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Executive Summary

India’s economic growth has been strong in recent years, driven by private consumption and buoyed by reduced external vulnerabilities and key structural reforms.  With crude prices down from their 2018 peaks and domestic food prices benign, macroeconomic stability concerns have receded in India. Similarly, rising government investment has played an important role in keeping the economy growing.  However, India’s private sector investment has not increased, despite having the fastest growing major economy tag in the world. While foreign direct investment (FDI) into India increased significantly during the first two years of Prime Minister Modi’s term, the rate of growth has slowed over the past year. 

Non-performing assets continue to hold back banks’ profits and restrict their lending, and the sudden collapse of the non-bank financial company Infrastructure Leasing & Financial Services (IL&FS) in 2018 led to a credit crunch.  Nonetheless, relatively low inflation, weak credit demand, and strong intervention from the central bank, the Reserve Bank of India (RBI) , helped stabilize credit markets and mitigate fallout.  

Demographic increases mean India must generate over ten million new jobs every year – a challenge for the economy and policy makers.  While difficult to measure, given the large size of the informal economy, several recent studies, in 2017-18 suggest India’s unemployment rate has risen significantly to 6.1 percent since the last official employment report was released by India’s National Statistics Commission in 2012.  

The Government of India, led by Prime Minister Narendra Modi’s Bhartiya Janata Party (BJP), actively courts foreign investment.  In 2017, the government implemented moderate reforms aimed at easing investments in such sectors as single brand retail, pharmaceutical, and private security.  It also relaxed onerous rules for foreign investment in the construction sector. Other important achievements include a new bankruptcy code adopted in 2016, and of a national Goods and Services Tax (GST) in 2017 that replaced myriad cascading state and central taxes.  India also made major gains in the World Bank’s Ease of Doing Business rankings in 2018, moving up 23 places to number 77 out of 190 economies evaluated. This jump follows India’s gain of 30 places in 2017, making it one of only ten countries to have successive gains two years in a row.  Nonetheless, India remains a difficult place to do business and additional economic reforms are necessary to ensure sustainable and inclusive growth.

The Modi government introduced two rounds of tariff increases in 2018, ostensibly in response to India’s large trade deficit with China, and related balance of payment concerns. Whatever the actual intent, these tariff increases disrupted the supply chains of both domestic industry and foreign investors and led to the cancellation of both new investments and expansions of existing investments in India.   

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India.  The policy overwhelmingly and disproportionately affects U.S. companies that currently dominate the Indian payments market and depend on the free flow of data to achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity.  The U.S. companies have begun to implement the mandate, though at great cost and potential damage to the long-term security of their Indian customer base, who will receive fewer services and no longer benefit from global fraud detection. 

In July 2018, the government released a draft Personal Data Protection Bill that contained restrictions on cross-border transfer of personal data, stipulating that personal data that are considered “critical” can only be stored in India. 

On December 26, 2018, India unveiled new restrictions on foreign-owned e-commerce operations without any prior notification or opportunity to submit public comments.  While Indian officials argue these restrictions were mere “clarifications” of existing policy, the new guidelines constituted a major regulatory change that created several extensive new regulatory requirements and onerous compliance procedures.  The disruption to foreign investors’ businesses was exacerbated by the refusal to extend the February 1, 2019 deadline for implementation.  

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 78 of 180
World Bank’s Doing Business Report “Ease of Doing Business” 2019 77 of 190
Global Innovation Index 2018 57 of 127  
U.S. FDI in partner country ($M USD, stock positions) 2017 44,458
World Bank GNI per capita 2017 $1800

Policies Toward Foreign Direct Investment

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for the vast majority of sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector.  (Note: in January 2019, the government of India changed the name of DIPP to Department for Promotion of Industry and Internal Trade (DPIIT). End Note).  FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry.

The DPIIT, 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:  .  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active 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 DPIIT 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.  Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment.  For example, the 2015 Insurance Act 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

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view 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, DPIIT 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 DPIIT, 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 December 2018, 250 projects with investments of around USD 172 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 DPIIT, 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 total overseas direct investment (ODI) outflow from India in the April 2018-February 2019 period was USD 21.63 billion.   According to the U.S. Bureau of Economic Analysis, Indian direct investment into the U.S. was USD 9.9 billion in 2017. RBI contends that the growth in magnitude and spread (in terms of geography, nature and types of business activities) of ODI from India reflects the increasing appetite and capacity of Indian investors.

India made public a new model Bilateral Investment Treaty (BIT) in December 2015.  This followed a string of rulings against Indian firms in international arbitration.  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 announced its 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: 

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 DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts.

On December 26, India unveiled new “Guidelines” on foreign-owned e-commerce operations that imposed restrictions disproportionately affecting over USD 20 billion in combined investments by U.S. companies.  As of February 1, 2019, these platforms may not offer exclusive discounts; sell products from companies in which they own a stake; or have any vendor who sources more than 25 percent of their retail stock from a single source. The Guidelines were issued without prior notification or opportunity to provide public comments.  While Indian officials argue this was a mere “clarification” of existing policy, the new Guidelines constituted a major regulatory change that severely affected U.S. investors’ operations and business models. The refusal of Indian authorities to extend the deadline for implementation beyond just over one month, further exacerbated the undue and unnecessary disruption to U.S. investors.

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. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies.  India has been a member of the World Trade Organization (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 (  DPIIT 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

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.  India also has transfer pricing rules that apply to related party transactions. The government implemented the Goods and Services Tax (GST) in July 2017, which reduced the complexity of tax codes and eliminated multiple taxation policies.  It also enacted the Insolvency and Bankruptcy Code in 2016, which offers uniform, comprehensive insolvency legislation for all companies, partnerships and individuals (other than financial firms).  

Though land is a State Government (sub-national) subject, “acquisition and requisitioning of property” is in the concurrent list and so both the Indian Parliament and State Legislatures can make laws on this subject.  Legislation approved by the Central Government is used as guidance by the State Governments. Land acquisition in India is governed by the Land Acquisition Act (2013), which entered into force in 2014, but continues to be a complicated process due to the lack of an effective legal framework.  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 of 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 (  ) and (  

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 2.6 years in Pakistan, 1.7 years in China and 1.8 years in OECD countriesRecognizing that reforms in the bankruptcy and insolvency regime are critical for improving the business environment and alleviating distressed credit markets, the government adopted the Insolvency and Bankruptcy Code (IBC) in 2016.  The IBC overhauled the previous framework on insolvency, and paved the way for much-needed reforms.  The IBC also focused on creditor-driven insolvency resolution, and offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals (other than financial firms).  The new law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions. 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.  

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 amendments were geared at improving the effectiveness of debt recovery laws and 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.

The regulatory environment in terms of foreign investment has been eased to make it investor-friendly.  The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy.  The Indian government does issue guarantees to investments but only in case of strategic industries.

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).  In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official.  So far, three NIMZs have been accorded final approval and 13 have been accorded in-principle approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. SEZs are treated as foreign territory; businesses operating within SEZs are not subject to customs regulations, nor have 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. These initiatives are governed by separate rules and granted different benefits, details of which can be found at:  , percent20ORIENTED percent20UNIT percent20SCHEME.pdf  and  .

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India.  State-owned “Public Sector Undertakings” 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 & Localization

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The policy overwhelmingly and disproportionately affects U.S. investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. The RBI mandate to store all “data related to payments systems” only in India went into effect on October 15, 2018, despite repeated requests by industry and the U.S. officials for a delay to allow for more consultations.  U.S. companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and AML/CFT protocols. 

In addition to the RBI data localization directive for payments companies, the government released a draft Data Protection Bill in July 2018 that contains restrictions on all cross-border transfers of personal data in India.  The Bill stipulates that personal data that is considered “critical” can only be stored in India. The Bill is based on the conclusions of a ten-person Committee of Experts, established by MeitY in July 2017 In November 2017, MeitY issued an extensive white paper on data protection issues, including data localization, requesting input from concerned stakeholders.  This November 2017 white paper became the basis for the Bill introduced in July 2018. 

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 2018, moving up 23 places to number 77. (  ).

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

In 2018, India became a signatory to the World Intellectual Property Organization (WIPO) Centralized Access to Search and Examination (CASE) and Digital Access Service (DAS) agreements.  The CASE and DAS agreements will set conditions for the patent application process such that requests submitted in other jurisdictions for the same patent will not have to be filed separately.  This is because the patent examiner will use the WIPO databases to de-conflict redundant filings. However, the provision of Indian law prescribing criminal penalties for failure to file for a patent remains in place.

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.  Despite the release of the National Intellectual Property Rights (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. This reporting year saw the first formal dialogue between India’s Department of Promotion of Industry and Internal Trade (DPIIT) and the U.S. Patent and Trademark Office (USPTO), in combination with the USPTO’s dialogue with Indian industry.  The combined dialogue featured discussion of cross-sector and cross-IP issues. Both sides welcomed the initiative and identified key areas of work.  

Engagement with India on IPR continues, primarily through the Trade Policy Forum’s High Level Working Group on Intellectual Property.  U.S. Government representatives continued to meet with the GOI and industry stakeholders on IPR in 2017 and 2018, including visits to India by officials from the U.S. Trade Representative (USTR), 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 DPIIT will enable more effective implementation of the law. 

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. After years of advocacy by industry groups, especially the Indian office of the Motion Picture Association (MPA), the GOI released a draft Cinematography Bill for comment in December 2018, which contained anti-camcording legislation.  Industry groups welcomed this move, which included criminal and financial penalties for offenders. The bill is now awaiting Parliamentary approval. However, the penalties for infringement and IP theft are significantly weakened from those suggested in the initial draft legislation in 2013.

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, which is (?) 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 music royalties to artists whose music is played at an event.

2018 was a year of great difficulty in the agriculture and biotechnology space, which has been reeling from the aftermath of a coordinated attack in 2016 and 2017 on the Monsanto Corporation’s India operations (reported in our 2016 and 2017 Special 301 submissions).  In 2017, 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. The move was unprecedented, and removed a key tool that ensured stakeholders were consulted and in agreement tc, and that IP holder’s innovations were protected from infringement. 

In April 2018, the Delhi High Court judgment struck down a patent held by Monsanto in a summary judgment.  On appeal, the Supreme Court (single judge) reversed the earlier judgment and remanded the matter for trial in the lower court, after which the Supreme Court will re-hear the matter on its merits and make a determination on patent validity, infringement by local companies, and license fee payments.  While the patent in question is valid, the Supreme Court decision also noted that Monsanto must continue to comply with the 2016 order on Cotton Seed Price Controls and the future Genetically Modified (GM) Licensing Guidelines, if implemented. (The GM Licensing Guidelines remain in draft form, but could have significant and wide-ranging implications for Monsanto and many other IP holders.)  Moreover, industry contacts shared that the arguments made in the Monsanto case could set an important precedents, within the Indian legal system, for stopping a patent; it could also change the role of the PVPFRA and its relationship to biological innovation, the application of administrative regulations regarding price and term for a patent, and the interplay between the Patents Act, PVPFRA, and the Biodiversity Act.  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  WIPO; however, this law remains inactive due to the lack of implementing regulations. To date, only one application has been granted.

Since 2012, other long-standing concerns remain unaddressed, including: 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 and perceptions of a hostile business environment.

In 2018, we observed that public notice and comment procedures on policy – including on IPR related issues – were often not followed.  Stakeholders were not properly notified of meetings with agencies to discuss key concerns, such as changes to critical issues like price controls on medical devices or changes to key policies.  Moreover, Mission India remains concerned that when stakeholder input is solicited, it is often disregarded and/or ignored during the final determination of a policy.  

India also actively engages at multilateral negotiations, including the WTO Trade Related Aspects of Intellectual Property Rights (TRIPS) Council.  As a result, in April 2017, the MInistry of Health and Family Welfare issued a notification that amended the manufacturing license form (Form 44), taking out any requirement to notify the regulator if the drug, for which manufacturing approval was being sought, is under patent or not.  The GOI cited their view that Form 44 provisions were outside the scope of their WTO TRIPS agreement commitments as justification for the change. Industry contracts point to the clear benefit this change has delivered to the Indian generic pharmaceutical industry, which now has an even easier path to manufacture patented drugs for years, while IP holders are forced to discover the violation and challenge the infringement in separate courts.  These negotiations will have an impact on innovation, trade, and investment in IP-intensive products and services.

Capital Markets and Portfolio Investment

India ended 2018 as the best-performing Asian market and the best-performing major global market after Brazil.  The benchmark Standard and Poor’s (S&P) BSE (erstwhile Bombay Stock Exchange) Sensex recorded a 6.67 percent increase for 2018.  The imposition of a capital gains tax on equity investments contributed to a weak February; global market volatility and trade tensions also impacted Indian markets through the year.  High oil prices hurt the value of the Indian rupee and contributed to some weakness in the second half of the year, and September saw the worst monthly return since February 2016. As oil prices stabilized and India’s economic outlook remained strong, the index recovered to finish the year strong.

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. SEBI also regulates the three national commodity exchanges: the Multi Commodity Exchange (MCX), 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. On September 19 2018, SEBI gave permission to BSE and NSE to launch commodity derivatives trading.  SEBI also permitted foreign entities having actual exposure to Indian commodity markets to participate in the commodity derivative segment of recognized stock exchanges for hedging their exposure. Previously, foreign entities were not permitted to directly participate in the Indian commodity derivatives market, even if they imported or exported various commodities from and to India. SEBI also allowed mutual funds to participate in the commodities derivatives market.   

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 growth in the bond markets.  Combined trading at BSE, NSE, and MCX-SX in corporate bonds amounted to USD 263.75 billion in 2018, down from USD 266 billion 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 (but not non-resident Indians).  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 or statutory ceiling, as applicable.  FPIs are not allowed to invest in unlisted shares, and investment in unlisted entities are treated as FDI. The RBI eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit. Rupee-denominated bonds sold overseas known as “masala bonds” do not count towards the investment limit for FPIs in corporate bonds and instead qualify under external commercial borrowings (ECB) norms.   

Foreign investors (FPI and FII) pulled out USD 11.5 billion (net) in 2018, of which USD 4.7 billion was in equites and USD 6.8 billion in debt.  FII 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 Indian rupee market in Non Deliverable Forwards (NDF) onshore, in order to deepen domestic markets, enhance downstream benefits, and generally obviate the need for an NDF market.  FPIs with access to currency futures or the 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 including Yes Bank, Federal Bank, ICICI Bank, Kotak Mahindra Bank, IDBI Bank, State Bank of India, and IndusInd Bank have started IFSC banking units in GIFT city, but no foreign banks have established a presence there. SEBI announced a set of guidelines in January 2017 for foreign investors participating in GIFT city:  .  The RBI announced in February 2019 that it would set up a task force on offshore rupee markets to examine and recommend appropriate policy measures to ensure the stability of the external value of the Rupee.  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:    The RBI, in consultation with the government, has decided to implement a rule-based dynamic limit for the total outstanding stock of ECB at 6.5 percent of GDP at current market prices.  Based on the GDP figures on March 31, 2018, the soft limit was USD 160 billion for 2018-19.

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 19.25 percent of their net demand and time liabilities in government securities. The RBI plans to reduce this by 25 basis points every quarter until the investment requirement reaches 18 percent of their net demand and time liabilities.

PSBs currently face two significant hurdles: capital constraints and poor asset quality. As of September 2018, gross non-performing loans represented 10.8 percent of total loans in the banking system, with the public sector banks having an even larger share at 14.8 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 (IBC) in place, banks are making progress in non-performing asset recognition and resolution.   As of January 2019, the resolution processes have been approved in 66 cases, involving around INR 800 billion as resolution value to creditors. Analysts note that haircuts under IBC have been high at around 70 percent and recent months have seen a withdrawal of many cases with promoters fearing loss of control and preferring settlements outside IBC. 

As of latest September 2018 RBI data, the PSBs’ average total capital adequacy ratio of 11.3 percent was below the minimum 11.5 percent standard. In light of these asset quality problems, the government has injected USD 27 billion into public sector banks in the last two years. The capitalization largely aims to address the capital inadequacy of public sector banks under the prompt corrective action (PCA) framework and marginally provide for growth capital.

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. The Acting Finance Minister Piyush Goyal while delivering the 2019 budget speech mentioned that 70 percent of the beneficiaries of MUDRA initiative are women. Under the MUDRA initiative, 155.6 million loans have been disbursed amounting to USD 103 billion.  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.  About 5,000 members are currently registered and using the services of the portal said a NITI Aayog officer who has an oversight of the project.

Foreign Exchange and Remittances

Foreign Exchange

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

The 2015-16 Union Budget established the National Infrastructure Investment Fund (NIIF), touted as India’s first sovereign wealth fund 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.

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.  

According to the Public Enterprise Survey 2017-18 as of March 2018 there were 339 central public sector enterprises (CPSEs) with a total investment of USD 196 billion, of which 255 are operating CPSEs.  The report puts the number of profit-making CPSEs at 184, while 71 CPSEs were incurring losses. The government tried to unsuccessfully privatize the state-run loss-incurring airline Air India.  

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. The Government of India’s plan to sell state-owned carrier Air India was postponed indefinitely, after a decision made at the Ministerial level on June 18.  Efforts to offload a 76 percent stake of the loss making national airline failed to attract any bids due to the stringent conditions placed by the government, coupled with the airline’s high debt load.

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:  

Among Indian companies there is a general awareness of standards for responsible business conduct. 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.  

The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws.  While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities provide recommendations in some cases for effective use of CSR funds.  MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019 (an improvement over the existing National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business, 2011), is a means to nudge businesses to contribute towards wider development goals while seeking to maximize their profits. The NGRBC is dovetailed with the United

Nations Guiding Principles on Business & Human Rights (UNGPs).

A CRISIL study reported that a cumulative spending on CSR in four years since mandated is more than USD  7 billion (Rs.50,000 crores) including USD 4.85 billion (Rs. 34,000 crores) by listed companies and nearly USD  2.7 billion (Rs.19,000 crores) by unlisted ones. The study further noted that overall, 1,913 companies met the government’s eligibility criteria but 667 of them could not spend for various reasons.  About 153 companies spent 3 percent or more as against the mandated 2 percent of profits. In terms of spending, Energy companies were front runners to spend USD 322 million (Rs. 2,253 crore) or 23 percent of the overall spending followed by manufacturing, financial services and information technology services.  The preferred spending heads were education, skill development, healthcare, and sanitation and preferred areas being National Capital region, Karnataka and Maharashtra. The study however noted that there could be shrink both in terms of number of companies and their total spend after the Companies (Amendment) Act 2017 where the eligibility criteria is now based on financials of the “immediately preceding financial year” rather than the earlier stipulation of “any three preceding financial years.”

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. 

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption.  India showed marginal improvement and scored 41 out of 100 in Transparency International’s 2018 Corruption Perception Index was ranked 78 out of the 180 countries surveyed, as compared to a score of 40 out of 100 and ranked 81 in 2017.

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.  An August 2018 RBI report stated 99 percent of demonetized cash was deposited in legitimate bank accounts, leading analysts to question if the exercise enabled criminals to launder money into the banking system. Digital transactions increased due to demonetization, as mobile banking inclusion jumped from 40 percent to 60 percent of the populace.  India is investigating 1.8 million bank accounts and 200 individuals associated with unusual deposits during demonetization, and banks’ suspicious transaction reports quadrupled to 473,000 in 2016. On August 7, SEBI directed stock exchanges to restrict trading and audit 162 suspected shell companies on the basis of large cash deposits during demonetization.

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.  Till December 2018, the government had not appointed an ombudsman. (Note: An ombudsman was finally appointed in March 2019.)

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

Matt Ingeneri
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

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 Odisha.  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.

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. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port & dock, banking and insurance sectors.  According to provisional figures from the Ministry of Labor and Employment (MOLE), over 1.2 million workdays were lost to strikes and lockouts during the period January to September 2017.

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 the period January to September 2017 the state of Tamil Nadu recorded the largest number of worker-days lost due to industrial disputes, followed by Kerala and Madhya 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 2.20 per day for unskilled laborers to over USD 9.30 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.  A leaked official report from India’s National Statistics Commission claimed that the official unemployment rate in India rose to 6.1 percent in 2018, a 45-year high. In contrast, the unemployment rate was only 2.2 percent the last time when the commission conducted this survey in 2012.  The government 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.

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 4 billion in loans, investment funds, and political risk insurance to 200 projects in India. As of December 31, 2018 OPIC’s current portfolio in India comprises more than USD 1.5 billion outstanding across 50 projects.  These are concentrated in the utilities and financial services sectors, including microfinance.

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)  2017 $2,650,000 2016 $2,465,000  

U.S. FDI in partner country (stock positions) 2017 $22,067* 2016 $32,939  
Host country’s FDI in the United States (stock positions) 2015 $9,200* 2014 $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 has 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 $376,848 100% Total Outward 5,500 100%
Mauritius $127,578 34% U.S. 140 25.1%
Singapore $66,771 18% Singapore 80 14.4%
Japan $27,286 7% Netherlands 53 9.5%
U.K $25,438 7% UAE 50 9%
United States $22,417 6% Cayman Island 40 7.6%

Source: Inward FDI DIPP, Ministry of Commerce and Industry
Outward Investments (July 2018-December 2018) RBI

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $2,794 100% All Countries $1,908 100% All Countries $886 100%
United States $1,317 47% United States $501 26% United States $816 92%
China, P.R. $445 16% China, P.R. $445 23% Brazil $48 5%
United Kingdom $337 12% United Kingdom $318 17% United Kingdom $19 2%
Luxembourg $251 9% Luxembourg $251 13% Cayman Islands $2 0.2%
Mauritius $97 3% Mauritius $97 5% Philippines $1 0.1%

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

2019 Investment Climate Statements: India
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