The presence of foreign companies operating out of India is overwhelmingly skewed in favour of five states, which account for over 90 per cent of the 3,250-odd foreign firms functioning in the country. An assessment of the state-wise distribution of these foreign firms operating in India shows that Delhi, Maharashtra, Karnataka, Haryana and Tamil Nadu account for 90.9 per cent of these companies, primarily on account of these companies choosing to set up their base in at least one main city in each of these states — Mumbai, Bangalore, Gurgaon and Chennai, apart from national capital of Delhi.
Even as Mumbai is widely touted as the financial nerve centre of Indian business, Delhi is clearly the top draw for foreign firms when it comes to setting up base in India. The data, culled out from the department of industrial policy and promotion statistics and the MCA21 repository, takes into account the registered offices of the foreign firms and not their manufacturing bases, which, in case of a number of manufacturing sector companies such as Delhi-based unit of Japanese trading firm Mitsui and Co. India, Mumbai-based German engineering firm Siemens India, Gurgaon-based India unit of Swiss consumer goods major Nestle and the Chennai-based India unit of US auto major Ford Motor Corp, extend beyond the state where they are headquartered.
Interestingly, industrialised Gujarat figures below Uttar Pradesh and even West Bengal, thanks largely to a sizeable presence of foreign firms in the Noida industrial cluster in UP and Kolkata in West Bengal. Andhra Pradesh (the undivided state) figured high up in the list of states with a presence of foreign firms, at number six in the overall pecking order.
A senior executive with a Delhi-based engineering goods firm said that the Capital is invariably the first choice as the home base among global firms for two predominant reasons –because the initial contact is invariably with the Central government and having a base in the national capital helps in pitch forking the initial entry strategy of the firm and going about the maze of government clearances. Also, the embassies and liaison offices are located in Delhi, which is another factor weighing in favour of Delhi. In the case of domestic firms, though, Mumbai is the clear choice when it comes to setting up the company headquarters.
The other interesting aside is that data from the last three years shows that 50 per cent of new foreign firm that have set shop in India are invested in just one of the 16 broad sectoral subgroups — business services, a general term that describes work supporting a business and includes sectors such as information technology, consulting and finance. Apart from other service sectors, including trading and the personal and community services head, the presence of foreign firms in the manufacturing sector is largely restricted to the equipment and machinery segment.
According to government norms, foreign company planning to set up business operations in India can incorporate a company under the Companies Act, 1956, as a joint venture or a wholly-owned subsidiary. Foreign equity in such Indian companies can be up to 100 per cent depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment policy.