Greenfield Investment in India

Concept of Greenfield Investment

A Greenfield project is a project built from scratch or from ground up and it lacks constraints of prior work. In a greenfield project there are no existing buildings or infrastructure, everything is built from scratch ,and in such projects, there is no need to demolish or remodel any existing project.

Greenfield investment is a foreign direct investment by a parent company to build plants, infrastructure & machinery in a foreign country from scratch. For example, if a company which is based out of US and wants to invest in India under greenfield project, it must invest into new production facilities and build the complete infrastructure of new distribution hubs, offices, living quarters for employees. So it will be a complete inverse investment from the ground up.

Some of Greenfield Investment examples made by foreign companies are Coca cola, Pepsi, P&G, Hyundai, ford, fiat, etc.

Investment Routes for Greenfield Project

As the name greenfield implies an investment done on a field or an empty plot of land and build a new manufacturing marketing or administrative facility for its own use. The greenfield investment is a form of foreign direct investment in which a company pursues the ultimate market entry strategy by building a wholly owned subsidiary in the target market.

It can be made through two routes:

• Automatic Route or
• Government Approval Route.

In Greenfield projects, 100 percent FDI is permitted, without any prior approval from the Government of India. Investment in greenfield projects are long-term investments and these are the most venturesome & extravagant methods to enter the target market. It requires a well-formed market strategy that measures all the parameters of new investment according to the country in which the company is going to invest.

Market Strategies for Greenfield Investment in India

FDI provides an opportunity for investors to land into a new market, and greenfield investment can meet the strategic objectives of any multinational company like, increase in profit, expanding the market & share, repositioning, or acquiring new resources and technology.

Greenfield investments strategies are outstanding opportunities for the companies which are unable to expand their position in the market due to some technical issues or government policies of their country. Such investment strategies offer scope in the advancement of market standard and to protrude their business in different lands & markets.

Stages involved in a Greenfield Project

There are certain steps to be completed for the implementation of any greenfield project proposal. Greenfield project can be started only after fulfilling the conditions of these phases.

Identification of site ® Assessment of the site & project ® Approvals ® Design & Construction ® Operational stage

1. Identification of site: The first step is to identify the location or site for the project, where it can develop. The companies acquire land for the greenfield project where the investment will be made.
2. Assessment of the site & project: The next step is to assess the project and site. It is necessary to evaluate the environmental impact, detailed project report, etc. of any greenfield project. For instance, the detailed project report (DPR) will include all the master plans, layouts & the conditions of the site and how the company is going to develop the project. It will also include the details of the funds allocated for the project.
3. Approvals: There will be a lot of approvals required from various agencies in the next stage, like, Environment department (NGT), Pollution control board, Development Authority, Municipal corporation, Fire department and a host of a lot of government agencies. Once the company gets all the approvals, only then it would be followed by the next stage.
4. Design & Construction: The project owner will outsource the design part to an urban planner or an architect, and the construction will be outsourced to a contractor.
5. Operational Stage: Once the project will complete in all respects stages then, it will move further to the operational stage.

For instance, In Andhra Pradesh- The Indonesian paper giant company Asia Pulp & Paper invest 3.5 billion $ to build one of the world’s biggest paper mill, is the largest greenfield project in India.

FDI Reporting Requirements (in case of a merger with a domestic company)

• If an Indian domestic company raises money from a foreign investor, it must report to the Regional Office of Reserve Bank of India (RBI) within 30 days under whose jurisdiction its registered office is located.
• A report in Form FC-GPR together with the following documents should be filed with the Regional Office of RBI within 30 days from the date of issue of shares.
• Certificate from the Company Secretary of the company accepting investment from persons resident outside.
• Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

To invest in India the investor should complete all the official formalities under Foreign Direct Investment policies from the registration of company to all required government approvals. Click here to find FDI procedure

Benefits of Greenfield Investment

1. There are no constraints on planning & execution because company must start everything from scratch i.e., ground level so the company or investor have complete flexibility in such projects.
2. In a greenfield project and investment an investor can choose their own location considering access to markets, logistics advantages, etc.
3. Greenfield projects boost the economic development in an area, it increases business activities & job opportunities.
4. It offers maximum facility to the owner or the company, so the company can construct all the facilities as per its own specification.
5. It offers lower maintenance to the company because all the machineries in plants are new. Hence, machines and parts are less likely to wear out quickly.
6. In greenfield investment there is much greater control over the investments because the company would not have interference from partners.
7. It is a long-term commitment, and it improves the shareholder’s sentiment as well.
8. Since, it is implemented and operated on a large scale, it also offers great press opportunities to the company.
9. In greenfield projects company can train its employees as per their own standards because they don’t have to follow the guidelines of anyone. Hence, in a way they can build their own culture.

Challenges

1. One of the challenge in greenfield investment is the acquisition of land.
2. Hassles in taking the approvals from various government agencies like NGT, pollution control board, etc. which can be problematic or tedious.
3. This might turn out to be a very long term, and due to this it can be risky and expensive investment hence, the investor should prepare for all the uncertainties.

Greenfield investment SECTORS

There are certain sectors/activities that are not covered under the automatic route and require government approval for foreign investments under the extant FDI Policy FEMA Regulations 2020 which are entrusted by all the concerned Administrative Ministries/Departments.

The notified sectors/activities requiring government approval are:

• Mining, Defense / cases relating to FDI in small arms
• Broadcasting
• Print media
• Civil Aviation
• Satellites
• Telecom
• Private Security Agencies
• Trading(Single, Multi brand and Food Products)
• Financial services not regulated or regulated by more than one regulator/ Banking Public and Private (as per FDI Policy).
• Pharmaceuticals.

The notified sectors/activities which are covered under automatic route are:

• E-Commerce activities
• Industrial Parks
• Automobile Manufacturing
• Electronics Manufacturing
• Agricultural activities
• Power plants
• Steel Plants
• Infrastructural Projects
• Real Estate Projects (construction development) , etc.

Greenfield Projects & Investment in India

FDI investment in India is growing at an impressive rate. And a significant portion of them is being dedicated to greenfield projects. According to a research paper, India was the fourth major host of greenfield foreign direct investment (FDI) projects and eighth major hosts of cross-border M&A deal between 2004 to 2015. And it has become the fifth-largest recipient in the world under FDI by its greenfield projects and brownfield projects. India had seen a decline in new greenfield projects during the pandemic and a lot of new greenfield projects were put on hold, but now with its final phase in 2021, a friendly attitude towards a new start of greenfield projects in India is evident.

To promote the local manufacturing, the country and to increase the global market manufacturing. Thus, the Indian government offered a new production-linked incentive scheme (PLI) in 2020 to allure the investors (especially to attract large investment in manufacturing of electronics, phone, automobiles machineries, textiles machines & components, etc. ).

• Under the PLI scheme for the First round, an eligible participant can receive incentives from 4% to 6% of their production value for a period of 5 years. For this they need to achieve their investment as well as production value target for each of the 5 years. This scheme has recently expanded to 10 sectors after receiving initial traction in the mobile and electronics manufacturing sectors.
• In the second round of PLI scheme after completing successfully the first round, the competent authority will approve an application for the second round and the 2nd round will be specified for the electronic components. Under the Second Round, incentives of 5% to 3% shall be extended on incremental sales (over base year i.e. 2019-20) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of four (4) years.

Note- The eligible participant under this scheme can be any person or company who is willing to invest a minimum of Rs 300 crore in manufacturing of electronic parts, machinery and products of technical textiles.

A few major greenfield projects that have been completed in India are-

1. Bhadla solar park (Solar energy project) in Rajasthan is the world’s largest PV solar park.
2. Pavagada solar park project in Karnataka is world’s third largest photovoltaic solar park.
3. Delhi-Meerut Expressway (controlled access highway) is also a greenfield project.

Under the government’s Bharatmala Pariyojna phase I- it plans to develop 22 greenfield expressways and access control corridors. The upcoming projects are, Delhi-Vadodara expressway, Delhi-Faridabad-Sohna, Vadodara-Mumbai expressway, Indore-Hyderabad corridor, etc.

The Noida airport at Jewar, UP is a mega greenfield project under FDI. According to a report under this project around 500 big firms invested almost Rs. 7,617 crore. And it is expected to complete the airport project by the year 2024.

Amneal pharmaceuticals, the New Jersey-based drug maker brand will be making an entrance to the Indian Formulation Market to set up a greenfield biologics plant in Ahmedabad, Gujarat by 2022.

There are many other infrastructural, industrial or plant-based greenfield projects, that are going on or pending in India which are at different stages of the project implementation in 2021. Some of them are:

1. DRI-based Steel Plant in Village- Mudpar, Chhattisgarh.
2. Installation of Iron ore Beneficiation Plant in the village - Kapanda, Sundergarh, Odisha. ,etc.

According to a report by Economic Times, the West Bengal govt. has put 6000 acres of land meant for Greenfield projects in a land bank and is now inviting industries to set up their manufacturing projects.

Conclusion

The government of India has introduced a few new measures like the PLI incentives scheme, lower corporate tax rates, and dedicated infrastructure, to attract investment in the country. Such measures towards the FDI investments show a positive response of the government for greenfield projects. Hence, setting up a greenfield project in India has become easier now, due to the facilities & flexibilities provided by the government. Indian Government is inviting companies and investors to invest here in any industrial, infrastructural, real estate or any other kind of greenfield project. There are many more relaxations provided by the local authorities as well in different states of India to attract multiple Greenfield projects and aid in their implementation.