Leading Sectors for Investment in India

Mauritius is the highest contributor of FDI in India due to the special tax treatment that investments that come through Mauritius receive. This tiny nation in the Indian Ocean is considered a tax haven because it levies corporate tax of less than 3 percent, making it the most preferred route for FDI inflows, especially from other countries.

According to India’s Ministry of Commerce and Industry, Singapore is the second largest source of FDI in India and the top sectors the country invests into India include telecommunications, services, electrical equipment, fuel (power and oil refinery) and transportation.

The third largest investor into India is the United States. From April 2008 thru March 2009, the United States invested approximately US$18 billion in India. Some of the top sectors attracting FDI include fuels (power and oil refinery), telecommunications, electrical equipment, food processing industries and services sector.

Across the past decade, the services sector (financial and non-financial) has received the most foreign investment than any other industry, accounting for 23 percent of total FDI. The services sector has played an integral part in the overall growth of the Indian economy and has seen double-digit growth rates since early 2000. Following the services sector, computer software and hardware (10 percent), telecommunications (8 percent), housing and real estate (7 percent) and construction activities (6 percent) account for the most invested sectors. It is important to note, however, that agriculture is the predominant sector in terms of employment and livelihood in India with more than half the country’s workforce engaged in it as a principal occupation and contributing significantly to export earnings. It is for this reason FDI is not permitted in agriculture other than in the tea sector (including tea plantations) where 100 percent FDI is allowed but requires FIPB approval. Given that agricultural is the backbone of the India economy, farmers are protected through these FDI policies.

Since the Congress Party’s victory in May, there is a clear mandate that infrastructure development is the top priority. Recognizing that a steady supply of power along with a solid transport infrastructure will help revive the Indian economy and boost productivity, the government has set up plans to increase the gross capital in infrastructure in the next several years that translates into over US$500 billion worth of investments. A June 2009 study from First Global indicates the government plans to fund these projects through public private partnership (PPP) investments, respectively at a 70:30 ratio.

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