Executive Summary

The Government of India, led by Prime Minister Narendra Modi’s Bhartiya Janata Party (BJP), actively courts foreign investment, and has taken steps to improve the ease of doing business in India, as reflected by its recent jump in World Bank rankings. India’s investment climate improved moderately, but the implementation of economic reforms has not fully met the government’s positive rhetoric. The economy rebounded from a sluggish start to the year due to the November 2016 demonetization of 86 percent of the country’s currency, but also suffered a reduction in GDP growth with the implementation of the national Goods and Services Tax (GST) in July. The GDP grew at 6.7 percent to USD 2.4 trillion in 2017, according to the IMF, with a stable rupee, and political stability throughout the country. Non-performing assets continue to hold back banks’ profits and limit their lending, but stable, relatively low inflation, weak credit demand, and strong management from the central bank, the Reserve Bank of India, have mitigated the negative impact on credit. Employment, while difficult to measure given the large informal economy, appears to lag growth, while demographic increases mean India must generate over ten million new jobs every year – a challenge for the economy and policy makers.

In 2017, the government implemented moderate reforms aimed at easing investments in sectors including single brand retail, pharmaceutical, and private security. It also relaxed onerous rules for foreign investment in the construction sector, and allowed foreign airlines to participate in Air India’s pending privatization. For the first time in seven years, the government met its disinvestment target in fiscal year 2017-18. While the FDI cap in insurance sector was raised in 2015, legislative changes were approved in 2017 to allow private firms – including foreign-owned firms – to establish merchant coal operations. In 2017, the government abolished the Foreign Investment Promotion Board (FIPB), a body that approved FDI proposals that had a rider of mandatory government approval. The government has drawn up standard operating procedures, and FDI proposals will be approved directly by the lead ministries using these SOPs. FDI proposals in sensitive sectors require the additional approval of the Home Ministry. In May 2017, the Real Estate (Regulation and Development) Act, 2016 came into effect to regulate India’s real estate sector.

On July 1, 2017, the government began implementation of the GST, a complete overhaul of the previous state-by-state indirect tax structure. The GST Council announced four official tax rates – 5 percent, 12 percent, 18 percent, and 28 percent – in addition to tax-free goods and services as well as some further levies on goods considered luxury items. Some goods within the GST, such as diamonds and gold, attract a different rate, while other goods, such as alcohol and petroleum, remain outside of the GST system. Implementation has caused short-term disruptions to the economy, and tax rates have been adjusted for many products. There has been short-term dislocation in the economy as it adjusts to the new system, although the GST might boost the economy in the long run.

In 2018, Indian analysts do not expect any significant new economic reform policies, as the government moves toward national elections due in early 2019. Investors will continue to factor in the government’s implementation of the GST, the privatization of major state-owned enterprises including Air India, and further liberalization of FDI; the government has also discussed expansions of the food, insurance, and multi-brand retail investment policies. The information technology and banking sectors will monitor possible decisions and implementation of data protection policies, including possible data localization requirements.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 40 of 175
World Bank’s Doing Business Report “Ease of Doing Business” 2017 100 of 190 http//
Global Innovation Index 2017 60 of 127
U.S. FDI in partner country (M USD, stock positions) 2016 USD 32,939
World Bank GNI per capita 2016 USD 1,670

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

In 2017, the government issued moderate reforms aimed at easing foreign investments in sectors including single brand retail, pharmaceutical, and private security. It also relaxed onerous rules around foreign investment in construction projects, and allowed foreign airlines to participate in Air India’s pending privatization. Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department of Industrial Policy and Promotion (DIPP) for the vast majority of sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. While the FDI cap in the insurance sector was raised in 2015 alongside a clause requiring Indian management, legislative changes were approved in 2017 to allow private firms – including foreign-owned firms – to establish merchant coal operations. In 2017, the government abolished the Foreign Investment Promotion Board (FIPB), a body that approved FDI proposals that had a rider of mandatory government approval. The government has drawn up standard operating procedures and FDI proposals will be approved directly by the lead ministries using these SOPs. FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry. Separately, the government implemented the national Goods and Services Tax (GST), a complete overhaul of the state-by-state Indian indirect tax structure.

The DIPP, under the Ministry of Commerce and Industry, is the nodal investment promotion agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand and this consolidated policy is updated every year. The updated policy can be accessed at: . DIPP, through the Foreign Investment Implementation Authority (FIIA), plays a proactive role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DIPP oftentimes consults with ministries and stakeholders, but some relevant stakeholders report being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses, and engage in remunerative activities. Many sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, in the insurance sector, The Insurance Act 2015 raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” Similarly, in 2016, India allowed up to 100 percent FDI in domestic airlines; however the issue of substantial ownership and effective control (SOEC) rules which mandate majority control by Indian nationals have not yet been clarified. A list of investment caps (as of August 2017) is accessible at: .

Screening of FDI

Since the abolition of the Foreign Investment Promotion Board in 2017, appropriate ministries have screened FDI. FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics available at: .

Other Investment Policy Reviews

Business Facilitation

DIPP is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DIPP is responsible for the overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DIPP, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in case of major projects, Prime Minister Modi has started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. Per the Prime Minister’s Office, as of November 2017, 200 projects with investments of around USD 150 billion ranging across 17 sectors have been cleared. Prime Minister Modi personally monitors the process, to ensure compliance in meeting PRAGATI project deadlines. In December 2014, the Modi government also approved the formation of an Inter-Ministerial Committee led by the DIPP to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports from business chambers and affected companies of stalled projects.

Outward Investment

According to the Reserve Bank of India (RBI), India’s central bank, the growth in magnitude and spread (in terms of geography, nature and types of business activities) of overseas direct investment (ODI) from India reflects the increasing appetite and capacity of Indian investors. According to the RBI, the total ODI outflow from India in the January-December 2017 period was USD 21.63 billion. According to the U.S. Bureau of Economic Analysis, Indian direct investment into the U.S. was USD 9.8 billion in 2016.

2. Bilateral Investment Agreements and Taxation Treaties

Bilateral Investment Treaty

India made public a new model Bilateral Investment Treaty (BIT) in December 2015. This followed a string of rulings against Indian firms in international courts. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors to first exhaust all local judicial and administrative remedies before entering into international arbitration. The Indian government also announcedits intention to abrogate all BITs negotiated on the earlier 1993 BIT model. The government has served termination notices to roughly 58 countries, including EU countries and Australia. The Ministry of Finance said the revised model BIT will be used for the renegotiation of existing and any future BITs, and will form the investment chapter in any Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs)/Free Trade Agreements (FTAs). The complete list of agreements can be found at: . India signed a BIT agreement with Cambodia in August 2016 with no changes to the new model text, while Brazil has concluded a BIT framework but has not signed a new BIT. India and the United States maintain sporadic BIT discussions but have not entered into formal negotiations.

Bilateral Taxation Treaties

India has a bilateral taxation treaty with the United States, available at: .

3. Legal Regime

Transparency of the Regulatory System

Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry; for example, approval for higher FDI in the insurance sector came with a new requirement for “Indian management and control.” On most occasions the rules are framed after thorough discussions by the competent government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. Policies pertaining to foreign investments are framed by DIPP and the implementation is undertaken by lead federal ministries and sub-national counterparts. The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the Ministry of Corporate Affairs, which all listed companies must then adopt. These can be accessed at: .

International Regulatory Considerations

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight-member regional block in South Asia. India’s regulatory systems are aligned with SAARC economic agreements, visa regimes, and investment rules. India’s regulatory system traditionally followed the European system; however, since the new government came to power in May 2014 the practice has moved to resolving disputes through tribunals. In the 2017 budget, Jaitley announced the merger of all tribunals. This is expected to fast track dispute resolution. India has been a member of the WTO since 1994, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

Legal System and Judicial Independence

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to make adaptations per Indian Law and the Indian business culture when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian Judicial Structure provides for an integrated system of courts to administer both central and state laws. The legal system has a pyramidal structure, with the Supreme Court at the apex, and a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

Laws and Regulations on Foreign Direct Investment

The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( ). DIPP makes policy pronouncements on FDI through Press Notes/Press Releases, which are notified by the RBI as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated May 3, 2000). These notifications are effective on the date of the issued press release, unless otherwise specified. The judiciary does not influence FDI policy measures.

The government has introduced a “Make in India” program as well as investment policies designed to promote manufacturing and attract foreign investment. “Digital India” aims to open up new avenues for the growth of the information technology sector. The “Start-up India” program created incentives to enable start-ups to commercialize and grow. The “Smart Cities” project intends to open up new avenues for industrial technological investment opportunities in select urban areas. 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.

Competition and Anti-Trust Laws

The central government has been successful in establishing independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. The Competition Commission of India (CCI), India’s antitrust body, is now taking cases against cartelization and abuse of dominance as well as conducting capacity-building programs for bureaucrats and business officials. Currently the Commission’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The Securities and Exchange Bureau of India (SEBI) enforces corporate governance standards, 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.

Expropriation and Compensation

In 2010 and 2011, high-profile graft cases in the construction and telecom sectors exacerbated existing private sector concerns about the government’s uneven application of its policies. For example, in 2014, the Supreme Court cancelled 214 out of the 218 coal blocks that had been 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.

The government has taken steps to provide greater clarity in regulation. In 2016, the government successfully carried out the largest spectrum auction in the country’s history, and has also stated its intent to eliminate retroactive taxation proposals. India also has transfer pricing rules that apply to related party transactions. The government passed a constitutional amendment in August 2016 to establish a comprehensive Goods and Services Tax (GST), which could reduce the complexity of tax codes and eliminate multiple taxation policies. Parliament approved the enabling GST bills in March 2017, and the Finance Minister has said that the government is targeting a July 1, 2017 date to begin implementation.

Land acquisition continues to be a complicated process due to the lack of an effective legal framework, but is governed by the Land Acquisition Act (2013), which entered into force in 2014. In 2015, an amendment was introduced in Parliament which proposed five categories (national security and defense production, rural infrastructure, affordable housing, industrial corridors, and PPP projects on government-vested land) receive various exemptions, including consent for acquisition; the bill has since been withdrawn.

Land sales require adequate compensation, resettlement of displaced citizens, and 70 percent approval from landowners. The displacement of poorer citizens is politically challenging for local governments.

Dispute Settlement

According to the World Bank’s Ease of Doing Business Report, it takes an average nearly four years to resolve a commercial dispute in India, the third longest 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 ( ).

India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law model, as an attempt to align its adjudication of commercial contract dispute resolution mechanisms with most of the world. Judgments of foreign courts are enforceable under multilateral conventions, including 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 dispute 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 any 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) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although no progress has been made in establishing the office. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.

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 2016 the government also presented amendments to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.

Investor-State Dispute Settlement

According to the United Nations Conference on Trade and Development, India has been a respondent state for 21 investment dispute settlement cases, of which 11 remain pending ( ).

Though India is not a signatory to the 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.

International Commercial Arbitration and Foreign Courts

Alternate Dispute Resolution (ADR)

Since formal dispute resolution is expensive and time consuming, many businesses choose 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 ADR techniques are extra-judicial in character and emphasize that ADR cannot displace litigation. In cases that involve constitutional or criminal law, traditional litigation remains necessary.

Dispute Resolutions Pending

An increasing backlog of cases at all levels reflects the need for reform of the dispute resolution system, whose infrastructure is characterized by an inadequate number of courts, benches and judges, inordinate delays in filling judicial vacancies, and only 14 judges per one million people. Almost 25 percent of judicial vacancies can be attributed to procedural delays.

Bankruptcy Regulations

According to the World Bank, it takes an average of 4.3 years to recover funds from an insolvent company in India, compared to 2.7 years in Pakistan, 1.8 years in China and 1.7 years in OECD countries. Recognizing that reforms in the bankruptcy and insolvency regime are critical for improving the business environment and alleviating distressed credit markets, the government introduced the Insolvency and Bankruptcy Code (IBC) Bill in November 2015, drafted by a specially-constituted Bankruptcy Law Reforms Committee under the Ministry of Finance. The IBC passed Parliament on May 11, 2016 and came into effect after receiving Presidential assent on May 28, 2016. It overhauled the previous framework on insolvency of corporations, individuals, partnerships and other entities, and paved the way for much-needed reforms. It also focused on creditor-driven insolvency resolution. The IBC offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals (other than financial firms). The government is proposing a separate framework for bankruptcy resolution in failing banks and financial sector entities. Supplementary legislation would create a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms that would facilitate formal and time-bound insolvency resolution process and liquidation. The new law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.

In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These would amend debt recovery laws and make them more time-bound and effective while helping address the problem of rising bad loans for domestic and multilateral banks. It will also help banks and financial institutions recover loans more effectively, encourage the establishment of more asset reconstruction companies (ARCs) and revamp debt recovery tribunals.

4. Industrial Policies

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). The newest category is the National Industrial and Manufacturing Zones (NIMZs), of which 14 are being established across India. These initiatives 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 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.

The current government established NIMZs as newly integrated industrial townships with a minimum area of 5,000 hectares, to be managed by a special purpose vehicle and headed by a government official. According to government sources, the NIMZs will be developed with state-of-the art infrastructure and land use on the basis of zoning, clean and energy efficient technology, necessary social infrastructure, and skill development facilities. All clearances for projects operating in NIMZs will be via a single window, according to these sources. The government has planned the establishment of eight NIMZs on the Delhi-Mumbai Industrial Corridor (DMIC) route and six NIMZs outside the DMIC.

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India, as Public Sector Companies and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

  • Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
  • Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
  • Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
    • The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
    • 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.
    • 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.
  • The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 (USD 3000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 (USD 7500), whichever is higher.

In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement.

A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: .

Research and Development

The Government of India allows for 100 percent FDI in research and development through the automatic route.

Data Storage

The National Telecom Machine-to-Machine (M2M) Roadmap, released on May 25, 2015, states that all M2M gateways and application servers serving customers in India, must be physically located in India. The Roadmap proposes that foreign SIM cards not be permitted in devices used in India. India does not require foreign providers to turn over source code or provide access to encryption. The Telecom Regulatory Authority (TRAI) has issued a consultation paper to examine policy issues concerning cloud computing services and cross-border data flows.

Data Localization

In July 2017, MeitY announced the formation of a ten-person Committee of Experts that would identify key data protection issues, and would also recommend policy and reforms. In November 2017, MeitY issued an extensive white paper on data protection issues, including data localization, requesting input from concerned stakeholders. In April 2018, the RBI cited the need for unfettered access to all payment data for supervisory purposes and mandated that all payment system operators store all their data related to payment systems inside the country for a period of six months.

5. Protection of Property Rights

Real Property

Several cities, including the metropolitan cities of Delhi, Kolkata, 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 provide mortgages and liens against such registered property.

In other urban areas, and in areas where illegal settlements have been built up, titling often remains unclear. As per the Department of Land Resources, in 2008 the government launched the National Land Records Modernization Program (NLRMP) to clarify land records and provide landholders with legal titles. 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. Initially scheduled for completion in 2016, the program is now scheduled to conclude in 2021. 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.

In 2016, India introduced its first regulator in the real estate sector in the form of the Real Estate Act. The Real Estate Act, 2016 aims to protect the rights and interests of consumers and promote uniformity and standardization of business practices and transactions in the real estate sector. Details are available at: .

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. Foreign Institutional Investors (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 must also 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 an Indian citizen for the purchase of immovable property in India in connection with an approved business activity. India improved its World Bank Ease of Doing Business ranking in 2017, moving up 30 places to number 100. ( ).

In India, a registered sales 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. The 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.

Intellectual Property Rights

Engagement with India on Intellectual Property Rights (IPR) continues, primarily through the Trade Policy Forum’s High Level Working Group on Intellectual Property. Despite the release of the National IPR Policy and the establishment of India’s first intellectual property (IP) crime unit in Telangana in 2016, India’s IP regime continues to fall short of global best practices and standards. U.S. engagement has not yet translated into the progress and/or actions on IPR that were anticipated under the previous U.S. administration. A number of “Notorious Markets” across the country continue to operate, while many smaller stores sell or deal with pirated content across the country.

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. U.S. government representatives continued to meet the government officials and industry stakeholders on IPR in 2017 and 2018, including visits to India by officials from the U.S. Trade Representative (USTR), the U.S. Patent and Trademark Office (USPTO), and the Departments of State, Commerce, and Agriculture India has made efforts to streamline its IP framework through administrative actions and awareness programs, and is in the process of reducing its patent and trademark application backlog. India also addresses IPR in its recently-established Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions within India’s High Courts.

India’s copyright laws were amended in 2012, although these amendments have not been fully implemented. Without a copyright board yet active to determine royalty rates for authors, with enforcement being weak and piracy of copyrighted materials widespread, copyright law requires more emphasis on implementation. Industry hopes the recent shift of the copyright office from the Ministry of Human Resource Development to DIPP will enable more effective implementation of the law.

The copyright industry had a turbulent year in 2017. The Delhi High Court diluted the publishing industry’s and authors’ rights and expanded the definition of fair use judgment, by permitting photocopiers to copy an entire book for educational purposes without seeking prior permission of the copyright holder. The movie industry identified new illegal camcording hubs of operation in Indore and Noida, and the Telangana police cracked down on two syndicates that used under age children to illegally record movies. The anti-camcording bill, which would help address the problem, remains in its parliamentary committee and is not likely to be tabled this year. DIPP has taken measures to block websites sharing illegal materials (more detail below).

The music industry remains concerned about a September 2016 DIPP-issued Section 31D memorandum that they believe grants a de-facto “compulsory license” to internet broadcasters. The memo places internet service providers on par with radio broadcasters, allowing them to provide music on their websites by paying the same royalties to copyright societies, two percent of ad revenues. The industry argues that most of the websites have little to no ad revenue, and some may be hosted on servers outside India, which makes collection of royalties challenging. However, in February 2017, India issued a notice to all event organizers that they would have to pay royalties on music to artists when played at an event.

After India released its much-anticipated National IP Policy in 2016, it launched the Cell for IP Promotion and Management (CIPAM) under the aegis of the Ministry of Commerce and Industry’s Department of Industrial Property and Promotion (DIPP), available at . CIPAM’s stated mission is to promote, inform, and raise awareness for IP issues as it implements the policy objectives laid out in the National IP Policy. September 2017, at CIPAM’s first National Enforcement Training Workshop for law enforcement, Minister of Home Affairs Rajnath Singh underscored the importance of protecting intellectual property by announcing that states should teach IP as a mandatory subject in their respective police academies. CIPAM launched its website in October at an event headlined by new Commerce and Industry Minister Suresh Prabhu, and highlighted a wide-variety of statistics, information, research, and resources for IP education and information seekers. The website has improved general awareness for IP issues in India.

2017 presented more challenges in the agriculture and bioscience space, when the Protection of Plant Varieties and Farmers Rights Authority (PPVFRA) removed the long-standing requirement for breeders to produce a “No-Objection Certificate” from the patentee of a particular GM trait. Breeders use this GM trait while developing a new plant variety they seek to register under the PVPFRA. The removal of a No-Objection Certificate requirement, a regulatory tool used across the Government of India to ensure stakeholders have been consulted and agree, removed a key tool that IP holders held to ensure their innovations were not being infringed upon or used without permission.

The PPFVRA’s move comes in the wake of a 2016 challenge to Monsanto Corporation’s India operations: on March 3, 2016, the Ministry of Agriculture and Farmers Welfare (MAFW) filed an application with DIPP asserting Monsanto’s patents for BT cotton should be revoked under Section 66 of the Patents Act on the grounds that they are against public interest. DIPP has heard the matter and MAFW is awaiting decision. If DIPP rules in favor of MAFW, Monsanto will lose its patent in India and the technology will become available for Indian seed companies to reverse engineer without any attribution or licensing fees paid to Monsanto. Separately, on April 11 2018, the Delhi High Court ruled that Monsanto’s patents for its biotechnologically engineered cotton seed varieties (Bollgard and Bollgard II) were invalid. The court provided Monsanto a three-month window to appeal the ruling to the PPFVRA. It is worth noting that in December 2015, Monsanto terminated more than 40 of its license agreements with Indian companies for nonpayment of licensing fees. The Indian licensees subsequently challenged Monsanto’s patents in court on several grounds, including challenging the validity of the patent and efficacy of the technology.

The Government of India’s refusal to repudiate MAFW’s GM licensing guidelines has already resulted in withdrawal of next-generation innovative biotechnology from the Indian marketplace, and has given pause to many other companies who seek to protect their innovative products. Other biotech-led industries are also following this development and are greatly concerned, as the action reaches beyond compulsory licensing under the Patents Act.

Indian law still does not provide any statutory protection for trade secrets. After a workshop conducted in October 2016, DIPP agreed to provide guidance to start-ups on trade secrets. The Designs Act allows for the registration of industrial designs, and affords a 15 year term of protection. India’s Semiconductor Integrated Circuits Layout Designs Act is based on standards developed by the World Intellectual Property Organization (WIPO); however, this law remains inactive due to the lack of implementing regulations. To date, only one application has been granted.

Certain long-standing concerns remain relevant to trade and IPR. Since 2012, outstanding concerns that have not been addressed either in the IP Policy or by Government of India include: lack of an anti-camcording law; Section 3(d) of India’s Patent Act, which creates confusing criteria on “enhanced efficacy” for the patentability of pharmaceutical products; overly prescriptive draft biotechnology licensing regulations that severely limit the value of IPR; still-remaining lack of clarity on the conditions under which compulsory licensing may be allowed; lack of a copyright board; lack of a trade secrets law; lack of data exclusivity legislation; lack of patent linkage; lack of legislation on IP ownership (along the lines of Bayh-Dole in the United States); weak enforcement; and overall unwillingness to make IPR a priority within the Indian government. All these measures across various sectors create uncertainty at best, and at worst perceptions of a hostile business environment.

In the past few years, with regular training, customs and police enforcement of IPR laws has marginally increased. The new customs recording system allows trademark owners to record their brands and trademarks with the Ministry of Commerce and Industry and seek affirmative action in case of any counterfeit issue at the ports. In 2016, Telangana set up India’s first IP Crime Unit, and in 2017, Maharashtra followed suit. The IP Crime Units report to the cyber divisions of the respective states and carry out operations to curb piracy, whether it be in the media and entertainment sector or for online pharmacies. In December 2017, Telangana IT Secretary announced the state had adopted a no-tolerance policy to combat online piracy. The IP Crime Unit has been renamed the Digital Crime Unit, consisting of dedicated police officers and cyber experts to monitor pirated material and remove offending websites. In 2017, DIPP also worked on an administrative measure to block sites hosting infringing content and engaged local domain name registrant NIXI to take down sites that did not have complete information regarding ownership or corresponding addresses. When the owner responded, DIPP passed on the information to the rights holder to take appropriate civil and criminal action and took down close to 100 sites with the “.in” domain. However, these are only two states out of 32, and IP remains a low priority. The nine most vulnerable sectors for IP crime include media and entertainment, pharmaceuticals, automotive parts, alcohol, computer hardware, consumer goods, packaged foods, mobile phones, and tobacco products.

India also actively engages at multilateral negotiations, including the WTO TRIPS Council. It has strongly supported, and sometimes led the charge, in calling for open technology transfer, liberal use of compulsory licensing across sectors, and protection of traditional knowledge. These negotiations will have an impact on innovation, trade, and investment in IP-intensive products and services.

6. Financial Sector

Capital Markets and Portfolio Investment

Equity markets rose strongly in 2017, with the benchmark Standard and Poor’s (S&P) Bombay Stock Exchange (BSE) Sensex closing at a record high, up over 28 percent for the year. Analysts credit the gains to positive developments such as a bank recapitalization plan which was expected to enhance bank lending and propel economic growth, as well as an announcement by Moody’s Investor Services to upgrade Indian sovereign debt to “Baa2” from “Baa3.” After the November 2016 demonetization exercise, domestic investors shifted from physical savings to financial savings, leading to a sharp inflow into equity mutual fund schemes. India was the third best performing emerging market in the world in 2017 after Argentina and Turkey, according to Bloomberg. Market capitalization of the BSE crossed USD 2.25 trillion as of the end of 2017.

The Securities and Exchange Board of India (SEBI) is considered one of the most progressive and well-run of India’s regulatory bodies. It 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 BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), and the Metropolitan Stock Exchange. Since its September 2015 merger with the Forwards Market Commission, the then commodities market regulator, SEBI is tasked to deal with three national commodity exchanges: the Multi Commodity Exchange, the National Commodity & Derivatives Exchange Limited, and the National Multi-Commodity Exchange. In the board meeting on December 28, 2017, SEBI approved integration of the equity and commodity markets and allowed stock exchanges to trade in both beginning October 2018.

Unlike Indian equity markets, local debt and currency markets remain underdeveloped, with limited participation from foreign investors. Indian businesses receive the majority of their financing through the banking system, not capital markets. However, constraints in the banking system’s ability to provide funding, cyclical factors including the significant lowering of interest rates; structural factors including demonetization, implementation of the insolvency and bankruptcy codes; and regulatory focus on shifting large corporates to bond market and away from banks, and the issuance of green bond and municipal bond guidelines have driven significant growth in the bond markets. Corporate debt securities at BSE and NSE surged by 37 percent to a record in 2017.

Foreign investment in India can be made through various routes, including FDI, Foreign Portfolio Investor (FPI), and venture capital investment: . FPIs include investment groups of FIIs, Qualified Foreign Investors (QFIs) and sub-accounts. Non-Resident Indians do not come under FPI. Investment by an FPI cannot exceed 10 percent of the paid up capital of the Indian company. All FPIs together cannot acquire more than 24 percent of the paid up capital of any Indian company, this limit of 24 percent can be increased by the Indian company to the sectoral cap/ statutory ceiling, as applicable. As per SEBI regulations, FPIs are not allowed to invest in unlisted shares, and investment in unlisted entities will be treated as FDI. The RBI eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit. Starting October 3, 2017, rupee-denominated bonds sold overseas known as “masala bonds” did not count towards the investment limit for FPIs in corporate bonds and instead qualified under external commercial borrowings (ECB) norms. .

Foreign investors (FPI and FII) invested USD 30 billion (net) in India in the calendar year 2017 of which USD 7.7 billion was in equites and USD 22.36 billion in debt. 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. Non Resident Indians (NRI) 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.

The RBI has taken a number of steps in the past few years to bring the activities of the offshore INR market called Non Deliverable Forward (NDF) onshore, in order to deepen the domestic markets, enhance downstream benefits, and generally obviate the need for an NDF market. In addition, FPIs with access to currency futures or exchange traded currency options market, can hedge onshore currency risks in India and may directly trade in corporate bonds. The International Financial Services Centre at Gujarat International Financial Tec-City (GIFT city) in Gujarat is being developed to compete with global financial hubs. The BSE was the first to start operations in January 2016. The NSE and domestic banks like Yes Bank, Federal Bank, ICICI Bank, Kotak Mahindra Bank, IDBI Bank, State Bank of India and IndusInd Bank have started their IFSC banking units in GIFT city, however, no foreign banks have established a presence there. SEBI announced a set of guidelines in January 2017 for foreign investors participating in GIFT city: .

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, 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).

Companies planning to issue an IDR are required to maintain pre-issued, paid-up capital, and free reserves of at least USD 100 million, as well as demonstrate 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. 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 it conforms to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling as prescribed by the RBI 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: .

Money and Banking System

The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 75 percent of total banking sector assets. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI now requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. In February 2018, the RBI tightened regulations on qualifying loans to priority sectors. Additionally, all banks are required to invest 19.5 percent of their net demand and time liabilities in government securities.

PSBs currently face two significant hurdles: capital constraints and poor asset quality. As of September 2017, stressed loans represented 12.2 percent of total loans in the banking system, with the public sector banks having an even larger share at 16.2 percent of their loan portfolio. The PSBs’ asset quality deterioration in recent years is driven by their exposure to a broad range of industrial sectors including infrastructure, metals and mining, textiles, and aviation. With the new bankruptcy law in place, banks are making progress in non-performing asset recognition and resolution. However, some bank managers reportedly are reluctant to write-off loans for fear of punishment for lending.

As of latest September 2017 RBI data, the PSBs’ average total capital adequacy ratio of 12.2 percent was above the minimum 11.5 percent standard. However, market participants point out that the existing under-provisioned stress assets may bring these numbers below the minimum capital adequacy requirements. In light of these asset quality problems, the government announced a substantial INR 2.1 trillion (USD 32 billion) recapitalization package for PSBs in October 2017. The package included INR 1.35 trillion in new recapitalization bonds, a previously announced allocation of INR 180 billion (under the Indradhanush Scheme), and an INR 580 billion allocation expected from private market fundraising. Financial sector experts point out that the recapitalization plan’s sufficiency hinges on key assumptions concerning further loan deterioration and haircuts on existing bad debt.

Women in the Financial Sector

Women in India receive a smaller portion of financial support relative to men, especially in rural and semi-urban areas. In 2015, the Modi government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around USD 15,000. In the 2018 budget, the government announced new lending of USD 46.15 billion through the MUDRA initiative. Currently, women hold around 76 percent of the MUDRA loan accounts. Following the Global Entrepreneurship Summit (GES) 2017, government agency the National Institute for Transforming India (NITI Aayog), launched a Women’s Entrepreneurship Platform, , a single window information hub which provides information on a range of issues including access to finance, marketing, existing government programs, incubators, public and private initiatives, and mentoring.

Foreign Exchange and Remittances

Foreign Exchange

In 2017, the rupee appreciated by 6 percent to INR 63.92 per U.S. dollar, snapping a six year downtrend. The rupee started the year on weak footing after the currency withdrawal from demonetization, but appreciated on the support of strong FDI flows, significant interest rate differentials and low, stable inflation, and a sovereign debt rating upgrade by Moody’s Investors Service.

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 (over USD 10,000) by a state government and its public sector undertakings (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 percent of investment brought into India or USD 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.

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 percent.

The RBI has periodically released guidelines to all banks, financial institutions, NBFCs, and payment system providers regarding Know Your Customer (KYC) and reporting requirements under Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standards (CRS). The government’s July 7, 2015 notification

( ) 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.

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.

Sovereign Wealth Funds

India does not have a sovereign wealth fund. The 2015-16 Union Budget established the National Infrastructure Investment Fund (NIIF) to promote investments in the infrastructure sector. The government has agreed to contribute USD 3 billion to the fund, while an additional USD 3 billion will be raised from the private sector primarily from sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. The Abu Dhabi Investment Authority (ADIA) was the first institutional investor in the NIIF, committing USD 1 billion in October 2017. In January 2018, the NIIF announced the launch of its first sectoral investment platform, in partnership with DP World, to invest USD 3 billion of public and private capital in the logistics sectors in India. This investment platform made its first asset acquisition, acquiring Indian logistics company Continental Warehousing Corporation.

7. State-Owned Enterprises

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( ), controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The 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 beginning in 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 Public Enterprise Survey 2015-16 indicated thenumber of profit-making CPSEs increased by six to 165. The manufacturing sector had the largest share of total turnover by CPSEs during 2015-16 at over 60 percent, followed by services, mining, and electricity. The government initiated the privatization process for Air India, the state-run loss-incurring airline.

Foreign investments are allowed in the CPSEs in all sectors. The Master List of CPSEs can be accessed at . While the CPSEs face the same tax burden as the private sector, on issues like procurement of land, they receive streamlined licensing that private sector enterprises do not.

Privatization Program

Despite the financial upside to disinvestment in loss-making PSUs, the government has not generally privatized its assets as they have led to job losses in the past, and therefore engender political risks. 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 PSU efficiency.

In recent years, the government has begun to look to disinvestment proceeds as a major source of revenue to finance its fiscal deficit. For the first time in seven years, the government met its disinvestment target in fiscal year 2017-18, generating USD 15.38 billion against a target of USD 11.15 billion. For 2018-19, the government has set a disinvestment target of USD 12.3 billion.

FIIs can participate in these disinvestment programs subject to these limits: 24 percent of the paid up capital of the Indian company and 10 percent for NRIs/PIOs. The limit is 20 percent 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. Detailed policy procedures relating to disinvestment in India can be accessed at: .

8. Responsible Business Conduct

Among the companies there is a general awareness of standards for responsible business conduct. The Companies Act of 2013 established the framework for India’s corporate social responsibility (CSR) laws. The India Responsible Business Index (IRBI) notes, for example, that in 2015 there were only nine firms that had held public hearings regarding project impact with communities, but there were 13 in 2016. Similarly, there were only 27 firms with a provision for conducting impact assessments in 2015; this number increased to 31 in 2016. A CRISIL study reported that only 30 percent of 5,500 companies listed on the Bombay Stock Exchange met the criteria for mandatory spending and reporting under the CSR. When spending on CSR, as many as 74 percent of the eligible companies – including two-thirds of small ones – used implementing agencies such as NGOs in the last fiscal year.

The Ministry of Corporate Affairs (MCA) administers the Companies Act of 2013, and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track activities under the CSR and in some cases provide recommendations for effective use of CSR funds. Over the past two years, the amount spent on CSR has surged at a compound annual growth rate of 14 percent, despite a lukewarm 5 percent growth in net profit, according to an analysis by analytics and ratings agency CRISIL. The amount spent on CSR by eligible listed companies rose nearly 7 percent to just shy of USD 1.38 billion in 2017, the third year of the legislative mandate’s implementation.

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is not a member of Extractive Industries Transparency Initiative (EITI) nor is it a member of Voluntary Principles on Security and Human Rights.

9. Corruption

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India ranks 40 out of 176 countries surveyed in Transparency International’s 2017 Corruption Perception Index, and was ranked 79 out of 176 in 2016.

Corruption is addressed by the following laws: the Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. 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 the Central Vigilance Commission (CVC) to being a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector on the basis of allegations of revenue loss to the exchequer.

In November 2016, the Modi government ordered INR 1000 and 500 notes, comprising approximately 86 percent of cash in circulation, be demonetized to curb “black money,” corruption, and the financing of terrorism.

The Benami Transactions (Prohibition) Amendment Act of 2016 entered into effect in November 2016, and strengthened the legal and administrative procedures of the Benami Transactions Act 1988, which was ultimately never notified. (Note: A benami property is held by one person, but paid for by another, often with illicit funds.) Analysts expect the government to issue a roadmap in 2017-2018 to begin implementing the Act. In May 2017, the Real Estate (Regulation and Development) Act, 2016 came into effect. The Act will regulate India’s real estate sector, which is notorious for its corruption and lack of transparency.

In November 2016, India and Switzerland signed a joint declaration to enter into an Agreement on the Exchange of Information (AEOI) to automatically share financial information on accounts held by Indian residents, beginning in 2018. India also amended its Double Taxation Avoidance Agreement with Singapore, Cyprus, and Mauritius in 2016 to prevent income tax evasion. The move follows the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which replaced the Income Tax (IT) Act of 1961 regarding the taxation of foreign income. The new Act penalizes the concealment of foreign income, as well as provides criminal liability for foreign income tax evasion.

In February 2014, the government enacted the Whistleblower Act, intended to protect anti-corruption activists, but it has yet to be implemented. Experts believe that the prosecution of corruption has been effective only among the lower levels of the 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 proposed an amendment bill in 2015. This bill is still pending with the Upper House of Parliament; however anti-corruption activists have expressed concern that the bill will dilute the Act by creating exemptions for state authorities, allowing them to stay out of reach of whistleblowers.

The Companies Act of 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.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act 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 of yet, no ombudsmen have been appointed.

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

Christopher Elms
Economic Growth Unit Chief
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

10. Political and Security Environment

There have been no significant major incidents involving political violence. However, outbursts of violence between the state and insurgent movements continued in Jammu and Kashmir and some northeastern states. Maoist/Naxalite insurgent groups also remain active in some eastern and central states, including the rural areas of southern Bihar, Jharkhand, Chhattisgarh, and Orissa. The country also continues to experience conflict related to caste, linguistic identity, socio-economic and communal tensions.

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

11. Labor Policies and Practices

Although there are more than 20 million unionized workers in India, unions still represent less than 5 percent 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 2 million workdays were lost to strikes and lockouts in 2016, as opposed to 3 million workdays lost in 2015.

Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. A majority of the labor problems are the result of workplace disagreements over pay, working conditions, and union representation. According to government statistics, in 2016 the state of Kerala recorded the largest number of worker-days lost due to strikes, followed by Rajasthan and Uttar Pradesh.

India’s labor regulations are very 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. Minimum industrial wages vary by state, ranging from about USD 2.80 per day for unskilled laborers to over USD 7.70 per day for skilled production workers. Retrenchment, closure, and layoffs are governed by the Industrial Disputes Act of 1947, which requires prior government permission to lay off workers or close businesses employing more than 100 people, although some states including Haryana, Madhya Pradesh, Rajasthan, and Maharashtra have increased the threshold to 300 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.

Since the current government assumed office in 2014, 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 of businesses. The 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. In 2015, the Ministry also tabled legislation to amend India’s Factories Act that would encourage voluntary compliance of occupational safety and health standards and reduce government inspections. The legislation, however, is yet to be passed by parliament. India’s major labor unions have opposed the labor reforms, arguing that they compromise workers’ safety and job security.

In August 2016, the Child Labor Act was amended establishing a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. In December 2016, the government promulgated legislation enabling employers to pay worker salaries through checks or e-payment in addition to the prevailing practice of cash payment.

There are no reliable unemployment statistics for India due to the informal nature of most employment. The government 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, and has embarked on a national program to increase skilled labor.

12. OPIC and Other Investment Insurance Programs

The United States and India signed an Investment Incentive Agreement in 1987. This agreement covers the Overseas Private Investment Corporation (OPIC), which is the development finance institution of the U.S. Government. Since 1974 OPIC has committed more than USD 3.5 billion in loans, investment funds, and political risk insurance to 160 projects in India. As of December 31, 2017 OPIC’s current portfolio in India comprises more than USD 1.5 billion outstanding across 30 projects. These are concentrated in the utilities and financial services sectors, including microfinance.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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 Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2017 USD 2,650,000 2016 USD 2,465,000 

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) 2017 USD 22,067* 2016 USD 32,939
Host Country’s FDI in the United States (M USD , stock positions) 2015 USD 9,200* 2014 USD 9,200
Total Inbound Stock of FDI as % host GDP 2016 1.9% 2016 2.0%

* the Indian government source for FDI statistics is:  and the figure is the cumulative FDI from April 2000 to December 2017. The DIPP figures include equity inflows, reinvested earnings and “other capital,” and are not directly comparable with the BEA data. Outward FDI data have been sourced from: .
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 332,112 100% Total Outward 2,013.5 100%
Mauritius 111,638 18% Singapore 350 17.5%
Singapore 54,590 15% United States 227.2 11.3%
Japan 25,675 12% United Kingdom 209.8 10.3%
U.K 24,591 11% Netherlands 200 9.9%
United States 20,682 10% UAE 132.44 6.5%

Source: Inward FDI DIPP, Ministry of Commerce and Industry; Outward Investments (October 2017-December 2017) RBI.
Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000

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