India's New Government Rolls Out the Carpet for Foreign Investors

The new Indian Budget for the fiscal year 2014-15 was presented by Finance Minister Arun Jaitley in July. While many commentators have concentrated on the lack of any significant changes in the existing tax regime, there are a number of interesting pointers as to trends that foreign investors would be wise to track.

These trends are now set to become part of the longer term government-driven policy.

The budget sets in motion much-needed commitments to the development of India’s infrastructure, and includes some rare reforms on government efficiencies

These manifest themselves in numerous incentives related to national infrastructure development and the upgrading of numerous items from cattle stock to radio coverage, highway development and IT.

India uses a financial system that measures in lakh (100,000) and crore (ten million); for the ease of our readers these figures have been translated into US Dollar amounts.

Taxation Issues

First, the basic highlights. There were no significant tax changes, although there is bad news for the tobacco and sugar industries. The health of Indians is shown as becoming a state concern.

But there is welcome news for foreign investors in the food packaging, footwear, clean energy and LCD television manufacturing sectors.

  • Clean Energy cess (a government imposed surcharge on businesses) to be increased from US$0.83/ton to US$1.66/ton​
  • An additional 5 percent excise tax to be levied on aerated drinks with added sugar (cold drinks)
  • Tobacco products excise duty increased to 72%
  • Reduction in excise duty for specified food packaging industry from 10% to 6%
  • Excise duty on footwear reduced from 12% to 6%
  • New initiatives to encourage the manufacture of LCD and LED TV panels
  • Housing loan rebate increased from US$2,500 to US$3,330
  • Proposal to increase limit for household investments and savings under Section 80C from US$1,670 to US$2,500
  • Tax exemption limit for small, marginal and senior tax payers increased from US$3,330 to US$4,160. Senior citizens will face no tax on income up to US$5,000 per annum

Most commentary has been on the above, and as can be seen there are some very specific duty changes that affect certain products.

Additionally, there has been no change in the overall tax rate at this time. However, Minister Jaitley did state that changes to the foreign investment regulations and overall fiscal tax collection could be expected in the next budget.

Infrastructure Issues

The budget as presented as highlights above doesn’t appear that exciting. However, when one takes an in-depth analysis of the infrastructure related portions of the budget, a rather different story emerges.

I highlight the budget’s infrastructure developments and planned funding below. Foreign investors in the areas marked should take particular notice:

  • An Indian Customs One Stop Shop to be developed for facilitating trade, cutting bureaucracy and diminishing conflicting opinions
  • All government departments and ministries to be integrated through E-platform by December 31 of this year
  • E-visas to be introduced at nine airports in India
  • Special Economic Zones (SEZs) to be set up in Kandla in Gujarat and the Jawaharlal Nehru Port in Mumbai
  • Tuticorin Harbour to be developed. Tuticorin is India’s fourth largest container port and the second largest port in Tamil Nadu, on the eastern Indian coast facing Asia. It services shipping to the United States, China and Europe
  • Industrial Smart Cities to be developed in seven key cities that lie along the Delhi-Mumbai Industrial Corridor
  • A National Industrial Corridor to be set up, with US$167 million set aside for it 

New Incentives


  • US$6.3 billion allotted for National Highways
  • US$167 million provided for rail connectivity in North-East India
  • US$16.7 million set aside for river-linking projects
  • US$700 million to be set aside for the Jal Marg Vikas project on the River Ganges, connecting Allahabad to Haldia, with over 1,620 kilometers of reconstructed waterways and ports capable of handling shipping
  • Development of Metro rails in Public Private Partnership (PPP) mode; US$16.7 million set aside for metro schemes in Ahmedabad and Lucknow
  • Scheme for development of new airports at tier-II and tier-III cities through the PPP mode. The PPP method, which attracts significant tax incentives, refers to foreign investors partnering with the Indian government in joint ventures. India plans to build 200 low-cost airports in the next 20 years to connect tier-II and tier-III cities


  • US$25 million for the communication needs of Andaman and Nicobar islands
  • US$16.7 million set aside for Community Radio Centres; 600 new to be opened while existing ones will be further supported


  • In order to complete the national gas grid, a further 15,000 kilometers of additional pipeline to be developed through the PPP mode
  • New and renewable “ultra-modern” energy power projects to be taken up in Rajasthan, Tamil Nadu and Ladakh, valued at US$83.5 million;
  • The Government also committed to providing 24/7 power supply to all homes, including feeder systems to get consistent electricity supply to rural areas


  • US$16.7 million set aside for development of a Technology Development Fund

Agriculture & Animal Husbandry

  • US$8.3 million set aside for the development of indigenous cattle breeds and a ‘blue’ revolution for inland fisheries


  • The Government will initiate a scheme to provide a soil health card, with US$16.7 million set aside for the project
  • US$9.3 million to develop soil testing labs across the country

Finance & Banking

  • Ceiling for foreign direct investment in insurance to be increased to 49% from 26%
  • The Reserve Bank of India will create a new framework for licensing of small banks and differentiated banks
  • The government aims to provide all households with banking facilities to empower the weaker sections, with a goal of at least two bank accounts in each household
  • The Employees’ Provident Fund Organisation will launch a unified account scheme for portability of Provident Fund accounts. This indicates that the government expects to see a mass on-going movement of rural Indians to urban cities, similar to what occurred in China that pushed under-utilized agricultural labor into more productive factories


  • Ceiling for foreign direct investment in defense up from 26% to 49%, but to remain under Indian management and control

Professional Services

  • The budget flagged as urgent the need to converge current Indian standard with international accounting standards. This may lead to a relaxation of the involvement of foreign audit and other professional firms in the Indian market at a later stage



The budget sets in motion a series of much-needed commitments to the development of India’s infrastructure, and includes some rare reforms on government efficiencies.

Overall, the budget can be seen as a testing ground for how far the new government can go to both finance and then execute the plans identified above. Foreign investment has been identified as a key component of development of larger projects in transportation infrastructure, in particular.

It is, in many ways, an infrastructure budget.

I would expect tax concessions and a more fiscal revenue-based budget next time around. For now, this budget demonstrates there is plenty to be done in the India under new Prime Minister Narendra Modi, and firmly sets out the key areas of attention.

Investors should be aware that following government policy is always a good idea, and the budget as presented gives plenty of food for thought.

About the Author

Chris Devonshire-Ellis is the founding partner and principal of Dezan Shira & Associates, a specialist foreign direct investment practice that provides advisory services to multinationals investing in emerging Asia. This article was first published in Asia Briefing and was reedited for clarity and conciseness. For further details or to contact the firm, please visit 

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