Doing Business in India – Getting Easier

Doing business in India is getting easier as evidenced by India’s rapid rise in the World Bank’s Ease of Doing Business ranking – rising from a lowly 142nd spot in 2014 to 62nd place currently. Pawan Bhatnagar, Asian Insiders partner for India discusses the various policy and structural reforms implemented over the past decade.

India is the seventh largest country in the world with now the largest population with roughly half under 25 years old. India is the largest market in the world for manufactured goods and services, ranking third in market size from 141 economies. While such a vast market makes India essential for most of the world’s corporations, the country is not uniform with each of its 28 states having their own rules on land ownership, environment, employment and tax.

However as the World Bank metric suggests, India has been going through an unprecedented period of economic liberation, opening its vast consumer market to international business. For many years, India has been a notoriously difficult place for western companies to navigate and where local connections have been absolutely vital to make any inroads. Issues included multiple layers of bureaucracy, frustrating levels of corruption, complex taxation and difficult legal processes.

The comprehensive liberalisation and reform of the business ecosystem in India are so wide ranging, I plan to explore several of these in more depth over coming months. These include innovations such as the removal of multiple layers of VAT and sales tax together with the introduction of a more uniform goods & services tax (GST), corporate tax reductions by up to 10% and massive reform of the banking sector including the privatisation of some of India’s state-run banks. Foreign remittance schemes are being liberalised. The Single Window system for getting multiple clearances to allow investors, entrepreneurs and businesses speedily obtain licences and approvals for new or extension to licenses and permits.

India has announced and commenced implementation of a range of initiatives including allowing up to 100% FDI in core sectors, although retains controls over specific strategic sectors, large scale privatisation of manufacturing and mining sectors along with the establishment of a large number of special economic zones (SEZs) located strategically on industrial corridors and connected by high-speed highways to ports, newly-privatised airports as well as rail and river transport networks. Finance systems are being further digitised and the country’s strong IT and internet systems are being made further extensive and robust allowing access to remote areas.

Further introduced is the national ‘Make in India’ scheme to boost manufacturing and infrastructure duly supported by the Productivity Linked Incentive (PLI) scheme, intended to create and improve employment, assisting foreign companies to quickly secure their ideal workforce in India. The country has also implemented the Real Estate Regulatory Authority (RERA) including the digitisation of all land records as part of wider land reforms. Further still, the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 allows for time-bound processes for insolvency and resolution of corporate disputes.

Taken together, this raft of policy changes and initiatives over the past decade makes doing business in India considerably easier, with the objective of making the country more market-oriented and consumption-driven. By expanding the role of private and foreign investment, the country aims to achieve more equitable economic and social development. The reform process has created impact on various sectors and social groups, leading to considerable internal debate and consequent fine-tuning of various policies. It has also led directly to increased foreign investment, higher growth and a shift towards a more services-based economy.

Along with these described reforms, the Narendra Modi-led NDA government has also embarked on wide-ranging negotiation of Free Trade Agreements to reduce international trade barriers, reduce or eliminate tariffs and gain better access to international markets.  Currently, India has 13 FTAs and 6 Preferred Trade Agreements with various countries and regional alliances. Negotiations are well under way for agreements with the UK and the EU and covering a wide range of sectors as well as agreements around movement of labour, data protection and enforcement of intellectual property. India also has one of the widest networks of tax treaties covering double taxation (DTAA). To date 94 DTAAs and 8 Limited DTAs have been signed.

This series of reforms and fresh approach to international partnerships is the largest and most wide ranging since Indian independence in 1947 and aligns the world’s largest democracy closely with international norms and standards. Future articles from Asian Insiders will look more closely at specific policy initiatives in order to examine opportunities for western companies in the Indian market.

The degree of change outlined here offers tremendous opportunity for western and international companies to successfully enter India or improve sales performance. Amidst this shifting environment, Asian Insiders offers vast experience and knowledge. For a no obligation call, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com or Pawan Bhatnagar, India Partner: pawan.bhatnagar(at)asianinsiders.com

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