India Trade and Foreign Investment

By | July 24, 2022


  • Business Relationships
  • Foreign direct investment
  • FTAs ​​and Treaties
  • Development Cooperation
  • Prospective fields of study (MOP)

Business relations

Trade relations with the EU

The EU is India’s 3rd largest trading partner after China and the US. In 2021, the trade exchange amounted to just under EUR 90 billion. The EU is the 2nd largest export market for Indian goods and services after the US and imports from the EU to India accounted for around a tenth of all imports. From the perspective of the EU, India is the 10th largest trading partner. Among the EU member states, India’s largest trading partners are Germany, Belgium, Great Britain, the Netherlands, France and Italy. Among the most important items of export from the EU to India are machinery, transport equipment and chemicals, while in the opposite group there are textiles and clothing, chemicals, machinery and transport equipment.

  • Allcountrylist: Overview of major industries in India, including mining, construction, transportation, tourism, and foreign trade.
2017 2018 2019 2020 2021
Exports from the EU (million EUR) 37,048.70 40,064.50 38,178.30 32,153.80 41,847.50
Imports into the EU (million EUR) 36,007.40 37,967.80 39,585.80 32,989.50 46,172.10
Balance with the EU (million EUR) -1,041.4 -2,096.7 1,407.4 835.6 4,324.6

Source: European Commission

Trade relations with the Czech Republic

India is one of the important trade partners of the Czech Republic in Asia with considerable growth potential. Czech-Indian relations in the field of economic cooperation have a long tradition and stem from Czechoslovak assistance in the industrialization of the country. In recent years, trade turnover has hovered around CZK 30 billion, with the share of Czech exports to India decreasing and the share of Indian imports to the Czech Republic increasing. The Covid-19 pandemic has further amplified this trend. The drivers of Czech exports are machinery, telecommunications, chemicals and glass. Imports are dominated by textiles, pharmaceutical products, electronics, metallurgy, chemicals, plastics, engineering, coffee, tea, spices and tobacco. In 2021, the trade exchange achieved a record turnover of almost CZK 46 billion.

2017 2018 2019 2020 2021
Exports from the Czech Republic (billion CZK) 18.6 15.4 14.9 12.9 19.4
Imports to the Czech Republic (billion CZK) 15.5 18.7 21.1 22.9 26.4
Balance with the Czech Republic (billion CZK) -3 3.4 6.2 10 7

Source: CZSO

Trade relations with countries outside the EU

Among the largest trading partners outside the EU are the USA, China, the countries of the Persian Gulf (UAE, Saudi Arabia, Iraq), Australia, Canada and ASEAN countries. The largest Indian export market is the USA with almost USD 100 billion, the second largest is the UAE (USD 36 billion) and the third is China (USD 25 billion). India’s main exports include processed petrochemicals, minerals and materials such as iron ore, gems, gold, aluminum, steel, pearls, agricultural products (wheat, sugar, coffee, tea, tobacco, spices), textiles, electronics, organic and inorganic chemical products, plastics, etc. The main exporters to India include China ($120 billion), the UAE ($58 billion) and the USA ($55 billion). The dominant items of India’s imports include oil, of which 85% of India’s consumption is covered by imports. The value of annual oil imports in recent years has been in the range of approximately 80-120 billion USD, depending on its price. Oil is imported mainly from the countries of the Persian Gulf (Iraq, Saudi Arabia, Kuwait UAE, a total of approx. 60% of imports), Africa (13%) and South America (12%). The 4th largest importer is the USA. The main import items also include oil derivatives, coal (thermal and coking), gold, precious stones, chemicals, electronics and components, machinery and equipment.

2017 2018 2019 2020 2021
Exports from countries outside the EU (million EUR) 216,592.7 236,052.5 237,479.7 202,454.5 290 322.1
Imports to countries outside the EU (million EUR) 346 318.7 399 404.4 372,894.8 282,432.5 442,571.0
Balance with non-EU countries (million EUR) -129,726.0 -163,351.9 -135,415.1 -79,978.0 -152,248.9

Source: EIU, Eurostat

Foreign direct investment

India’s foreign direct investment (FDI) rules have undergone major liberalization in the last two decades, removing most of the previous restrictions, but numerous restrictions still remain for investors from Pakistan and some other countries in India’s neighbourhood. A foreign direct investor who is not from these territories can use the so-called “automatic route”, where FDI can be implemented in principle without restrictions and without the need to obtain permission from the Indian central bank (RBI) and the Indian government. This option applies to the vast majority of economic sectors. In most of them, India allows up to 100% foreign ownership. The second option, which applies to some economic sectors, is the so-called “government route”, sometimes also called the “approval route”. It requires the foreign investor to first obtain RBI permission for his investment plan, or government. Government licensed sectors also sometimes do not allow a foreign investor to acquire a 100% stake in a given company. These rules apply to e.g. banking (20%), mining (100%), telecommunications (100%), food retail (100%), media, press and news (26% – 100%). The share of foreign capital is limited to 49% in the oil and refining industry, defense industry, energy exchange and insurance sectors, which fall under the automatic route. There are some industries in which foreign investors are prohibited from entering, such as the tobacco industry, lotteries, gambling and betting, nuclear energy production, and various specific forms of trading in financial markets.

In 2021, FDI in India will reach over USD 80 billion. The highest FDI inflow of USD 7.12 billion was reported by the IT industry, followed by the automotive sector (USD 4.93 billion), services (USD 3.15 billion), metallurgy (USD billion) and by construction (1.22 billion USD). The highest FDI inflows to India during the same period were from Singapore ($8 billion), USA ($4.63 billion), Mauritius ($4.33 billion), Cayman Islands ($2.15 billion), Netherlands (US$2.14 billion), Great Britain (US$1.15 billion) and Japan (US$804 million). The most popular investment destinations in India are the states of Karnataka ($13.95 billion), Maharashtra ($billion), Delhi ($5 billion), Gujarat ($ billion), Tamil Nadu (1.13 USD billion) and Telangana (USD 1.04 billion). Among the latest investments, we can mention, for example, Google’s investment from January 2022 in the amount of 1 billion.

Czech companies are not among the large foreign direct investors in India. The exception is Škoda Auto, which, after opening a new development center and factory in Pune in 2019, considers the Indian market one of the most promising, reflecting the level of investment in the country. As part of the “India 2.0” project, in which the company invested EUR 1 billion, the Czech flagship took over the strategic management of the group’s operations on the Indian market, which was reflected in the new corporate name of the Indian subsidiary Škoda Auto Volkswagen India Pvt Ltd. In 2021, Škoda introduced 2 new models in India, intended only for the Indian market, and plans to introduce two more in 2022. Other significant Czech investors in India include Home Credit and the pharmaceutical company Zentiva. which in 2020 invested in the Sanofi plant in Anklešvár with an acquisition worth CZK 800 million. In addition to the Indian Škoda Auto plant, the Indian subsidiary Bonatrans also has a factory in Aurangabad, which produces wheelsets, wheels, axles, discs and rims for rolling stock. The Czech companies Doosan Škoda Power, FANS, Zetor, Eldis, Pars Komponenty, TTC Marconi, PBS Group and others have significant investments and activities in India.

FTAs and treaties

Treaties with the EU

Negotiations for a comprehensive free trade agreement (FTA) between the EU and India were launched in 2007, but due to divergent views of the EU and India, the agreement failed to be negotiated, and negotiations were suspended in 2013. The EU’s ambition is to remove the main tariff and non-tariff barriers, better access to the Indian market for European companies and investors and better protection for European investments. The FTA should further take into account the social and environmental goals and principles of sustainable development. Negotiations on a separate FTA and an agreement on the protection and promotion of investments between the EU and India will start in the second half of 2022.

Contracts with the Czech Republic

Below are contracts of an economic-commercial nature. The succession to the former Czechoslovak treaties took place in June 2001.

  • Treaty on Cooperation in the Peaceful Uses of Atomic Energy (1970)
  • Third Agreement on Scientific, Technical and Industrial Cooperation (1974)
  • Double Taxation Agreement (1986)
  • Trade Agreement and Protocol on Liquidation of Non-Convertible Rupee Balance (1993)
  • Agreement on the Promotion and Protection of Investments (1998)
  • Air Transport Agreement (2000)
  • Agreement on Economic Cooperation between the Government of the Czech Republic and the Government of the Republic of India (2010)
  • Scientific and technical cooperation program between the Ministry of Education, Youth and Sports of the Czech Republic and the Office for Science and Technology of the Ministry of Science and Technology of the Republic of India (2012)
  • Treaty on Social Security between the Czech Republic and the Republic of India (2014)
  • Administrative arrangement for the implementation of the Treaty on Social Security between the Czech Republic and the Republic of India (2014)
  • Cooperation agreement between the agencies CzechInvest and Invest India (2013)

The validity of the Czech-Indian Agreement on the Promotion and Protection of Investments from 1998 ended on April 26, 2017, after the termination by the Indian side. Investments made so far between the two countries continue to be protected by this contractual arrangement for another fifteen years after the agreement expires. In the future, the agreement should be replaced by a negotiated trade and investment agreement between the EU and India.

Developmental cooperation

A very limited number of countries are implementing development cooperation projects in India and their number is decreasing further. India is not one of the priority countries for Czech development cooperation. However, when developing their activities in India, Czech companies can use the B2B Program of the Czech Development Agency. This program was used in India by Czech companies that implemented development projects in the manufacturing industry and health care, especially with a focus on technology transfer in these sectors. Czech companies can also use the ZRS Guarantee program, which is implemented by the Czech Moravian Guarantee and Development Bank by providing guarantees for loans used to finance investments in developing countries. Some Czech non-governmental organizations implemented development cooperation projects in India, mainly in the north of the country (Brontosaurs in the Himalayas, Surya, Blueland), private charitable institutions (Czech Catholic Charity, Adra ČR) and Czech companies that use other forms of financing, including EU funds. The aforementioned organizations focus on education and assistance to lower-income groups of the population. The main sectors for the application of development cooperation are education, health and infrastructure development.

Prospective fields of study (MOP)

Aviation industry

India is the 3rd largest aviation market in the world with great growth potential, especially within the framework of government initiatives such as the so-called program for the development of regional connectivity of the Indian government (UDAN), which envisages the development of small airports for domestic and regional traffic with a focus on less accessible areas India. The main opportunities for Czech exporters are in the segment of so-called “small aviation”, i.e. small, training and sports aircraft, and in accompanying technologies and services, e.g. radars, airport equipment, airspace security technology (anti-drone technology), etc. As the number of pilots grows, so does the demand for pilot training services, flight personnel training, flight simulators and trainers, etc. Last but not least, we are also observing a boom in unmanned aerial systems (UAVs, drones).

Defense industry

India is the world’s second largest importer of defense technology, but the government’s new Domestic Defense Manufacturing and Domestic Export Promotion Policy 2020 aims to make India a regional manufacturing and export hub for defense and security technologies. The essence of the program is government support for the transfer of foreign high-tech technologies and know-how to India. The entry of foreign manufacturers of original technologies into the Indian market in the defense sector is thus already possible almost exclusively in the form of co-production with local manufacturers. Prospective sectors are, for example, the development and production of radar systems, jet and propeller aircraft engines, modernization of military technology and equipment, development and production of military trucks and off-road vehicles, firearms and ammunition, and various applications of advanced electronic systems of cyber warfare.

Rail and rail transport

India has the 4th largest railway network in the world, carrying 23 million passengers daily. India also has an extensive network of metro and urban rail transport systems. The Indian government wants to invest USD 150 billion in the modernization and expansion of the railway infrastructure by 2025. Partial privatization and opening of some routes to private operators and electrification of the tracks are planned. The construction of a dedicated corridor for rail freight transport in the west-east direction, which is to connect the main production and consumption centers, and the construction of new modern railway stations and terminals are also being prepared. Opportunities for Czech exporters are, for example, in the segment of brake systems, wheels and gears, seats, intelligent transport systems (transport telematics), etc.

Energy industry

India announced at COP26 its plans to increase its renewable energy generation capacity to 500 GW by 2030, cover 50% of the energy mix from renewable sources and reduce greenhouse gas emissions by one billion tonnes. At the same time, India has initiated organizations such as the International Solar Alliance and is preparing the implementation of a national program for the development of the hydrogen economy. For Czech exporters, there is potential in India to apply in the segments of solar and photovoltaic technology (e.g. production of cells and panels, electronics/sensors/sensors, distribution networks, cabling, etc.), hydrogen technology (production, storage, distribution/transmission, applications and utilization, etc.), batteries and energy storage systems and biofuels.

Information and communication technologies

As an ICT powerhouse, India offers opportunities for Czech companies, for example, in areas such as e-commerce or cyber security. Another perspective area is management infrastructure systems, especially when it comes to air or rail transport, or for the concepts of so-called “smart cities”, where India requires smart solutions. The Government of India has announced a program to support them with the aim of automating, digitizing and streamlining city services and activities, including public transport, waste management, parking, energy savings and citizen engagement of public administration. Game development and the film industry also represent opportunities for Czech companies. Services associated with remote access and data storage or data centers are also promising.

Engineering industry

Czech engineering has an excellent reputation in India and enjoys great trust. Indians appreciate the quality and robustness of Czech engineering equipment, which can withstand worse handling in difficult climatic conditions. Czech machines in India represent an interesting combination of quality and price. Indian industry accounts for 17% of the country’s GDP, and the government’s Make in India initiative aims to increase the share of industrial production in GDP to 25% by 2025. Foreign suppliers must be prepared to co-produce in India and at least partially transfer technology and know-how. Some Czech companies apply the model of partial production in India combined with the supply of key components from the Czech Republic. The advantage is not only cheap labor and shortening the distance to customers, but also the possibility of local outsourcing and overcoming some customs obstacles.

India Trade