Over the past several years, the policy and procedures regulating and governing the inflow of foreign investments into India have been progressively liberalized and simplified. The initiatives taken in this regard have resulted in significant inflows of foreign investment in almost all areas of the economy, except a select few, that continue to remain reserved for strategic reasons.
An NRI refers to Non Resident Indian, meaning a person who has gone out of India or who stays outside India, in either case for or on taking up employment outside India, or for carrying on outside India a business or vacation, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. It basically refers to a person residing outside India who is a citizen of India or is a Person of Indian Origin (PIO).
There are various Investment options available to NRIs & PIOs for investing in India. They can go the Foreign Direct Investment (FDI) way, or register as a Foreign Institutional Investor (FII) under a portfolio, or register as Foreign Venture Capital Investor (FVCI) under the Venture Capital route or as a holder of American Global Depository Receipts (ADR) and Global Depository Receipts (GDR) under the ADR /GDR Scheme etc.
Lets take you through some of the viable ways for NRIs to enter the Indian business scenario.
Finding the right partner:
One of the well-known ways of doing business in India by NRIs/PIOs is by forming a partnership company. Partnership is a low risk approach, which helps enjoy steady returns with guarantee in your principal.
If you dont have a permanent address in India, it would be difficult for you to run a business all alone without a second supervision. Here lies the importance of forming partnerships. A partner must be selected based on track record, sense of integrity among other important aspects. It is better not to establish commercial relations with friends and relatives.
Open a Liaison Office:
If you are an NRI looking to start a business in India for long term steady returns to your investments, you can start a liaison office of a foreign company in India.
A liaison office in India can act only as a communicative channel for the parent company to supply information on the Indian market and customers, and cannot carry on any business activities in India. As a result, it cannot generate any revenue in India and all the expenses of running and maintenance of the Indian office are required to be met out of the foreign exchange remitted from abroad.
Start a franchise business:
Franchising is that mode of business where an individual or an organization, without starting a new business of their own, takes on the business model of an already existing brand, where the latter, the franchisor, licenses its brand, products and business model to the former, the franchisee, in lieu of a recurring payment.
Open a Project Office:
Setting up a Project Office of a foreign company on Indian soil is also a lucrative option.
A project office is the ideal model for companies to establish a business presence in India, if their objective is to have a presence for a limited period of time. It is essentially a branch office set up with the limited purpose for executing a specific project. Foreign companies engaged in turnkey construction or installation normally set up a project office for their operations in India.
Start a Branch Office:
NRIs who want to invest for earning long term steady returns on their investments can do so by setting up a foreign company in India. One needs to start setting up a branch office of a foreign company in India.
Wholly-owned subsidiaries and JVs:
Foreign companies may set up a joint venture in financial collaboration with an Indian business house/company in India. For this purpose, an Indian company with limited liability is formed. The company once incorporated is treated like other Indian companies and enjoys all the benefits of being an Indian company (including tax rate applicable to Indian companies).
An NRI looking to start a business in India can also look at the lucrative option of setting up an export-import business in the country.
In comparison to the branch office and liaison office, a wholly owned subsidiary company provides maximum flexibility for conducting business in India and it can also undertake manufacturing activities in the country.
The Indian operations of the company can be funded either through equity or debt (both foreign and local) or through internal accruals.
However, the exit procedure norms of companies are more cumbersome as compared to other forms of business such as branch, liaison and project offices.
By Gaurav Marya, President, Franchise India