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Understanding India's political and regulatory environment

By Sigurd Neubauer


With a population of 1.3 billion people, the Indian economy has been ranked the fifth largest in the world. New Delhi recently opened several strategic sectors to Foreign Direct Investment (FDI). 

In our multi-part series on how to successfully enter the Indian market, we discuss the various sectors opened up to FDI – and how to access them – with Nabik Syam, a partner at P&A Law Offices, a major firm with several branches across India. The firm also has representation in the United States spearheaded by Anand S. Pathak. 

In our first part, we discuss business culture and how to negotiate with Indians.

The interview has been edited for clarity. 

Please describe the general business climate in India, including its regulatory environment and political stability.

Since the liberalization of the Indian economy in 1991, business has increased in the private sector through policies such as de-reservation and delicensing of industries, abolishing quantitative restrictions on import, switching to floating exchange rate, full current account convertibility, reforms in the capital account, permission to foreign direct investments and promulgation of a liberal foreign exchange management mechanism. The government has set a target of achieving a GDP of $5 trillion by 2024-25. It is estimated that India would need to spend $4.5 trillion on infrastructure by 2030 to realize the vision of a $5 trillion economy by 2025.

The government has put in place a transparent, predictable and easily comprehensible policy framework on Foreign Direct Investment in India (FDI). The Department for Promotion of Industry and Foreign Trade (DPIIT) and the Ministry of Commerce and Industry are responsible for policy pronouncements on FDI.

Foreign investments in India can be made either through the Automatic Route or the Government Route. Under the Automatic Route, a non-resident investor or an Indian company does not need any approval from the government to make an investment. Under the Government Route, prior approval from New Delhi is required. 

One of the most important steps taken by India, subject to the applicable laws and regulations; certain restrictions; security and other guidelines and conditionalities, (limitations) has been to allow FDI in a number of sectors, including defense, construction, broadcasting, civil aviation, plantation, trading, banking, insurance, satellite establishment and operation, and credit information companies. 

An automatic route for 100 percent FDI, subject to the limitations, has been allowed in various sectors including manufacturing of medical devices, railway infrastructure, credit information companies, and certain areas of retail trading. Further, subject to the applicable limitations as mentioned above has been allowed through the automatic route in critical areas of defense.

The Make in India plan was launched in 2014 to encourage both multinational as well as domestic companies to manufacture their products in India, and to make it easier to do business in India. Towards that end, key policies have been implemented, which include the removal of archaic laws, setting up of smart cities, disinvestment of the public sector units and so forth.

The overall focus is on new processes, new infrastructure, and a new mindset. Invest India, an interactive portal for the dissemination of information and interaction with investors, has been created by the government for generating awareness about investment opportunities and prospects. Invest India is a full-fledged investment facilitation organization set up to support all investment queries, which can also help  liaise with various agencies on behalf of potential investors. Following the launch of the Make In India plan, ,India announced in May 2020 a major campaign known as  the ‘Atmanirbhar Bharat Abhiyan’ (self-reliant India campaign).

This campaign outlines five pillars of a self-reliant India; Economy, Infrastructure, System, Vibrant Demography and Demand. To promote the campaign, the government has adopted several bold reforms wherein major industrial reforms were announced, including leveling the playing field for private participation such as supply chain reforms for agriculture, rational tax systems, simple and clear laws, capable human resource and strong financial system.

Aviation and infrastructure 

In aviation, a major step has been taken to make flying more efficient by easing air space restrictions and by allowing, amongst others, subject to the limitations, 100 percent FDI under automatic route, in respect to the MRO (Maintenance, repair and operations), to make India an MRO hub. Various airports are scheduled to be opened up for inviting private investments, and recently the strategic disinvestment transaction of the flagship carrier of Air India was also completed . 

Infrastructure improvement has been identified as one of the primary areas for attracting foreign investment and for facilitating the ease of doing business in India. The sectors of power, railways, roads, civil aviation, telecom, minerals, petroleum and energy, renewable energy, maritime, urbanization, logistics have been the primary focus among a host of other sectors.

Apart from full private participation in many of the above stated sectors, the Public Private Partnership (PPP) model has been adopted by the government to augment availability of capital and to enhance competitiveness and quality standards.

In the power sector in order to improve the quality and reliability of power supply, various steps  for cutting down technical and commercial losses, and revamping the distribution sector schemes have been undertaken.

When it comes to railways, inter-alia, developing high-speed train projects connecting all of  the metropolitan cities in India is prioritized.

For instance, a National Rail Plan was introduced in 2020-21 to develop capacity infrastructure ahead of demand. Under the New India, New Railway initiative, various modern train sets or rakes are to be  identified through private participation, and private participation through private entities is to be  identified so that qualified private entities can be responsible for financing, procuring, operating and maintaining the trains. This is a major development in Indian Railways, which has a total railway route length of approximately 67,956 km, and is the fourth largest rail network in the world by size. In 2020, Indian Railways carried an estimated 8.086 billion passengers. In 2021, it carried an estimated 1418 million tonnes of freight.

When it comes to road infrastructure, India enjoys the second largest road network of an estimated  6,215,797 km. The National Highways Authority of India (NHAI) is regulating the various PPP models to invest in the road infrastructure which includes a web of national highways linking the entire country through the National Highway Development Project. 

One of the notable and successful projects was the Golden Quadrilateral Project (GQ), which is a national highway network connecting several major industrial, agricultural and cultural centers in India. It forms a quadrilateral with all the four major metro cities of India, namely. Delhi in the north, Kolkata in the east, Mumbai in the west, and Chennai in the south. The main objective of this project was to reduce the travel time between the major cities. At 5,846 km, it is one of the largest highway projects in India. Additionally, PPP models have been put to use for construction of freeways, and expressways road projects inside the major cities to ease traffic and ensure speed. 

An ambitious initiative known as the Bharatmala Pariyojana (Garland India Program) program seeks to develop the construction of 83,677 km of new highways at an estimated cost of about ₹5.35 trillion ($67 billion). The Bharatmala Phase I plans to construct by 2021-2022 an estimated 34,800km of highways, including the remaining projects under the NHDP. The Economic Corridors, which have been identified  along with the GQ, is expected to carry the majority of the freight traffic on roads. Further, Inter Corridors and Feeder Routes have been identified for improving effectiveness of the Economic Corridors, the GQ and the North South, and East West Corridors. The program envisages development of Ring Roads / bypasses and elevated corridors to decongest the traffic passing through cities and enhance logistic efficiency. Furthermore, in order to reduce congestion on the proposed corridors, enhance logistic efficiency and reduce logistics costs of freight movements, locations have been identified for the development of Multimodal Logistics Parks.

The Indian aviation sector is one of the fastest growing markets in the world. Privatization and modernization of airports based on the PPP model, and foreign and private investment in the management of domestic and international airlines, are topics that we have already discussed.

India is liberalizing its aviation sector

Telecommunications, ports and smart cities


In the telecommunications sector, as we have previously discussed, the subject of limitation is 100 percent FDI. Relief has also been provided on Spectrum usage.

Under the BharatNet program, to augment digital India, network infrastructure for broadband is being established in partnership with the private sector, and digital banking, digital payments through the private sector is covering transactions even in the daily retail transactions in every sphere of everyday life.

In the maritime sector, to make Indian ports globally competitive, the government set a target in its Maritime Agenda 2010-2020 for about 3200 MT port capacity. The total proposed investments in major and non-major ports by 2020 is expected to be approximately INR 2870000 million, and most of the investment has been planned to come from the private sector, including FDI (subject to the limitations FDI upto100 percent under the automatic route is permitted for construction and maintenance of the ports).

Proper infrastructure is essential for industrialization and investment, which is why the central government has launched the Smart City Mission to promote cities that provide core infrastructures. The city of Gurgaon in the state of Haryana serves as an example. Along with the private promotion of residential and commercial buildings and office complexes, the private sector  stepped in to create sewage, water, electricity, security and fire prevention. The Rapid Metro Railway System in Gurgaon was built by private companies, while the state government, the Haryana Urban Development Authority, provided the land. 

The government has taken various steps to enhance private participation, including bidding of exploration blocks, and enhanced freedom has been provided to the public sector oil companies for collaboration with the private sector. As we have already discussed, the subject of limitation is 100 percent FDI in natural gas, petroleum products and refineries.

Coal and renewables

Remarkably, the government monopoly on coal has been removed and the private sector has been allowed to bid for coal mines, and allowed to undertake exploratory activities. In the  nuclear power sector, private investment participation has been allowed as well.

India’s renewable energy, including large hydropower potential and installed capacity has been assessed at about 163 GW, which include solar, wind, small hydro, and biomass power. In the renewable energy sector, the subject of  limitations is 100 percent FDI. The various programs and initiatives taken by the government in which private participation is envisaged are the National Solar Mission, the National Offshore Wind Energy Policy, the Green Energy Corridor for Renewable Power Evacuation and reshaping the grid for future requirements; and  the National Hydrogen Mission, which aim to secure hydrogen as the top clean fuel for the future. 

To support supply chain management, the government has identified logistics to be critical, and is therefore opening up investment opportunities  in the transportation, inventory management, warehousing, materials handling, packaging, and integration of information sectors.

To achieve the $5 trillion goal set by the government, it launched in 2019 the National Infrastructure Pipeline (NIP). The NIP captures the infrastructure vision of India, and the sector-wide investments to be made in infrastructure. The funding in the infrastructure areas of energy, road, urban infrastructure, railways and so forth is to be partly shared by the central and the state governments in a particular ratio. The remaining funding is envisaged to come from  the  private sector, including domestic and foreign. 

A digital platform connecting 16 ministries was launched in 2021, which is formally  known as PM Gati Shakti (National Master Plan for Multi- Modal Connectivity). This portal is envisaged to provide information to enable integrated and seamless connectivity for movement of people, goods and services from one mode of transport to the other.

The portal also envisaged to highlight all the clearances that may be required for the projects and assist investors and other  stakeholders with applying for clearances directly from the relevant departments.

Petrochemical industry, information technology  

India imports crude oil from a number of West Asian countries. In order to refine crude oil, several oil refineries have been set up in different parts of the country. The oldest refinery is Digboi in Assam. Others are at Noonmati, Haldia, Bongaigaon, Barauni, Mathura, Vishakhapatnam, Chennai, Cochin, Mumbai, and Koyali (Vadodara). Subject to the aforesaid limitations, the Government has allowed up to 100 percent FDI under the automatic route for petroleum refining in the private sector  and 49% in the existing Public Sector Units (“PSUs”) without any disinvestment or dilution of domestic equity.

India is rapidly advancing in this sector. Petrochemical industries are categorized as polymers, synthetic fibers, elastomers, and surfactant intermediate industries. Mumbai is the hub of the petrochemical industry.

India is one of the largest exporter and Bangalore has come up as global hub. Details of the IT industry has been covered in the response to the first query.

Natural resources 

India is a mineral resources rich country having extensive resources in iron ore, coal, copper, bauxite, mica, zinc, tungsten, gold, magnesium, diamond and even uranium.

The total cultivable area in India is around 1,945,355 km (56.78% of India’s total land area). India’s major mineral resources include coal, Iron ore, Manganese ore, Mica, Bauxite  and Chromite, and these minerals are said to hold among the top 10 positions as largest reserves in the world. Further India has substantial reserves in Natural Gas, Diamonds, Limestone and Thorium. India’s oil reserves, found in Bombay High off the coast of Maharashtra, Gujarat, Rajasthan and in eastern Assam is estimated to meet about 25% of the country’s demand. A national level agency National Natural Resources Management System (NNRMS) was established in 1983 for integrated natural resources management in India.

The former five-year plans have set up high-capacity industrial units in the iron and steel sector. The Government has launched the National Steel Policy 2017 that aims to increase the per capita steel consumption to 160 kgs by 2030-31. National Mineral Development Corporation is expected to invest US$ 1 billion in infrastructure in the next three years to boost iron production, and the Government has allowed 100% FDI under the automatic route in iron & steel and cement units subject to subject to the limitations as aforesaid. According to reports, as per Economic Survey 2018-19, steel production will touch 128.6 million tonnes by 2021.

Forests and water resources 

As of 2021, total forest and tree cover of the country is 80.9 million hectares which is 24.62% of the geographical area of the country..

There are four major sources of surface water. These are the rivers, lakes, ponds, and tanks. In India, there are about 10,360 rivers and their tributaries are longer than 1.6 km each. The mean annual flow in all the river basins in India is estimated to be about 1,869 cubic km. India falls under the tropical monsoon area, and receives annual rainfall of about 1,170 millimetres per year, or about 1,720 cubic metres (61,000 cu ft) of fresh water per person every year. India accounts for about 4% of the world’s water resources. The presence of the Himalaya Mountain range and the glacial rivers provide hydel power, and India is ranked globally at 5th position for installed hydroelectric power capacity. In 2020, India’s installed utility-scale hydroelectric capacity was about 46,000 MW, which was 12.3% of its total utility power generation capacity. The hydroelectric power potential of India is estimated at 148,700 MW, and the total hydroelectric power generated in India in 2019-2020 was about 156 TWH. Subject to the limitations, FDI up to 100% is permitted in the power sector under the automatic route for generation and transmission of electric energy produced in hydroelectric, coal/lignite based thermal, oil based thermal and gas based thermal power plants, also in non- conventional energy generation and distribution, in distribution of electricity energy to households, industrial, commercial and other users, and in power trading. Accordingly, any foreign power company can enter power sector through FDI route.

The government of India has put in place a transparent, predictable and easily comprehensible policy framework on Foreign Direct Investment in India (FDI)
The Make In India plan was launched in 2014 to encourage domestic manufacturing. Photo credit: PMO India

The service sector

The service sector contributes an estimated 50 to 60 percent of India’s GDP. Most of the services such as information, communication, financial, professional, and business services have grown during the Covid-19 pandemic. 

The Information Technology and Business Process Management (IT-BPM) has been the standard bearer for the Indian service industry sector. The IT-BPM includes e-commerce, banking and financial services, and insurance.  For India, the U.S. remains one of the biggest export-markets of IT-BPM services. In 2020-2021, various structural reforms were made to improve the IT-BPM sector. The relevant guidelines concerning Other Service Providers (OSP) of the Department of Telecom were revised and simplified  to reduce the compliance burden of the BPO (Business Processing and Outsourcing) industry and also enabled work from home and work from anywhere policies. Changes were made in respect to sectors such as relaxing requirement of registrations, bank guarantees, frequent reporting obligations, penal provisions and so forth. The Consumer Protection Act was also amended. 

Regulation has always been one of the essential functions of the Indian government. Most of the critical infrastructure sectors have a regulator and are subject to close scrutiny by the regulator. The finance sector has the RBI, the securities and capital markets have Securities and Exchange Board of India (SEBI), telecommunication has the Telecom Regulatory Authority of India (TRAI), the insurance sector has Insurance Regulatory and Development Authority of India (IRDAI), companies registered in India have the Registrar of Companies (ROC) and the Competition Commission of India (CCI) and so forth. 

The regulators have extensive powers when it comes to audit, scrutiny, investigations and certain regulators  may act as quasi-judicial authorities to address and adjudicate complaints and investigation reports. It is because of these strict regulations that the Indian economy was not severely impacted by the 2008 global financial recession. During the Covid-19 pandemic, when the population at large faced lockdowns, no food shortages were reported and the economy was able to recover quickly because of India’s robust regulatory environment.

The Air India strategic disinvestment transaction was completed in January 2022

Political stability 

India is a parliamentary democracy and the largest democracy in the world. The democratic systems are firmly established with a very clear separation of powers between the executive, the parliament, and the judiciary. 

The military is managed separately from all civil institutions, including when it comes to securing the country’s international borders, which is overseen by special paramilitary forces. The paramilitary and state police forces are under the control and command of the central and state executives, and both the state and central executives are the elected representatives of the people who form the government in states/center on the basis of elections held every five years.

Thus, the  Indian democratic system is firmly established with a free press and a politically informed  population. The country has a strong civil society culture. Given that the political or administrative power does not reside exclusively with  any one particular person or a group, no framework exists for any potential military takeover.

Political changes have always been managed through the process of peaceful democratic elections and voting.  Elections take place from the local level to the central government. Disruptive, and violent upheavals in the magnitude of upsetting the functioning of the administration and the economy of an entire state or the country has never taken place in India, and with the democratic systems and the culture deeply ingrained in the population as already discussed, such upheavals are impossible at an all-India level.

The Indian democratic system is firmly established with a free press and a politically informed population: Nabik Syam
Political changes have always been managed through the process of peaceful democratic elections and voting
India’s Supreme Court is located in New Delhi

Judicial system

Please explain how the country’s judicial system works and how international companies or businessmen can navigate it in case of potential business disputes?

India has broadly a two-tier judicial system. Every state in India has an array of lower courts in every district and a high court in the state capital, while the Supreme Court of India remains as the final court, which is located in New Delhi. In order to reduce the heavy burden of litigation on the high courts, and the lower civil courts, and to speedily address the multifarious issues that arise in the commercial and civil matters in India, various special enactments have been passed both in the state legislatures and in the union parliament, to address and cater to various subjects on an exclusive basis, and for the purpose of adjudicating the disputes that arise from such subjects, exclusive tribunals have been set up from the district, to the state levels and then till the central level.

In respect to commercial disputes (domestic and international), to ensure speedy adjudication without any procedural delays, an alternative dispute resolution mechanism has been set up through a special enactment in respect to arbitration, mediation and conciliation of disputes. In respect to international arbitration, the rules of the international arbitral institutions, and the applicability of foreign laws in the international arbitrations held in foreign jurisdictions under a particular international arbitral institution rule, etc., have also been recognized by India. India has enabled the enforcement of the awards of such foreign arbitrations in India through the applicable laws on arbitration in India, and other domestic laws. Therefore, in respect to both domestic and international disputes, India, through its alternative disputes’ mechanism has presented itself to be commercially dynamic and business friendly.

The criminal laws, the laws on recovery of debts, and on financial defaults have also been reformed. In addition to an effective mechanism for recovery of debts on behalf of banks and financial institutions, the recently adopted Insolvency and Bankruptcy Code has made the resolution of debts and defaults much more expeditious and less cumbersome. The aspect of criminal liability in respect to various commercial default issues, and defaults on compliances under the certain special enactments  in India which were existing earlier have been removed.

The overall approach of the government has been to reduce the cumbersome trial procedures in courts and tribunals dealing with commercial issues by making the procedures in relation to establishment of evidence through proving or disproving of such evidence more document and affidavit oriented rather than lengthy court trials. The special enactments in India which now cover more or less every aspect of commercial and civil disputes, have their own procedures in their respective tribunals which are summary in nature and so expeditious, and largely free from procedural delays. However, it is to be noted that the burden of litigations in India is huge, and despite all such efforts to expedite proceedings, no exact timelines can be set forth to predict any resolution time.

A freemarket reformer, Narendra Modi has been India's prime minister since 2014


Disclaimer: The views expressed are the personal views of Nabik Syam and are purely informative in nature and do not constitute an opinion or an advice in respect to any of the issues in any manner whatsoever.


During the Covid-19 pandemic, when the population at large faced lockdowns, no food shortages were reported and the economy was able to recover quickly because of India’s robust regulatory environment
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