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India’s deal landscape: what foreign investors need to know

By: Ramesh K Vaidyanathan and Aishini Mandal

India’s business environment has undergone a dramatic transformation in the past few years. The country was ranked 63rd this year in the World Bank’s Ease of Doing Business rankings, up approximately 14 places. Despite short-term political uncertainty caused by national elections earlier in 2019, international investors remain engaged with India not only because of its demographics but also because of the reasonable stability of barometers such as inflation, fiscal deficit and growth.

India’s market appears to have performed reasonably well, on the back of positive investor sentiment, demonstrated through the number of big-ticket deals and a growing pool of funds looking to tap opportunity. In this article, we examine notable factors which have bolstered India’s deal landscape.

M&A trends in India

India ranks among the top ten host economies for foreign direct investment (FDI).[1] In 2016, inflows of FDI hit an all-time high of $44.5bn. However, following the global downward trend, inflows declined for the following year by over ten per cent. In 2018, the figure recovered somewhat to $42.3bn. Against a challenging backdrop that included intensified US-China trade tensions and the prolonged uncertainty of Brexit, the first half of 2019 recorded 940 deals aggregating to $64bn, a 29 per cent increase over the second half of 2018.

2019 witnessed a major leap for India in the aerospace and defence sector, with Singapore-based Dreamvision Overseas’ $15bn acquisition of a 37 per cent stake in Tzar Aerospace Research. This deal was the second-largest transaction recorded in India, pipped to the post only by Walmart’s 2018 $16bn acquisition of a 77 per cent stake in Flipkart. Another significant transaction is Arcelor Mittal’s $6bn agreement to acquire Essar Steel in joint venture with Sumitomo Metal Corporation and Nippon Steel. Both these transactions helped highlight the growing confidence of foreign investors in India’s entrepreneurial strength as well as the vast opportunities presented by distressed assets across key sectors in the country. The Insolvency and Bankruptcy Code has signified game-changing legislative intervention for tackling the problem of stressed assets.

While financial services, technology, energy and real estate retained their position among the top five sectors attracting investor interest, the infrastructure sector garnered significant traction this year. The hotel sector witnessed a leap over the previous years, recording investments worth around $1.2bn across two deals, ie, Brookfield’s agreement to pump around $500m into the debt-ridden Hotel Leela Ventures and GIC’s investment of $600m in a special purpose vehicle of Indian Hotels Company.[2]

Further liberalisation of FDI

Investment norms for single brand retail trading (SBRT), contract manufacturing, coal mining and digital media have been further eased by relaxing some of the conditions and investment limits.


FDI in SBRT is now permitted up to 100 per cent under the automatic route. Previously, although FDI was permitted up to 100 per cent, investment exceeding 49 per cent required prior government approval. There has also been some relaxation in local sourcing requirements.

Contract manufacturing

Previously, 100 per cent FDI was permitted under automatic route in the manufacturing sector. However, it was unclear as to whether this included ‘contract manufacturing’. The new changes clarify that FDI in India’s entities engaged in contract manufacturing through a legally tenable contract, whether on a principal to principal basis or on a principal to agent basis, shall be permitted under the 100 per cent automatic route.

Coal mining

The government has permitted 100 per cent FDI under the automatic route for sale of coal, coal mining activities and associated processing infrastructure, which would include coal washing, crushing, coal handling and separation.

Digital media

26 per cent FDI is now permitted under the government route for uploading/streaming of news and current affairs through digital media.

Reduction in corporate tax

Aiming to lift business sentiments and spur investments, the government of India reduced corporate tax rate for domestic companies from 30 to 22 per cent. This lower rate is subject to the condition that the company does not avail any other exemption/incentive.


With global trade witnessing a slowdown and the international multilateral trading system enshrined in the World Trade Organisation facing an existential threat, the challenges for India’s economy are far too many. It is hoped that these policy measures will play a critical role in enhancing India’s ‘attractiveness quotient’ for investors.

Indian M&A has shown tremendous resilience despite current global economic turmoil. While domestic consolidation will continue to be a key driver in M&A activity, business-friendly reforms and high consumption growth will help garner interest from both local and foreign investors.[3]

Further relaxation of FDI norms in sectors such as pharmaceuticals and insurance, where currently 100 per cent FDI is not permitted through the automatic route, is hopefully not too far. The Indian government is also in the process of setting up a single window system to support foreign investors and help them set up facilities in India. This proposed new mechanism will facilitate clearances a company requires to set up plants in a state, district or town.


[1] ‘World Investment Report 2019: Special economic zones’, United Nations Conference on Trade and Development (UNCTAD), available at:, last accessed 24 November 2019.

[2] ‘Deals in India: Mid-year review and outlook for 2019’, PricewaterhouseCoopers, available at:, last accessed 24 November 2019.

[3] ‘Global Transactions Forecast 2020: Powering Through the Downturn’, Baker McKenzie, available at:, last accessed 24 November 2019.


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