A REPORT ON

DOING BUSINESS IN INDIA

Submitted By:
Prasanth R
Ranjith CM
S3 MBA B Batch
Introduction
It is officially known as the Republic Of India. It is geographically situated in South Asia,
it is the seventh largest country in the world, the second most populated and the largest
democracy in the world. It is surrounded by sea on three sides, the Indian Ocean in the
south, the Arabian Sea in the west and the Bay of Bengal in the east. . Its neighbors are
Pakistan in the west, China, Nepal and Bhutan in the north east and Bangladesh and
Myanmar in the east. To its south is Sri Lanka. India is the birthplace of Indus Valley
Civilization and four important religions Hinduism, Buddhism, Jainism and Sikhism have
their root in India. India is the largest country in South Asia and the seventh largest in the
world. China, Nepal and Bhutan are the neighboring countries in the north, Bangladesh
and Burma in the east and Pakistan and Afghanistan in the west. In the south the country
tapers off into the Indian Ocean. India is the second most populous country in the world,
with over one billion people. India is the largest democracy in the world. English is
extensively used for business and is understood almost all over India. The Indian Rupee
(International symbol is INR) is the country’s currency. India is committed to a free
economy after having an economy controlled by licensing until 1991. India has become a
member of the WTO and is disbanding quantitative restrictions on imports.

Doing Business in India after Independence

Doing business in India after independence was difficult, India followed a socialistic
model of economic growth after independence. The industrial policy was for most part
through public sector enterprises and greater emphasis was laid on agricultural sector.
Private sector partnership was negligible and the doors for foreign trade were for most
part closed. But this model of economic growth failed miserably and by the early 1990's
India was faced with serious economic challenges. That is when the government decided
to initiate reforms and encourage business ventures by both domestic private industries
and foreign companies.

Doing Business in India after Liberalization

The economic reforms initiated in India after 1991, created an environment conducive for
undertaking business in India. The government created a favorable climate for foreign
investors to invest in India by relaxing procedures for entry. A foreign firm could invest
in India either by having a wholly owned subsidiary, by having a joint venture with an
Indian company or by having a liaison, project and branch office. FDI investment up to
100 per cent is allowed in most sectors with or without permission from government,
since India is one of the signatories of WTO. Over a period of time more and more
sectors of the economy have been opened up for the foreign investment.

The Reserve Bank Of India regulates all foreign exchange transaction and foreign
exchange is governed by the Foreign Exchange Management Act 1999.Brands and
inventions registered in other countries have been given protection through trademark
and patent laws. Usually a trade mark is registered for ten years and a patent is registered
for twenty years. By making certain changes to the Patents Act 1970, product patent
governance has been brought in. 

India has signed Double Taxation Avoidance Agreement (DTAA) with several countries
to ensure there is no double taxation. Taxes could be on income from royalty, capital
gains, fee for technical services, operational profits accruing from India. To bring about
greater accountability and transparency in sales tax and to bring in uniformity in tax
charged across the country Value Added Tax (VAT) was introduced from April 1 2005.

Privatization, Private and Public Sector in India

Almost all the agriculture sector in India is in private hands. Most of the industrial sector
is open to private participation. The number of industries reserved for the public sector
has been reduced to 6. The industries reserved for public sector are arms and ammunition,
defense equipment, defense aircraft and warships, atomic energy, coal lignite, mineral
oils, and sulfur and diamonds. All other areas are open to the private sector and private
sector participation on a selective basis even in the still restricted areas is being
considered. In practice railways, post and telegraph, shipbuilding, oil exploration and
mineral industries are mostly government owned. A process of disinvestment of
government holdings in selected public enterprises has been initiated. The government
plans to form a new corporation, Indian Railways Catering Tourism Corporation
(IRCTC). IRCTC will take over catering work and enter into tourism projects and trains
in collaboration with private sector.  

Establishing Wholly-owned Subsidiary in India by Foreign Investors

India allows, in many sectors, setting up of subsidiaries in India which are wholly owned
by foreign investor, including foreign companies.

There are two ways to form subsidiaries in India:

 Automatic route; and

 Special Permission Route

In certain sectors such as information technology, development of integrated townships,
mass rapid transport services, export oriented manufacturing, 100% ownership by foreign
investors is allowed, subject to certain terms and conditions. However, they have to apply
for and obtain permission from government authorities. In certain other sectors FDI up to
a specified percentage is permitted under the automatic route.

In certain other sectors FDI up to 100 is permitted with prior approval of the Foreign
Investment Promotion Board. The obvious advantages of a subsidiary are total control
over funding, management and profit share of the business. However, the flip side is that
in a subsidiary where the total management is foreign, the advantage of local knowledge
of customs and methods is lacking from very outset.

Automatic Route
The government has allowed for FDI investment in certain sectors through the automatic
route, though there could be a cap for the maximum amount of investment. For instance
FDI in airports is allowed up to 100 per cent, but any percentage above 74 per cent would
require government approval. Again for telecom, FDI allowed is 74 per cent, but for any
FDI above 49 per cent government approval is needed. In recent times the government
gave permission for some sectors for FDI. FDI up to 51 percent was allowed for retail
trade, subject to prior permission. The other sectors which came under the purview of
FDI are manufactures of industrial explosives, dangerous chemicals, establishing
Greenfield airports and cash and carry wholesale trading and export trading investment
certain specified areas such as export processing zones Electronic Hardware technology
Park and Software Technology Park are also included in the gamut of automatic route.

 Joint Ventures in India by Foreign Investors

Joint Venture companies are the most preferred form of corporate entities for investment
in India. There are no separate laws for joint ventures in India. The companies
incorporated in India, even with up to 100% foreign equity, are treated the same as
domestic companies. Foreign companies are also free to open branch offices in India.
However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or
a joint venture company. The liability of the parent company is also greater in case of a
branch office.
The Government has outlined 37 high priority areas covering most of the industrial
sectors. Investment proposals involving up to 74% foreign equity in these areas receive
automatic approval within two weeks. An application to the Reserve Bank of India in the
form FC (RBI) is required. The application can be made either by the Indian party or the
foreign party. Existing companies having foreign equity holding and desiring to increase
it to 74% can also obtain automatic approval if they are in priority areas. Besides the 37
high priority areas, automatic approval is available for 74% foreign equity holdings
setting up international trading companies engaged primarily in export activities.

Approval of foreign equity is not limited to 74% and to high priority industries. Greater
than 74% of equity and areas outside the high priority list are open to investment, but
government approval is required. For these greater equity investments or for areas of
investment outside of high priority an application in the form FC (SIA) has to be filed
with the Secretariat for Industrial Approvals. A response is given within 6 weeks. Full
foreign ownership (100% equity) is readily allowed in power generation, coal washeries,
electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones .

For major investment proposals or for those that do not fit within the existing policy
parameters, there is the high-powered Foreign Investment Promotion Board ("FIPB").
The FIPB is located in the office of the Prime Minister and can provide single-window
clearance to proposals in their totality without being restricted by any predetermined
parameters.

Foreign investment is also welcomed in many of infrastructure areas such as power, steel,
coal washeries, luxury railways, and telecommunications. The entire hydrocarbon sector,
including exploration, producing, refining and marketing of petroleum products has now
been opened to foreign participation. The Government had recently allowed foreign
investment up to 51% in mining for commercial purposes and up to 49% in
telecommunication sector. The government is also examining a proposal to do away with
the stipulation that foreign equity should cover the foreign exchange needs for import of
capital goods. In view of the country's improved balance of payments position, this
requirement may be eliminated.

Selection of a good local partner is the key to the success of any joint venture. Personal
interviews with a prospective joint venture partner should be supplemented with proper
due diligence. Once a partner is selected generally a memorandum of understanding or a
letter of intent is signed by the parties highlighting the basis of the future joint venture
agreement. Before signing the joint venture agreement, the terms should be thoroughly
discussed to avoid any misunderstanding at a later stage. Negotiations require an
understanding of the cultural and legal background of the parties.

Market Entry
Key factors to doing business successfully in India include: finding good partners who
have knowledge of the local market and procedural issues; good planning; aggressive due
diligence and follow up; and patience and commitment.
Market Entry Strategy
 Finding partners and agents: New businesses must address issues of sales
channels, distribution and marketing practices, pricing and labeling and
protection of intellectual property. Relationships and personal meetings with
the potential agents are extremely important. 
 Geographic diversity: U.S. companies, particularly small and medium-sized
enterprises, should consider approaching India’s market on a local level. Good
localized information is a key to success in such a large and diverse country.

 Market entry options: Options include using a subsidiary relationship, a joint

venture with an Indian partner, or using a liaison, project, or branch office.

Steps and procedures associated with starting business in India:

Listed below is a detailed summary of the bureaucratic and legal hurdles an entrepreneur
must overcome in order to incorporate and register a new firm, along with their
associated time and set-up costs.  It examines the procedures, time and cost involved in
launching a commercial or industrial firm with up to 50 employees and start-up capital of
10 times the economy's per-capita gross national income (GNI).

1. Obtain director identification number

2. Obtain digital signature online

3. Reserve the company name with the registrar of companies (ROC Online)

4. Pay stamp duties online, file all incorporation forms and documents online and
obtain the certificate of incorporation on-line

5. Make a seal
6. Visit an authorized franchise or agent appointed by national depository services ltd
(NSDL) unit trust of India, investors services Ltd to obtain permanent account
number.

7. Obtain a tax account number for income tax deducted at source from the accessing
office in the Mumbai Income Tax Department

8. Register with register of Inspector, Mumbai shops and establishment Act

9. Register for VAT online

10. Register for profession tax online

11. Register for medical insurance

CONCLUSION:

India, home of the sacred River Ganges and the Himalayan Mountains, has a history of
invasion and migration that has influenced both its culture and its economy. Following
the economic reform process of 1999, India’s market has continued to strengthen and
expand. Geographically, India benefits from its close proximity to the major Indian
Ocean trade routes and together with the country’s rich centre of mineral and
agricultural resources, India’s economy is witnessing significant inflows of foreign
investment. India is also recognized for its fiercely competitive education system and is
one of the largest providers of experienced scientists, engineers and technicians, making
it an attractive market for foreign business.

References:

Doing Business In India: The International Bank for Reconstruction and Development /
The World Bank pdf

Doing Business In India: Ernst and young pdf

International Finance Corporation

http://www.indiainbusiness.nic.in/

http://www.tradechakra.com/dbi/dbi.html

http://www.doingbusiness.org/data/exploreeconomies/india/starting-a-business/
http://www.export.gov/india/eg_main_018046.asp