the RBI allowed FPIs to access the currency futures or exchange traded currency options market to hedge onshore currency risks in India, a move that was touted as a significant initiative in attracting Dollar inflows into the country. Further in December 2015, the RBI allowed FPI’s to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. While the NSE recorded a 49% increase in the value of currency futures and options traded in 2015, the BSE logged a 111% jump. Analysts have explained that high volatility in currency markets could also have resulted in higher interest in this segment last year. India’s growing importance in the global economy has led to increased interest in the Indian Rupee (INR). Yet, the persistence of capital controls in the onshore market has led to the development of an offshore INR market called Non Deliverable Forward (NDF), particularly in Singapore, Dubai, London, and New York. The RBI has taken a number of steps in the recent past to bring these offshore activities onshore, in order to deepen the domestic markets, enhance downstream benefits, and generally obviate the need for an NDF market.

SEBI has allowed trading in commodity derivatives at stock exchanges operating in International Financial Services Centre (IFSC). Under the IFSC regime, any recognized domestic or foreign stock exchange can set up a subsidiary, in the financial services center, provided they hold at least 51% stake in the venture. These norms are aimed at easing the setting up of stock exchanges and capital market infrastructure in such centers. SEBI has announced that they would introduce new products and allow more participants to deepen the commodity derivatives market.

SEBI allows foreign brokers to work on behalf of registered FIIs, but these FIIs can also bypass brokers and deal directly with companies in open offers. FII bank deposits are fully convertible, and their capital, capital gains, dividends, interest income, and any compensation from the sale of rights offerings post tax, may be repatriated without prior approval. NRIs are subject to separate investment limitations. They can repatriate dividends, rents, and interest earned in India, and specially designated NRI bank deposits are fully convertible.

Foreign venture capital investors (FVCIs) must register with SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, and to FDI policy. FVCIs can invest in many sectors including software business, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure. Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs). In 2015, SEBI clarified that Foreign Venture Capital Investors (FVCIs) can be granted registration as a foreign portfolio investor if they meet certain guidelines.

Companies are required to maintain pre-issued, paid-up capital, and free reserves of at least USD 100 million, as well as an average turnover of USD 500 million during the three financial years preceding issuance. The company must be profitable for at least five years preceding the issuance, declaring dividends of no less than 10% each year and maintaining a pre-issue debt-equity ratio of no more than 2:1. Standard Chartered Bank, a British bank which was the first foreign entity to list in India in June 2010, remains the only foreign firm to have issued IDRs.

External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if funds are used for outward FDI, or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. ECBs cannot be used for on-lending, investments in financial assets, acquisition of real estate or a domestic firm, meeting of working capital requirements or repayment of existing INR loans. An ECB can raise a maximum of USD 750 million in a financial year, unless it is in the hotel, hospital, software, or miscellaneous services sectors. NGOs engaged in micro-finance activities and Micro Finance Institutions can raise ECB up to USD 100 million in a financial year, and must hedge 100% of their currency risk exposure. A Non-bank Finance Company – Infrastructure Finance Companies (NBFC-IFCs) can raise ECB up to 75% of its owned funds and must hedge 75% of its currency risk exposure. The all-in cost ceilings for ECBs with an average maturity period of three-to-five years is capped at 300 basis points over the six-month LIBOR, and 450 points for loans maturing after five years. Indian companies borrowed close to USD 28.39 billion through ECBs in 2014-15.

Money and Banking System, Hostile Takeovers

The banking sector in the country remained predominantly in the public sector with the public sector banks (PSBs) accounting for 72% of total banking sector assets, notwithstanding a gradual decline in their share in recent years. PSBs are not technically subject to any excess regulations over commercial banks, neither in terms of lending practice nor deposits. They do, however, have their CEOs, upper management, and a number of their board of directors appointed by the government, meaning that the government can become quite influential in credit decisions.

According to data from Capitaline, banks in India added nearly $14.63 billion (Rs.1 trillion) in bad loans in the quarter that ended December 31, 2015. In December 2015, RBI Governor Rajan set a March 2017 deadline for banks to clean up their balance sheets and nudged them to treat some troubled loan accounts as bad loans and make provisions for them by the end of March 2016. Banks have since seen sharp erosion in profits, and some started reporting losses as they set aside capital buffers to cushion the bad loans. Indian public sector banks need an estimated $27 billion in capital over the next four years, according to Indian government estimates, to comply with new Basel III norms for higher capital requirements. The IMF, in the India 2015 Article IV consultation, reports that if the government were to provide the full amount of required capital injection, the estimate rises to between 1.2 to 1.7% of 2018/19 GDP. In August 2015, the Finance Ministry declared its plan to infuse $11 billion in the next four years, less than half the total capital requirement, hoping that improving the banks’ balance sheets would allow them to raise the remainder from the market. Additionally, RBI’s loosening tier one or core capital requirements at the beginning of March 2015 would help public sector banks shore up capital.

As on December 9, 2015, 195.2 million accounts have been opened and 166.7 million RuPay debit cards have been issued under Pradhan Mantri Jan Dhan Yojana (PMJDY). The scheme was launched on August 28, 2014 with the objectives of providing universal access to banking facilities, providing basic banking accounts with overdraft facility and RuPay Debit card to all households, conducting financial literacy programs, creation of credit guarantee fund, micro-insurance and unorganized sector pension schemes. The objectives are expected to be achieved in two phases over a period of four years up to August 2018. Though the number of accounts opened is immense, some of these still maintain a zero-balance, and six months of “satisfactory transactions” are necessary before the account-holder qualifies for benefits including overdraft and life insurance. It is likely the number of transactions will rise once the government expands its initiative for providing subsidies and benefits through direct bank transfers.

Takeover regulation in India applies equally to domestic and foreign companies. The regulations do not recognize, however, any distinct category of hostile takeovers. RBI and FIPB clearances are required to acquire a controlling stake in Indian companies. Takeover regulations require disclosure on acquisition of shares exceeding 5% of total capitalization. As per SEBI's Substantial Acquisition of Shares and Takeovers (Amendment) Regulations, released in 2013, acquisition of 25% or more of the voting rights in a listed company triggers a public offering of an additional 26% stake at least. Under the creeping acquisition limit, the acquirer holding 25% or more voting rights in the target company can acquire additional shares or voting rights up to 5% of the total voting rights in any financial year, up to a maximum permissible non-public shareholding limit of 75% generally. Acquisition of control over the target company, irrespective of shares or voting rights held by the acquirer, will trigger a mandatory open offer.

9. Competition from State-Owned EnterprisesShare    

In India, the government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. Over the decades, the Indian government has taken a number of steps to improve the performance of SOEs, also called the Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. Reforms carried out in the 1990s focused on liberalization and deregulation of most sectors and disinvestment of government shares. These and other steps to strengthen CPSE boards and enhance transparency evolved into a more comprehensive governance approach, culminating in the Guidelines on Corporate Governance of State-Owned Enterprises issued in 2007 and their mandatory implementation from 2010. Governance reforms gained prominence for several reasons: the important role that CPSEs continue to play in the Indian economy; increased pressure on CPSEs to improve their competitiveness as a result of exposure to competition and hard budget constraints; and new listings of CPSEs on capital markets. The Department of Public Enterprises ( under the Ministry of Heavy Industries manages the CPSEs. As of March 2014, there were 290 Central Public Sector Enterprises (CPSEs), of which 234 were in operation and 56 CPSEs are yet to commence business. 202 of the 290 CPSEs showed profit during 2013-14 and did not require government support. The loss making entities (e.g. Air India) and the state-run telecom company Bharat Sanchar Nigam limited were supported by the government through allocations in the general budget. The manufacturing sector constitutes the largest component of investment in CPSEs (45%) followed by services (35%), energy (12%), and mining (8%). Foreign investments are allowed in the CPSEs in all sectors. Full list can be accessed at While the CPSEs face the same tax burden as the private sector, on issues like procurement of land, the CPSEs do not face the hassles that the private sector enterprises face as the government procures the necessary land.

OECD Guidelines on Corporate Governance of SOEs

In India, the government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. Over the decades, the Indian government has taken a number of steps to improve the performance of SOEs (also called Central Public Sector Enterprises (CPSEs)), including improvements to corporate governance. Reforms carried out in the 1990s focused on liberalization and deregulation of most sectors and disinvestment of government shares. These and other steps to strengthen CPSE boards and enhance transparency evolved into a more comprehensive governance approach, culminating in the Guidelines on Corporate Governance of State-Owned Enterprises issued in 2007 and their mandatory implementation from 2010. Governance reforms gained prominence for several reasons: the important role that CPSEs continue to play in the Indian economy; increased pressure on CPSEs to improve their competitiveness as a result of exposure to competition and hard budget constraints; and new listings of CPSEs on capital markets. The Department of Public Enterprises ( under the Ministry of Heavy Industries manages the CPSEs. As of March 2014, there were 290 Central Public Sector Enterprises (CPSEs) in India, of which 234 were in operation and 56 CPSEs are yet to commence business. 202 of the 290 CPSEs showed profit during 2013-14 and therefore so did not require direct financial support from the government. The loss-making entities (such as Air India and the state run telecom company Bharat Sanchar Nigam limited) were supported by the government through allocations in the general budget. The manufacturing sector constitutes the largest component of investment in CPSEs (45%) followed by services (35%), energy (12%), and mining (8%). Foreign investments are allowed in the CPSEs in all sectors. The full list can be accessed at CPSEs face the same tax burden as the private sector, but avoid many hassles in procuring land and other regulatory issues, compared to private sector enterprises.

The government is the major equity stakeholder in all SOEs. The nodal agency that controls and formulates all the policies pertaining to SOEs is the Department of Public Enterprises (, which is headed by a minister to whom the senior management reports. The GOI’s Comptroller and Auditor General (CAG) audits the SOE’s.

Per the Company’s Act, independent directors should form 40% of the board with the remaining members made up of government representatives and functional directors, some of whom are CEO’s in other SOE’s.

Currently India attends the Government on Procurement Agreement (GPA) meetings as an observer and is not a full member.

Sovereign Wealth Funds

India does not have a sovereign wealth fund. Under the previous government, the Prime Minister’s Council on Trade and Industry had suggested setting up a sovereign fund with an initial corpus of USD 5 billion to help fund acquisition of companies abroad; however, the idea has not found much traction under the current government. Looking to attract larger inflows from sovereign wealth funds and foreign pension funds, government and financial sector regulators have renewed their efforts to make Indian markets, especially government bonds, much more appealing to such investors. The policymakers view the overseas investments by sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks as much more stable in nature, as compared to institutional investors and hedge funds. The world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global (GPFG) announced its intent to increase its holdings in India, citing the BJP-led government has shifted toward more market-based energy pricing, allowed more foreign investment in the defense industry, and pushed to revive the manufacturing.

10. Responsible Business ConductShare    

The Companies Act of 2013 introduced a number of new parts to India’s corporate social responsibility (CSR) policy and clarified some old ones. The law mandates a minimum level of CSR spending at 2% of a company’s net after-tax profits averaged over the preceding three years. The law also specifies the point at which companies are bound by the regulations as determined by their valuation, profits and/or revenue. Furthermore, each company must form a CSR committee staffed by the company’s boards of directors. The law applies both to domestic enterprises and subsidiaries of multinational companies with offices in India. Companies must issue a public report of their CSR spending, or provide an explanation of why they failed to meet the minimums. The directors of companies that fail to report are held personally accountable under the law and can face fines or imprisonment. The combination of regulation, a tradition of corporate philanthropy and publicity, has led many companies to pursue their CSR obligations actively, and many widely publicize their efforts. The Indian Institute of Corporate Affairs (under the Ministry of Corporate Affairs) estimates that at least 6,000 Indian companies (many of them small and medium enterprises) will have been required to fund CSR projects in 2015.

A CSR support industry exists to coordinate giving, vet recipients, and match donors with worthy causes. For example, the Bombay Stock Exchange (BSE) maintains a “CSR Exchange” called Sammaan ( There are NGOs which specialize in CSR management and a number of nation-wide newspapers track CSR efforts throughout the year as well.

GOI does not adhere to the OECD Guidelines for Multinational Enterprises.

11. Political ViolenceShare    

There have been no significant incidents involving political violence. However, outbursts of violence related to insurgent movements continued in Jammu and Kashmir and some northeastern states. Maoist/Naxalite insurgent groups also remain active in some eastern and central Indian states, including the rural areas of southern Bihar, Jharkhand, Chhattisgarh, and Orissa. From July to September 2015, approximately 10 people were killed in the violence following protests of the Patidar community, who were seeking Other Backward Class (OBC) status in Gujarat state. This agitation subsequently spoiled the overall investment climate in the western parts of India. In October, the desecration of the Sikh holy book led to violence in Faridkot, Ferozepur, Ludhiana and Tarn Taran districts of Punjab, resulting in the killing of two Sikhs and dozens injured. The incident followed by the Pathankot terrorist attack dampened the investment prospects in a relatively prosperous North Indian state of Punjab.

Travelers to India are invited to visit the U.S. Department of State travel advisory website at: for the latest information and travel resources.

12. CorruptionShare    

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is ranked 76 out of 168 countries surveyed in Transparency International’s 2015 Corruption Perception Index, which is a slight improvement over last year’s ranking of 85 out of 175. The legal framework for fighting corruption in India is addressed by the following laws: the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; the Prevention of Money Laundering Act, 2002; and the Companies Act, 2013. Anti-corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels. The amendments also elevated India’s Central Vigilance Commission (CVC) to a statutory body. India’s Parliament enacted the Lokpal bill in 2013, which created a national anti-corruption ombudsman and requires states to create state-level ombudsmen within one year of the law’s passage. The government has yet to implement the law, however, and as yet, no ombudsmen have been appointed.

In February 2014, the government enacted the Whistleblower Act, intended to protect anti-corruption activists, but has yet to be implemented. Experts believe that the prosecution of corruption has proven effective only among the lower levels of India’s bureaucracy; senior bureaucrats have generally been spared. Businesses consistently cite corruption as a significant obstacle to FDI in India and identify government procurement as a process particularly vulnerable to corruption. To make the Whistle Blowers Protection Act, 2014 more effective, the Government of India proposed an amendment bill in 2015. The bill, however, is still pending in the Indian Parliament because a number of anti-corruption activists have expressed concern that the bill will lead to creating exemptions for state authorities to stay out of reach from whistleblowers.

The Companies Act, 2013, established rules related to corruption in the private sector by mandating mechanisms for the protection of whistle blowers, industry codes of conduct, and the appointment of independent directors to company boards. As yet, the government has established no monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011, may afford some protection once it has been fully implemented.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption.

India is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Robert Kemp
Deputy Minister Counselor for Environment, Economics, Science & Technology
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000

Ashutosh Kumar Mishra
Executive Director
Transparency International, India
Lajpat Bhawan, Room no.4
Lajpat Nagar,
New Delhi - 110024
+91 11 2646 0826

13. Bilateral Investment AgreementsShare    

As of December 2013, India had concluded 83 bilateral investment treaties, including with the United Kingdom, France, Germany, Switzerland, Malaysia, and Mauritius. Of these, 72 agreements are currently in force. The complete list of agreements can be found at:

In early 2012, local media reported that Coal India lost in international arbitration against an Australian firm. The Australian firm reportedly won its case based on more favorable treaty language from a third country investment treaty, leading the Government of India to temporarily suspend all BIT negotiations until it had drafted a new model agreement.

The Government of India circulated a new model BIT in April 2015 for two weeks of public comment and in January 2016 the Ministry of Finance put out is Model Bit Text in the public domain. The Ministry of Finance said that the revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs). A number of provisions have been introduced to protect the sovereign from investment disputes. Foreign investors will not have access to BITs, if the contracts they have entered into with local investors or the government provide exclusively for legal recourse in India.

In 2009, India concluded a Comprehensive Economic Cooperation Agreement (CEPA) with ASEAN and a free trade agreement (FTA) in goods, services, and investment with South Korea. In February 2011, India signed CEPAs with Japan and Malaysia. FTA negotiations with the EU, Canada, and Australia are still under way, and India is negotiating a CEPA with Thailand.

The President and the Prime Minister affirmed their shared commitment to facilitating increased bilateral investment flows and fostering an open and predictable climate for investment. To this end, the Leaders instructed their officials to assess the prospects for moving forward with high-standard bilateral investment treaty discussions given their respective approaches. The U.S. Department of Commerce’s International Trade Administration’s Invest in America program (SelectUSA), and Invest India, a joint venture between DIPP and the Federation of Indian Chambers of Commerce and Industry (FICCI), signed a Memorandum of Intent in November 2009, to facilitate FDI in both countries.

Bilateral Taxation Treaties

India has a bilateral taxation treaty with the United States.

14. OPIC and Other Investment Insurance ProgramsShare    

The United States and India signed an Investment Incentive Agreement in 1987, which covers Overseas Private Investment Corporate (OPIC) programs. OPIC is currently operating in India in the areas of utilities (renewable energy/power and telecommunications), finance and insurance, manufacturing, real estate/rental and leasing and wholesale trade. Since 1974, OPIC has committed more than $3 billion to financing, funds, and insurance projects in India and supported a total of 153 projects. OPIC’s current portfolio (as of December 31, 2015) in India totals over $1 billion across 27 projects particularly focusing in on utilities, financial services, manufacturing and services.

15. LaborShare    

Although there are more than 20 million unionized workers in India, unions represent less than 5% of the total work force. Most of these unions are linked to political parties. According to provisional figures from the Ministry of Labor and Employment (MOLE), over 3.6 million workdays were lost to strikes and lockouts in 2014, as opposed to 10.3 million workdays lost in 2013.

Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. Some labor problems are the result of workplace disagreements over pay, working conditions, and union representation. According to government statistics, Gujarat had the most number of strikes followed by Tamil Nadu and Kerala, although Andhra Pradesh recorded the most numbers of workdays lost due to strikes and lockouts.

India’s labor regulations are among the world’s most stringent and complex, and over time have limited the growth of the formal manufacturing sector. The rules governing the payment of wages and salaries are set forth in the Payment of Wages Act, 1936, and the Minimum Wages Act, 1948. Industrial wages vary by state, ranging from about USD 2.5 per day for unskilled laborers to over USD 6.6 per day for skilled production workers. Retrenchment, closure, and layoffs are governed by the Industrial Disputes Act of1947, which requires prior government permission to lay off workers or close businesses employing more than 100 people. Foreign banks also require RBI approval to close branches. Permission is generally difficult to obtain, which has resulted in the increasing use of contract workers (i.e. non-permanent employees) to circumvent the law. Private firms successfully downsize through voluntary retirement schemes.

The BJP-led government that took office in May 2014 promised to reform labor laws and ease conditions for doing business in India. To date, much of the movement on labor laws has taken place at the state level, particularly in Rajasthan, where the government has passed major amendments to allow for quicker hiring, firing, laying off, and shutting down. The Government of India’s Ministry of Labor and Employment launched a web portal in 2014 to assist companies in filing a single online report on compliance with 16 labor related laws. The Ministry also tabled legislation to amend India’s Factories Act that would encourage voluntary compliance of occupational safety and health standards and would reduce government inspections. India’s major labor unions have opposed the labor reforms, arguing that they compromise workers’ safety and job security.

On September 2, major trade unions led country-wide protests against the government’s attempt to reform the nation’s labor laws and threatened to go on an indefinite country-wide strike in 2016 if the government refused to desist from such attempts.

There are no reliable statistics for the number of unemployed in India due to the informal nature of most employment. The Government of India nonetheless acknowledges a shortage of skilled labor in high-growth sectors of the economy, including information technology and manufacturing. The current government has established a Ministry of Skill Development, has embarked on a national program to increase skilled labor.

16. Foreign Trade Zones/Free Ports/Trade FacilitationShare    

The government established several foreign trade zone schemes to encourage export-oriented production. These include Special Economic Zones (SEZ), Export Processing Zones (EPZ), Software Technology Parks (STP), and Export Oriented Units (EOU). The newest category is the National Industrial and Manufacturing Zones (NIMZ), of which 14 are being established across India. These schemes are governed by separate rules and granted different benefits, details of which can be found at:; and

SEZs are treated as foreign territory; therefore businesses operating within SEZs are not subject to customs regulations, nor FDI equity caps. They also receive exemptions from industrial licensing requirements, and they enjoy tax holidays and other tax breaks. EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies established anywhere in India that export their entire production and are granted the following: duty-free import of intermediate goods; income tax holidays; exemption from excise tax on capital goods, components, and raw materials; and a waiver on sales taxes.

As part of its new industrial policy, the government has now begun the establishment of NIMZs. Fourteen NIMZs have been approved to date, of which eight are planned on the Delhi-Mumbai Industrial Corridor route. NIMZs have been envisioned as green-field integrated industrial townships with a minimum area of 5000 hectares and managed by a special purpose vehicle, headed by a government official. Publicly available information suggests that foreign and domestic companies will be able to seek all state and central government authorizations for operating with NIMZs via single window.

17. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy


Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data






Host Country Gross Domestic Product (GDP) ($M USD)


$2.1 trillion


$1.87 trillion

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)


$27.963 billion


$27.963 billion

Host country’s FDI in the United States ($M USD, stock positions)


$7.823 billion


$7.823 billion

Total inbound stock of FDI as % host GDP






*GOI Gross Domestic Product at Inward FDI data available at Outward FDI data available at Note that DIPP figures include equity inflows, reinvested earnings and “other capital,” and therefore are not directly comparable with the international data.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward



Total Outward















United Kingdom



British Virgin Islands









United States



United States



"0" reflects amounts rounded to +/- USD 500,000.

Source: Department of Industrial Policy and Promotion, Government of India and Reserve Bank of India

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets

Top Five Partners (Millions, US Dollars)


Equity Securities

Total Debt Securities

All Countries



All Countries



All Countries



United States



United States












United States









United Kingdom












Cayman Islands







Source: IMF Coordinated Portfolio Investment Survey

18. Contact for More InformationShare    

Contact Point at Post for Public Inquiries

Robert Kemp
Deputy Minister Counselor for Environment, Economics, Science & Technology
U.S. Embassy New Delhi
+91 2419 8112