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Business Plan for Investing In Small Scale Industry in India as a Foreigner

Nikhil Mogha

| Updated: Jan 02, 2023 | Category: Business Plan

Business Plan for Investing In Small Scale Industry in India as a Foreigner

The Small Scale Industries in India is increasing rapidly, paving the way for many opportunities. The small scale industries form approximately 40% of India’s GDP and employ almost 60% of the nation’s workforce. During the time of pandemic, the Indian government has induced money and provided financial support to micro, small and medium enterprises. The government has also simplified the registration process, provided tax incentives and reduced regulatory compliances. Henceforth, investing in a small scale industry in India can be a good opportunity for a foreigner. It can provide access to entry into the market and create its existence among the homogenous or heterogeneous market. The foreign company can invest in small scale industry through an automated route in India without any prior approval from the government as the limit for foreign direct investment has been relaxed. The present article will discuss the opportunities available to a foreigner intending to invest in India.

Characteristics of Small Scale Industry in India

The foreigner investing in small scale industry in India shall hold the following characteristics:

1. Ownership: The foreigner as an entity shall remain the owner of the company. It can manage its business in India from a branch office or liaison office. It may commence its small scale industry in India by joint venture or partnership.

2. Management: The foreigner as an entity will be generally held by the management and controlled by the owners. Therefore, the owner is actively involved with the business’s day-to-day activities. It can make its decision and handle the operation accordingly.

3. Flexibility: Operating a small scale industry in India is very flexible. In distressing times small scale business industries are generally adaptable to the market’s needs. The foreigner does not have to face any financial consequences in case of any amendment in the rules or regulations or in case of any amendments.

4. Availability of Manforce: India is a labour abundance country. The foreigners can employ skilled labourers as the daily wages are comparatively less than in any other country. However, the foreigner has to put in place necessary arrangements for the protection of the workers.

5. Utilisation of Resources: The foreigner operating its business will have access to the country’s natural resources. They can use local and readily available resources, which will help them to reduce their operational cost and consequently reduce the overall cost of the product.

Prospective Business Plans in Which the Foreigner Can Invest In India

The foreigner intending to enter the market shall have to select the industry it has to invest in. Being a foreign entity, going for a small scale industry is always recommended. The foreigner can offer numerous services in India by establishing a small scale industry at a nominal rate. There are various options among which the foreigner can invest in, out of which some are discussed below:

1. Paper Manufacturing: The paper manufacturing business in India could prove to be a game-changing industry. The paper is used extensively in schools and colleges and in industries for billing and recording business transactions. It is used in almost all industries and is in high demand. Moreover, the investment in such an industry is comparatively low. With the ban on plastic bags by the government, the demand for paper bags is increasing rapidly. Henceforth, foreigners investing in small scale industry can step their feet in a paper manufacturing plant.

2. Fertiliser Production: There is a high demand for fertiliser production business in India. Being a significant wheat and rice-producing country, there is a high prospect of introducing new innovations in the field of fertilisers. The foreigner investing in the small scale industry in India can open a fertiliser production unit in rural areas and bring innovations in the cultivation process. The foreign entity can also have the recourse to various seeds, which will help them in the field of research and development. Moreover, the government also provides various subsidies and offers loans to fertiliser-producing industries at a concessional interest rate. Given the recent approach of the country towards organic farming, the foreign entity can provide organic fertilisers with natural products. As different types require different types of setups, the perfect business plan is to be made before investing in a small scale industry in India.

3. Automobile Parts Manufacturing: The automobile industry in India is flourishing industry in India. The demand for cars is increasing in India at a very fast rate; henceforth, the availability of spare parts should be proportioned to the cars sold. The foreigner investing in small scale industry can start a spare parts plant in India. The foreign entity can earn huge profits from the same and can have a stronghold in the automobile market in India. The country is a manufacturing hub for many car companies. By setting up a plant in India, it can offer the parts to the company in bulk and earn profits from the same. The demand for the parts will always stay strong and the entity can earn consistently. Generally, setting up automobile parts manufacturing unit requires huge cost but there are certain parts which can be manufactured at comparatively low cost.

4. Aluminium Containers: The aluminium containers are formed by combining mechanical air pressure to shape aluminium foil. The aluminium containers are used to freeze, store, transport, cook and serve a variety of goods. The foreigner’s entity can set up an aluminium containers manufacturing unit and may produce number of aluminium products, especially containers suitable for ovens or microwaves. The demand for such containers remains in demand throughout the year; hence there are fewer chances that the entity will face loss in the long run. The growing demand for cost-effective and lightweight containers is likely to propel the growth of the aluminium foil containers market. Moreover, the foreign entity investing in small scale industry can set up the manufacturing unit of aluminium containers with less capital requirement estimating upto 5 lakhs to 10 lakhs.

5. Disposable plates, cups and Crockery: The disposable plates, cups and crockery is a low-investment business. The foreigner willing to enter a small scale industry in India can open a production unit of disposable products. Due to the ban on plastic in India, the demand for other substitutable goods are increasing. The disposable plates, cups and crockery are the best product for a foreigner to invest in. The operating cost of the disposable plates and crockery are comparatively low as the material used to operate them is locally available, which made the overall cost of the product significantly low.

6. Furniture Making: The furniture market in India holds a dominant position in the household sector. The availability of good quality wood makes the product costly. The foreign entity can invest in the furniture-making market and earn hefty profits. The IKEA[1] has proven to be the best example in the furniture business. The IKEA offers a variety of household products while holding the majority of its interests in furniture products. Due to massive operations, IKEA is offering its products to consumers in India at a low cost. Similarly, the foreigner investing in small scale industry can set up a furniture-making company which can be offered to the consumers of India. Moreover, the availability of the good quality wood can easily be acquired from the local vendors, which reduces the establishment cost of the foreigner.

In addition to this, the foreigner investing in small scale industry can setup various industries in India such as

  1. Coconut oil manufacturing unit
  2. Soaps and detergent manufacturing
  3. Candle and wax producing production unit
  4. Incense sticks manufacturing unit
  5. Concrete block manufacturing business
  6. Mineral water plant
  7. Micronutrients fertiliser
  8. Surgical cotton production unit

Conclusion

India is developing an economy with great opportunities lying ahead. It can offer various opportunities to new entrants by providing numerous amenities. Any foreign entity investing in a small scale industry in India enjoys various benefits under the various schemes offered by the Indian government. The Indian government, in order to streamline and provide a smooth flow of foreign direct investment in the industry, has amended its regulations and provided an automatic route in respect of specified industries. The Indian government is encouraging foreign entities to invest in India as it holds skilled workers, offers land at concessional rates, has fewer compliances and has a low operating cost. The foreigner enjoys freedom in operating as the involvement of the government is comparatively low in the specified sectors. Henceforth, the business plans of foreigners while investing in small scale industry in India shall depend on the consumer base it wants to focus on.

Read Our Article: Why a Business Plan is Considered as a First Step of Business?

Nikhil Mogha

An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.

Business Plan Consultant


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