Starting a business in India has never been easier. Foreign direct investment (FDI) has been steadily growing since the economic liberalization of 1991. India registered its highest FDI inflow amounting to $64.37 billion in the last financial year 2018-19. This can be attributed to the relaxed FDI regulations in many sectors of the economy. Today, India ranks 63rd among the 190 economies and 1st for the South Asian region in the latest World Bank’s Ease of Doing Business index (EoDB).
Non-resident Indians (NRIs) are one of the major contributors to the Indian economy. Along with large inward remittances, NRIs also bring along skills, technology, a modern and global perspective when setting up businesses in India. The Indian government, upon recognizing the role they play in the economic development of the country have made many administrative changes and offered incentives to attract foreign investors and encourage investment in India.
Both the central government and the state governments have initiated multiple schemes to boost investment including subsidized rates of electricity, free of cost land for establishing promising ventures, and even tax exemption for some period to drive business set up in India.
Having said that, setting up a business is no easy process. First, you need to arrange the funds, get the documents and paperwork ready, get clearance from various ministries and departments, sort out the compliance requirements, and obtain the necessary licenses, etc.
The EoDB index is an aggregate of 10 areas of business regulations as shown above. And a lower numerical value represents a higher ranking because it indicates accessibility and ease to achieve the requirements for those parameters.
Challenges and Solutions in setting up a new business for NRIs in India
NRIs, PIOs, Overseas Citizens, or Foreign residents or nationals are allowed to invest in India either by buying shares in an existing Indian company or registering an entirely new company.
NRIs have the option of forming a Private Limited Company, a Limited Liability Partnership or open a branch office, liaison office, or project office in India. The most preferred form of business organizations for foreign investors is Private Limited Company and LLP. The reasons for this will be discussed later.
To enhance the ease of doing business index, SPICe Form which stands for Simplified Proforma for Incorporating Company Electronically was introduced in 2018 to streamline the process of company incorporation. With a single registration form, it becomes easier to apply for PAN, TAN, and DIN.
Now coming to FDI, there are two routes:
There are certain sectors where FDI is prohibited such as Agriculture or Plantation project (excluding animal husbandry, horticulture, pisciculture, fisheries, etc), Atomic Energy Production, Housing, and Real Estate (excluding commercial projects, townships, etc), the tobacco industry, Lotteries, Nidhi Company and many others.
Due to the many relaxations, there are several advantages for NRIs to start business both in Private Limited Company and Limited Liability Partnership.
Important points to consider while forming a Private Limited Company by an NRI in India:
Important points to consider for forming Limited Liability Partnership by NRI:
If you are an NRI looking to start a business in India take advantage of the exclusive NRI bank accounts like Non-Resident Account (NRE). It lets you send money online via various money transfer services as foreign earning to your bank account or repatriate your money back whenever you want. By using money transfer service providers instead of high street banks when you are sending money to India, you can save a huge amount on the transfer fee and get a higher exchange rate. Here are the hassle free ways of sending money to India.