Government Incentives for NRIs to Start Business in India

Government Incentives for NRIs to Start Business in India
India is a promising destination to start a new business. With a thriving market of over 1.35 billion people and an enormous economy, India offers a budding platform for numerous avenues for business.  NRIs (Non-Resident Indian) are the quintessential entrepreneurs that the country needs now. With more than 15 million NRIs and PIOs (Persons of Indian Origin) living abroad, India currently has the world’s largest diaspora. Although India’s NRI pool forms around 1 percent of the country’s population, yet it is an indispensable cog in the wheel of its development. Apart from bringing in economic benefits of remittances of forex, NRIs also bring along a modern and global perspective. Therefore, they not only add technical and domain expertise to domestic startups but also act as angel investors. Moreover, new businesses create jobs, and employment generation is the stepping stone to economic growth. The Indian Government has realized that the NRI population can be instrumental in bringing about development and has thus started leveraging its potential by offering attractive incentives to encourage NRI investment in India.

The Challenges

However, starting a business in India is not a child’s play. Apart from the meticulous planning, paperwork and gathering funds, there are a host of other deterring factors.  Setting up a new business in India typically involves several clearances, approvals and tedious tasks like registering the company, acquiring property and registering it, getting clearance from the various ministry departments to comply with environmental laws, arranging for electricity and water connection, procuring several licenses, etc. The list is endless. Such hassles can easily dissuade potential entrepreneurs from setting up a business in India – more so for NRIs, who are presumably unaccustomed to such excessive bureaucracy.

The Central Government’s Efforts

To avoid this, the Indian Government has made several administrative changes to help foreign investors and NRIs to set up businesses. The Ministry of Commerce and Industry created the Foreign Investment Promotion Board (FIPB) to bypass the red tapes and ensure smooth sailing to all potential foreign investors. The board operates in a single window system so that investors can get all approvals in one place, thus reducing the need to make several rounds to different government departments for clearances and licenses for setting up a business in India. Moreover, the Central Government has been actively supporting and supplementing the efforts made by various state governments in encouraging NRIs for business startups. Consequently, the scenario of startup funding in India has improved considerably in the recent years.

The State Government’s Efforts

Many state governments have rolled out several enticing incentives to attract investments in their states. A few states have launched special schemes, such as “Vibrant Gujarat”, “Happening Haryana,” “Magnetic Maharashtra,” etc., to encourage Non-resident Indians to start businesses. Some of these schemes provide land or industrial sheds at a reduced rate. Some states have gone the extra mile and given free-of-cost land to promising enterprises. Quite a few states offer subsidized rates of electric power supply to run businesses and exemption from taxes for a few years. It’s a no-brainer that new businesses will inevitably create more employment opportunities for local people. Therefore, state governments have a vested interest in incentivizing NRIs to start new businesses.

Special Incentives for Backward Areas

The bulk of new industries choose to operate in places with an established infrastructure. Hence, cities are preferred over remote locations. In a bid to promote industrialization of backward areas, both the state and central governments are providing extra benefits to NRIs for setting up new ventures in certain offbeat locations that need development. These incentives largely depend on the area chosen, but the government is willing to share more than 50% of the transportation costs for new businesses set up at relatively less accessible areas. Many new ventures are being provided with the initial investment for purchasing the machinery and equipment required for a basic setup.

Financial Assistance

The scenario of startup funding in India has improved considerably in recent times. NRIs are being offered loans for establishing their startup business in India. Two Indian banks – Industrial Development Bank of India (IDBI) and Industrial Financial Corporation of India (IFCI) – are specifically designated to aid potential entrepreneurs in this process. Non-resident Indian entrepreneurs need to submit a statement of purpose with a detailed description of the project, the skill set of the people involved in it, the various environmental issues related to it, the business model, etc. to these banks. If the idea receives a green signal after a thorough verification, a loan amount of up to 75% of the project cost can be sanctioned by the banks. NRI entrepreneurs looking to purchase existing businesses can approach the Indian banks for a loan to buy commercial property.

Since IDBI is involved in direct financing of industrial activities, its main objective is to create a principal institution for long-term finance. The Indian Government set it up to manage the institutions working in this domain for planned development of the industrial sector, to provide administrative and technical support to the growing industries and to conduct various R&D activities for the benefit of the industrial sector. Similarly, State Financial Corporation (SFC) and State Industrial Development Corporation (SIDC) offer financial assistance to budding ventures in the state-level.

To Sum Up

India is seeking to boost flows to support its currency that has depreciated tragically in the recent past. Therefore, the Government is aggressively courting for NRI investments in India. These measures have been quite fruitful – the number of budding startup companies in India is the living proof.  As foreign investment into India is at an all-time high currently, it is an ideal time for the NRIs to dive into the Indian market. The relaxed FDI norms and proactive government initiatives like Make in India Scheme and Startup India Scheme have helped India rise in the ‘ease of doing business’ ranking recently. Moreover, to encourage NRI, OCI and PIO entrepreneurs, the government has declared that non-repatriable investments will be considered as domestic investments and will therefore not be subject to FDI caps. Not only is the Indian market highly favorable for new business ventures, but the government of India has made it all the more conducive by offering these additional incentives and encouragements to the non-resident Indian entrepreneurs. This cherry on the cake should be the spur for NRIs to set up shop in their homeland.