Why is Delhi dear to foreign cos?
Most foreign companies prefer to set up base in Delhi and Mumbai though other cities are also catching up.
By Sujata Dutta Sachdeva, TNN |
The world is toasting India’s economic growth. And global companies are looking at ways to do business here. No wonder an AT Kearney survey ranked India as No 2 in most preferred country for foreign investment after China. Last year alone, companies from around the world invested $5.6 billion in India. Another $9 billion came through portfolio investment. Even today, nearly every venture firm in Silicon Valley is funding young companies in India.
Number of foreign companies in India
Number of foreign companies in India
| Year 1960 1665 1970 1975 1980 1981 1985 1990 1995 ADVERTISEMENT 20002001 2002 2003 2004 2005 | Foreign cos 565 582 561 510 315 300 324 469 619 ADVERTISEMENT 10451141 1285 1497 1754 1840 |
But is this really the true picture? A bit of number-crunching reveals 72% of foreign companies are located in and around Delhi and Mumbai. Among the states, Karnataka and TN are also popular, but others like Punjab and UP are completely ignored.
Location Jumble: Firstly, how do foreign companies operate in India? One, through a branch, project, liaison office, etc. These offices engaged in trade, research, consultancy, trade promotion, etc, could also remit their profits outside India.
The second is through joint ventures or 100% wholly-owned subsidiaries. Once registered and incorporated as an Indian company, they are treated like any other domestic company.
Post-liberalisation, there has been a significant rise in the number of unincorporated foreign companies. From 565 in 1960, they went up to 1,840 in 2005. Interestingly, in 1981, there were only 300 such companies. ‘‘FERA restrictions were a dampener as many became sick and withdrew,’’ says Anjan Roy of FICCI.
So even as their numbers grow, a look at the statewise distribution throws up some interesting facts. According to a 2004 data put together by the Ministry of Company Affairs, out of 1,754 unincorporated foreign companies, 774 were in Delhi alone, while Maharashtra (read Mumbai and its surrounding areas) had 503. Karnataka (135), West Bengal (106) and TN (101) were the other three states with high concentration. Naturally, the four main metros were located here and companies clearly had a preference for them when setting up shop. Even unincorporated European companies showed the same trend. More than 70% (457 out of 623) of them are operating from Delhi and Maharashtra.
Regionwise too, the South has only 12% of these companies. Eastern India fared worse. Except for British companies in West Bengal, there was not a single European firm under this category. Similarly, they have no presence in Punjab, Rajasthan, MP and J&K. UP with a 166 million population has only three European companies.
Location Jumble: Firstly, how do foreign companies operate in India? One, through a branch, project, liaison office, etc. These offices engaged in trade, research, consultancy, trade promotion, etc, could also remit their profits outside India.
The second is through joint ventures or 100% wholly-owned subsidiaries. Once registered and incorporated as an Indian company, they are treated like any other domestic company.
Post-liberalisation, there has been a significant rise in the number of unincorporated foreign companies. From 565 in 1960, they went up to 1,840 in 2005. Interestingly, in 1981, there were only 300 such companies. ‘‘FERA restrictions were a dampener as many became sick and withdrew,’’ says Anjan Roy of FICCI.
So even as their numbers grow, a look at the statewise distribution throws up some interesting facts. According to a 2004 data put together by the Ministry of Company Affairs, out of 1,754 unincorporated foreign companies, 774 were in Delhi alone, while Maharashtra (read Mumbai and its surrounding areas) had 503. Karnataka (135), West Bengal (106) and TN (101) were the other three states with high concentration. Naturally, the four main metros were located here and companies clearly had a preference for them when setting up shop. Even unincorporated European companies showed the same trend. More than 70% (457 out of 623) of them are operating from Delhi and Maharashtra.
Regionwise too, the South has only 12% of these companies. Eastern India fared worse. Except for British companies in West Bengal, there was not a single European firm under this category. Similarly, they have no presence in Punjab, Rajasthan, MP and J&K. UP with a 166 million population has only three European companies.
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Even Indo-German joint ventures showed the same trend. Data by the Indo-German Chamber of Commerce reveals that more than 70% collaborations are concentrated in Mumbai, Delhi, Bangalore, Chennai and Kolkata.
What Attracts Them: The bias should be seen in the historical context. ‘‘Regional bias has been a part of our industrialisation process. This was the primary reason why the government initiated steps to provide incentives to set up units in backward regions even for Indian companies,’’ says Biswajit Dhar, IIFT. Unfortunately, due to lack of quality infrastructure, these initiatives were not successful. Perhaps, the same logic works for foreign companies.
The data on unincorporated companies also shows there are many foreign companies in West Bengal. Most are British tea companies which operate from Kolkata. Adds Roy, ‘‘Traditionally, Kolkata was the headquarters for foreign capital, while Mumbai was for Indian capital. But the Leftist movement of the ‘70s changed all that and they moved to Maharashtra.’’
However, of late, many American and European companies are moving south, particularly to Karnataka. This state has 34 European and 48 American companies. ‘‘In fact, 44% of our members are in the south, while 31% are in the west. The east has only 7% American companies,’’ says R K Chopra, secretary general, Indo-America Chamber of Commerce.
Delhi and Mumbai, though, still remain the favourites. ‘‘Bangalore and Hyderabad are however preferred by technology companies,’’ says Vishesh C Chandiok, partner, Grant Thornton. ‘‘MNCs are familiar with these cities and their inbound investment advisers, accountants and lawyers are mostly based there.’’ Of course, infrastructure is the other reason. ‘‘It may be hard to ask senior managers to move outside these metros,’’ he says.
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Moreover, these cities have political, financial and inter-governmental resources like embassies and consulates. Kamal Meattle, CEO, Paharpur Business Centre, and a member of the Indo-German Chamber of Commerce says, ‘‘Foreign firms go to states where decision-making is fast and administration friendly and accessible.’’ Also, firms look for advantage and value-addition wherever they go, he says. ‘‘So we have auto and engineering companies preferring Chennai and Pune, while Japanese firms prefer Haryana,’’ he says. To each his own.Download
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