As India Approves Residency For Foreign Investors, Will It Attract Entrepreneurs?
India approved a plan on Wednesday to allow residency status to foreign investors, adding new impetus to create a real free market as it continues to unveil reforms on FDI policies and restrictive business regulations.
With $63 billion worth of foreign investment, India was the top destination for foreign direct investment (FDI) last year. It raced past China, which was at the top for many years. This year, things are looking much brighter for Asia’s third-largest economy, which has seen a 23% rise in foreign direct investment to $55.5 billion in the fiscal year to March, according to Reuters.
To be eligible, foreigners would have to invest $1.5 million over 18 months, or $3.7 million over three years, resulting in jobs for at least 20 resident Indians every fiscal year, the government said in a statement. Those who meet the criteria would be eligible to stay for 10 years. The residence permit can be extended by a decade.
But will this residency plan, which is being compared to similar initiatives in Singapore, Hong Kong, and the U.S., boost India’s chances of becoming a hub for entrepreneurs? The latest initiative evoked a mixed response, with many entrepreneurs saying it was a step in right direction, although not particularly impactful.
“The lack of ease of doing business in India needs to be fixed first because that will make the country a desired destination for entrepreneurs,” says Vikram Ramakrishnan, cofounder of Linkstreet Learning, a cloud startup that offers video-based learning and collaboration solutions. According to the 2015 World Bank’s Ease of Doing Business report, India ranked 142 out of the 189 countries. Lack of trained labor, stringent land and labor laws and poor infrastructure has been a major deterrent to foreign investment in India.
Notwithstanding, India is the top destination for FDI, and the issues on the ground need to be remedied to attract more inflows. Important pro-industry laws like the goods and services tax is yet to be rolled out, while the land acquisition bill is mired in controversies. Furthermore, the government’s unclear stance on issues such as retrospective taxation concerns foreign investors. At a recent conference in New Delhi, top officials of Microsoft, GE and Lockheed Martin called for predictability in taxation rules to encourage investments in the country.
According to Vivek Gaur, CEO of online shopping portal Yepme.com, India can become a hub for entrepreneurs if it can resolve these challenges with some tangible measures. “A sustainable ecosystem is the key to providing resources, which ultimately has a direct bearing on the success of an enterprise. India is unlike Silicon Valley, which has the ideal framework for the entrepreneurs to be successful,” says Gaur.
American entrepreneur Bert Mueller, who launched Mexican food chain California Burrito along with his two friends in India’s software hubBengaluru, says the current one-year visa rule in India for foreign nationals is cumbersome, seemingly a bigger headache than working out their burrito recipe.
“The one-year visa rule creates tremendous uncertainty for the entrepreneurs and the business they create. No entrepreneur will start a business and sell it in just a year. If the new visa is available for four years or a longer period, and is easily renewable and doesn’t have lots of restrictions, it will be helpful. Visa problems create a negative perception about starting a business in India,” says Mueller.
There are challenges, of course. But most signs point to the possibility that India could well become a hub for investors worldwide. Home to the third largest number of technology-driven startups in the world, with the U.S. and the U.K. occupying the top two positions, India is one of the fastest growing major economies in the world and is considered to be a bright spot by international agencies, including the International Monetary Fund.
Also under the new scheme, the investors with the permanent residency status would be free to buy one home, and spouses and dependents would be allowed to take private jobs and study, the government said.
“Apart from the access to a large consumer market, there’s a reasonably stable democratic environment to do business. Also in India, the cost of trying out a business plan is relatively inexpensive and if it works, the idea can be exported,” says Ramakrishnan.
Resonating similar sentiments, Mueller says, “There is awareness about entrepreneurship here, a strong existing network of people with global experiences, and many talented people with the intention and energy to work on new ideas. The entrepreneurial opportunities in India are far broader than those in Singapore and Hong Kong.”