India

How to start a business in INDIA

Building your own business takes a tremendous amount of preparation and careful planning. From choosing the type of product or services that you want to offer, studying your target market and to even doing your homework about the industry that you are planning to venture into are essential in the early stages of your research.

Today India is considered to be one of the major forces in the global economic market. Though India is a developing economy, its economy has a major impact on global trading. The majority of the world’s leading developed nations are keen to have or expand their ties with India. This is mainly because in the current scenario of globalization India is seen as a wonderland for investments. Thanks to its huge market base and fast- developing spending habits of middle-class Indians, India is a preferred destination for investors over other major countries, including China, because India has a favorable business environment, a good administrative setup, attractive foreign policies, and an available, abundant skilled workforce as well as provides attractive
incentives to investors.

In this issue, you can find about everything you need to know about India’s business environment.
• What to consider?
• Protection of FDI
• Procedures
• Automatic and Approval Routes
• Investment Aids
• Top Industries to Invest in India
• General Information

What to consider?

India has a deep rooted and a very effective democratic regime, well developed administration and an independent judicial system, which ensure a calm and stable political environment. With a hardworking and educated workforce, India also has one of the world’s largest markets for manufactured goods and services. These markets are also close to other high growth emerging markets, where multinational companies can export easily.

However, as in every new initiative, there are risks involved, and there are factors that investors should acknowledge of when it comes to investing in India. The Kashmir province is causing problems between India and Pakistan for years. The vastness of its territory makes the country vulnerable to natural disasters, which happen relatively often, and can paralyse an entire part of the national economy. Also, India has one of most complex labor regulations in the world, which forces foreign investors to seek professional help.

Investment Aids

The Indian government has provided many incentives for attracting FDI, such as establishing Special Economic Zones (SEZs), exemption from duty on import, income tax exemptions, value added tax (VAT) rebate on export, even opening up of many sectors for FDI. Foreign companies and investors also can
enjoy tax holidays and tax concessions. However, although foreign companies and investors can benefit from all above, no grants or incentives have been introduced specifically for foreign investors. Generally, these incentives are provided for locating units in certain designated areas or establishing units in certain sectors, e.g., power, infrastructure. Benefits are available, both
from Federal and State Governments, in the form of concessional taxes, both direct and indirect taxes, reduced cost of setting up of units in specified areas, etc. That being said, India has different routes for investors for specific sectors, which can be very handy if you know what you want to focus on and where you are going.

Procedures

In India, there are various approvals that required, such as permission for land use if the factory is located outside an industrial area. If it is an environmental site, an approval might also be required along with the registration under various government departments.

Acquisitions by private arrangement are considered contractual agreements between the parties, and mergers and acquisitions are generally governed by the Companies Act 1956 and the sector-specific law.

For specific fields, such as petrochemicals complexes, petroleum refineries, cement thermal power plants and bulk drugs, environment clearance from Ministry of Environment is required. Although it is a great place to invest, India has more complex approach to business than other Asian countries, which makes very difficult to create a road map without real consultation.

Protection of FDI

India has signed and became a part of multiple bilateral investment treaties. Aside from its neighboring Asian countries, India has signed agreements with UK, France, Germany and Canada.

Even though Indian government does pretty much anything in their power to attract fdis, foreign investors frequently complain about a lack of “sanctity of contracts”. But in case of disagreement ICCWBO (International Court of Arbitration, International Chamber of Commerce) and ICSID (International Center for Settlement of Investment Disputes) are offering assistance. India is
also a member of MIGA (Multilateral Investment Guarantee Agency). In order to make sure that investments are safe and well-protected, foreign investors should get local help to understand the political and economic climate of India.

Automatic and Approval Routes

The entry of Foreign Direct Investment by non-residents into India is regulated through two routes –automatic route and approval route. The
automatic route is aimed for those sectors and levels of investment that are less restricted. On the other hand, in the case of approval route,
government agencies regulate and scrutinizes foreign investment while approving it.

The automatic and approval routes are aimed to have monitoring over the investment activities at the same time to avoid wasteful procedural
delays. In most cases, FDI up to certain limits (in Rs crores) and with certain conditions can be made through the automatic route. In the same
sectors, FDI beyond a limit (in terms of percentage of investment made in a business venture) and that generally have critical importance need approval from the relevant agencies.

-Automatic Route

The automatic route stands for less restricted or more liberalized regulation. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. The approval route FDI is allowable in all sectors and activities specified under the consolidated FDI policy.

Some of the sectors under this route are as follows:
• Agriculture & Animal Husbandry
• Airports (Greenfield & Brownfield)
• Asset Reconstruction Companies
• Auto components
• Automobiles
• Biotechnology (Greenfield)
• Broadcast Content Services and Broadcasting Carriage Services
• Capital Goods and Cash & Carry Wholesale Trading
• Coal & Lignite
• Construction Development
• E-commerce activities
• Electronic Systems
• Food Processing
• Gems & Jeweler Manufacturing
• Industrial Parks
• Tourism & Hospitality
• Thermal Power
• Textiles & Garments
• Roads & Highways
• Renewable Energy

-Approval Route

Under the approval route or government route, the foreign investor or the Indian company should obtain prior approval of the Government of India agencies or bodies specified.

Proposals for foreign investment under approval route as laid down in the FDI policy are considered by either Foreign Investment Promotion Board
(FIPB) or Cabinet Committee on Economic Affairs or Cabinet Committee on Securities. In certain cases, the Department of Economic Affairs (DEA) or
Department of Industrial Policy & Promotion are also assisting the above approving agencies. The FIPB considers those investments up to Rs 5000
crores for approval. Above this limit, approval will be made by CCEA.

Which body or agency has to give the approval for a specific FDI proposal depends upon the sector and nature of investment specified under the consolidated policy on FDI. For example, as per the new FDI policy on defense sector, FDI more than 49% and also that involves more than Rs 2000 crores
investment is to be approved by the Cabinet Committee on Securities.

Top Industries to Invest in India

The Indian economy has witnessed a paradigm shift since the last decade and is on a robust growth trajectory. Today, the Indian economy boasts a stable annual growth rate, booming capital markets, and rising foreign exchange reserves. According to the Asian Development Bank’s (ADB) report titled “Asia Capital Markets Monitor”, the equity market in India, with a market capitalization of approximately US$ 600 billion, has emerged as the third-largest equity market, behind China and Hong Kong, in the emerging Asian region.

The Indian economy offers investors exposure to a wide range of opportunities from consumer goods and pharmaceuticals to infrastructure, energy and agriculture. With its strong services sector (comprising 50% of India’s economy), particularly in knowledge-based services (IT, software and business services) India has proved that industrialization and the export of commodities and resources is not the only path to rapid economic development.

-Information Technology (IT)

The 20th century was the era of manufacturing. From the 1990s to 2010,
it was the time for the internet boom. And currently, it’s the time for
information. As a general matter of fact, IT companies are growing at a much
faster rate compared to the manufacturing companies. And obviously, skilled employees in the information technology industry are earning a lot more than those in the traditional industries.

There are many factors that are boosting the growth of this industry like
technological advancement, economic needs, the Indian government taking
beneficial decisions (digital India) etc. Considering these factors, the
information technology industry can be assumed to continue to grow. And hence IT stocks can be treated as one of the best sectors for long-term investment in India.

-Fast Moving Consumer Goods

FMCG is the most defensive sector for long-term investment in India. Most of the products in this Industry have been used by the people for over 100 years and yet will continue in the future. Few FMCG companies like HUL, Dabur, Emami, ITC, Nestle etc. are common names in Indian-houses. Majority of the people living in Indian cities/towns have been using their product for a very long time.

Unlike many sectors which follows the contraction and expansion cycle, the products offered by FMCG industry will always be in demand. During a recession or economic crisis, people may not buy a new automobile or might not take new loans or avoid investing in real estate/infrastructure, but because FMCG products are the basic necessities- its demand won’t decrease as much compared to the other industries.

In the past few years, these companies have also started growing in the Indian rural areas/villages. Earlier, people in rural areas do not like to use the products of FMCG companies. However, the trends are changing these days. Therefore, these companies have a very good growth opportunity in those areas area. If you are looking for a safe industry to invest, then FMCG industry is one of the best sectors for the long-term investment in India.

-Chemical Industry

India is the third largest producer of chemicals in Asia. Indian Chemical industry generates around 80,000 commercial goods ranging from plastic to toiletries and pesticides to beauty products. It is regarded as the oldest domestic sector in India. In 2016-17, Alkali chemicals had the largest
share in the Chemical industry in India which is approximately 69% share in the total production. Production of polymers account for around 59% of total production of basic major petrochemicals.

The future of petrochemical market in India seems to be bright. It is expected to go up at 10 per cent over the next five years, to touch US$ 100 billion by 2022. Market for crop protection chemicals in India is expected to reach US$ 7.5 billion by 2019. The government schemes and high FDI inflows have proved beneficial for the growth of chemical industry. The government has
announced to upgrade the technology and simplify FDI procedure for the rapid growth of this sector. The government has also granted tax and allowed duty reductions. Import duty is relaxed on various inputs including coal, oil, naphtha etc.

-Infrastructure

The government, in September 2014, unveiled the “Make in India” initiative.

This initiative has helped India enter the modern world. Government’s plan
to develop the “industrial corridors and smart cities” and repair existing
infrastructures such as airports, highways, schools, and hospitals is
likely to push growth in the infrastructure and allied sector such as
Cement, Steel, etc.

General Information

India, also known as Bharat, is a Union of States. It is a Sovereign Socialist Secular Democratic Republic with a parliamentary system of government. The Republic is governed in terms of the Constitution of India which was adopted by the Constituent Assembly on 26th November 1949 and came into force on 26th January 1950. The Constitution provides for a Parliamentary form of government which is federal in structure with certain unitary features. The constitutional head of the Executive of the Union is the President. As per Article 79 of the Constitution of India, the council of the Parliament of the Union consists of the President and two Houses known as the Council of States (Rajya Sabha) and the House of the People (Lok Sabha). Article 74(1) of the
Constitution provides that there shall be a Council of Ministers with the Prime Minister as its head to aid and advise the President, who shall exercise his/her functions in accordance to the advice. The real executive power is thus vested in the Council of Ministers with the Prime Minister as its head.

India’s 2019 population is estimated at 1.37 billion based on the most recent UN data. India is the world’s 7th largest country by area and the 2nd most populous country with more than 1.3 billion residents.

India remains one of the most ethnically diverse countries in the world. Apart from its many religions and sects, India is home to innumerable castes and tribes, as well as to more than a dozen major and hundreds of minor
linguistic groups from several language families unrelated to one another. Religious minorities, including Muslims, Christians, Sikhs, Buddhists, and Jains, still account for a significant proportion of the population;
collectively, their numbers exceed the populations of all countries except China.

While Hindi is the official language of the central government in India, with English as a provisional official sub-language, individual state legislatures can adopt any regional language as the official language of that state. In effect, there are “Official Languages” at the state and central levels but there is no one “national language.”

The climate can be classified as a hot tropical country, except the northern states of Himachal Pradesh and Jammu & Kashmir in the north and Sikkim in the northeastern hills, which have a cooler, more continental influenced climate.

India’s Gross Domestic Product grew 1.1% in the third quarter of 2019 compared to the previous quarter. This rate is 1 -tenth of one percent higher than the figure of 1% published in the second quarter of 2019.

The year-on-year change in GDP was 4.7%, 3 -tenths of one percent less than the 5% recorded in the second quarter of 2019.

The GDP figure in the third quarter of 2019 was $578,691 million, leaving India placed 4th in the ranking of quarterly GDP of the 50 countries.

India has a quarterly GDP per capita, of $476, $44 higher than the same quarter last year. Gross Domestic Product (GDP) grew year-on-year by 6.2 percent in the third quarter of 2019.