Doing Business In India

A Hand Book

Department of Industrial Policy & Promotion Government of India

Contents
1 India-An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Indian Society and Demography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.1 Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.2 Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.3 Society and Traditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.4 Currency System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Indian Economy: An Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 The Indian Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.1 The Indian Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.4 Indian Business Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.5 Government and Administrative Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Economic Trends and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 Recent Economic Performances and Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Principal Sectors of the Indian Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.1 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.2 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2.3 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.4 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.5 Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.6 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.7 Capital Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.8 Other Institutions – MF, Insurance, PE and VC . . . . . . . . . . . . . . . . . 13 2.3 External Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.3.1 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3.2 External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.4 Fiscal Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.5 Foreign Investment Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.5.1 Foreign Institutional Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.5.2 Proliferating R&D Centres: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Business Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.2 Foreign Exchange Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.3 Trade Regulations in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3.1 Import. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3.2 Export. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.4 Labour Laws and Social Security System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.5 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.6 Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.7 Environment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2

3

4.

Taxation and Commercial Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.1 Taxation of Foreign Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.1 Liaison Office/Representative Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.2 Project Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1.3 Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.4 Wholly Owned Company/Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.5 Foreign Institutional Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1.6 Double Taxation Avoidance Agreements (DTAA) . . . . . . . . . . . . . . 28 4.2 Indirect Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.1 Central Excise Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.2 Sales Tax/VAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.3 Customs Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.4 Export Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2.5 Service Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.3 Incentives and Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Foreign Investment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.1 Government of India's Policy on Foreign Direct Investment. . . . . . . . . . . . 34 5.2 Sectors where FDI is Prohibited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.3 FDI in SSI Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.4 Investment in Indian Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.5 Investment in Overseas Issues of Indian Companies . . . . . . . . . . . . . . . . . . . 36 5.6 Investment Schemes and Incentives of the Government of India . . . . . . . . 37 5.6.1 EOUs: Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.6.2 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.6.3 Software Technology Parks (STPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.6.4 Investment in Special Economic Zones (SEZs) . . . . . . . . . . . . . . . . . . 38 5.7 Institutional and Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Implementation and Operational Aspects . . . . . . . . . . . . . . . . . . . . . . 41 6.1 Entry options for Foreign Companies in India. . . . . . . . . . . . . . . . . . . . . . . . . 42 6.2 Procedure for Incorporating a Company in India . . . . . . . . . . . . . . . . . . . . . . 42 6.3 Acquiring Land/Property in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.4 Approvals Required for Setting Up Industries. . . . . . . . . . . . . . . . . . . . . . . . . 45 Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.1 Identifying the Right Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.1.1 State Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2 Human Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2.1 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.2.2 Visa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

1

India-An Overview

5

6

7

Over the years, the country has made rapid progress and currently stands tenth in the world in terms of industrialisation. It is the seventh largest country in the world, with a land area of approximately 3.28 million square kilometres, extending from the snowcovered Himalayas to the tropical rain forests of Kerala.2 India's population is estimated to reach 1.14 billion by July 2008. Nearly 25 percent of the Indian population live in urban areas. Mumbai, Kolkata and Delhi are among the important metropolitan cities, each with a population exceeding 10 million.

I

ndia is an ancient yet modern civilisation with a rich culture and heritage. Indian

economy has been on the global central stage always. From Indus Valley Civilization

uptil 1700 Mughal Emperor Akbar, Indian economy was largest for most of the time.1

India -An Overview

Doing Business in India Report

02 03

1.1 Indian Society and Demography
1.1.1 Language
3

1.2

Indian Economy: An Overview

Post Independence , India's economic development strategy was modelled on the key tenets of self-reliance, import substitution, and social equity. These policies set the foundations for a modern India and helped create a robust industrial base. Till the 1980s, a system of licensing was followed; there were controls placed on foreign exchange and restrictions on imports. Economic reforms of 1991 transformed the country to bring greater unision with rest of the World. , India is still undergoning a continuous process of liberalisation and globalization based on “inclusiveness”. Significantly India had a GDP growth of around 8 percent per annum over the last four years, far more than “hindu” rates of 2 –3% during pre-liberalization era.9 Salient features of the Indian economy are: The estimated GDP for 2007–08 is USD l 1.09 trillion, with a nominal GDP of USD 1,081 per capita.10 India is l the fourth largest economy after the

India's most distinctive feature is its diverse languages and dialects. The Indian Constitution recognises 22 languages as national languages.4 Hindi, the most widely spoken language, is the official language of the Union of India.5 At the state level, regional languages are the official languages of the states concerned. English is also recognised as an official language and as the language of the executive, legislative and judicial institutions of the Union of India.

1.1.2

Religion

Freedom of religion is a fundamental right guaranteed by the Constitution of India. As per the decennial census of 2001, Hinduism was the religion practised by over 80 percent. The other prominent religions include Islam (practiced by 13.4 percent of the population or 110 million), Christianity (20 million), Sikhism (18 million), Buddhism (6 million),6 Jainism, Judaism and Zorastrianism.7

1.1.3

Society and Traditions

US, China and Japan in terms of purchasing power parity. The Services sector is largest contributor l to India's GDP. The sector's estimated contribution to the national GDP was 60.712 percent in 2007–08. The Services sector was estimated to have grown at about 11.2 percent in 2006–07. India has a robust and diverse industrial base. It also has the capacity to l manufacture an extensive range of products. India sends satellites with payloads ; it makes pins also. India has l a mature financial sector—the capital market has more than 9,000 listed companies14 with a market capitalisation of over USD 70 trillion, according to December 2007 figures.15 India's l external trade deficit has been stable, ranging between 1.5 percent and 2 percent of GDP, despite the fact that the country is highly dependent on petroleum imports. Foreign l exchange reserves increased to USD 314 billion as on May 16, 2008
16

There is great diversity in the food habits, social customs and traditions of different regions of India. Every region in the country has its own peculiar cuisine. The Indian cuisine is renowned for its exotic gravies. The Mughlai cuisine of the North, the Wazwan style of Kashmir, Bengal's Macher Jhol, Rajasthan's Dal Bati, the kebabs of Uttar Pradesh and Punjab's Sarson Ka Saag and Makki di Roti are some of the well known Indian delicacies. Festivals in India are never restricted to the family—the entire community or neighbourhood takes active part to bring the occasion to life. Some of the most widely celebrated Indian festivals include Diwali, Holi, Id, Christmas, and Mahaveer Jayanthi. Another important occasion that is celebrated with great fanfare is the wedding ceremony where all family members and friends take active part.

1.1.4

Currency System

The rupee is the currency of India. One rupee is made of up of 100 paise. As on 16 May 2008, the exchange value of the Indian currency was roughly INR 42.64 per USD, INR 66 per EUR, INR 83 per GBP and INR 40.8 per Yen. Travellers' chequesand credit cards are commonly used in India. There are two traditional terms used in the Indian counting system different from the international counting system —the lakh (hundred thousand) and the crore (ten million).
Timeline of the economy of India: wikipedia 2 National Portal of India: Profile 3 Britannica 4 PIB 5 National Portal of India: knowindia 6 www.tradewingstours.com 7 National Portal of India: knowindia
1

IMF 1 IMF 11 CIA World Fact book 12 CIA World Fact book 13 CIA World Fact book 14 Mayfield.com 15 Economictimes 16 IMF
10

9

Doing Business in India Report

04 05

The standard of customer service is an important determinant for creating l

Table: Annual Growth Rate of GNP
10.0 8.1 6.5 5.0 % 5.4 5.9 4.5 1.4 0.0
199 0-9 1 199 1-9 2 199 2-9 3 199 3-9 4 199 4-9 5 199 5-9 199 6 6-9 7 199 7-9 8 199 8-9 9 19 99 -20 00 200 0-0 1 200 1-0 2 200 2-0 3 200 3-0 4 200 4-0 5 200 5-0 6(P ) 200 6-0 7(Q )

customer loyalty in the case of high-value goods and institutional sales.
9.6 8.6 9.7 6.7 6 7.3 6.4

India's l rural market is increasingly becoming important. Based on the rural spending trends, rural India accounts for more than 50 percent of the total market and presents a market that is hugely untapped. Foreign l brands may need to adapt to the cultural needs of the Indian market. It is advisable that foreign companies do not blindly base their Indian ventures on successful models implemented in other countries. As a matter of fact, even

7.3

4

4

global brands such as McDonald's have had to mould their products to meet the requirements of Indian customers. India's l younger generation is increasingly becoming techno savvy and places prime importance on gadgets that are made using the latest technologies. The spending power of Indian consumers is growing as rising per capita incomes l have increased the disposable income available with the population. Further, it is estimated that the consumer spending in India will quadruple by 2025 from the present levels of US% 370 billion in retail .17

Year

Source: indiabudget

1.3 The Indian Market
Post the economic reforms of 1991, India adopted policies to allow all private sector companies including foreign to operate in all sectors of manufacturing. and services including consumer goods sectors, raising expectations of international business community. India has more than one billion consumers, thereby representing a nascent but a highly profitable market.

1.4 Indian Business Entities
Indian businesses are not immune to the strong regional influences that are a result of a long tradition of trade and commerce, the country's geographical size, differences in the levels of regional development and the cultural diversity that exists in different parts of India. All these factors have led to an extremely diverse business system, with most businesses being local in nature. Not many enterprises have a pan Indian presence and most businesses have higher a penetration in semi-urban areas. Although many businesses in India have started shifting towards professional management, a majority continue to be family managed. Many companies are managed directly by the majority shareholders themselves, via management control of the board of directors, unlike the delegation of management in the case of many other economies. However, things are fast changing and professional management is increasingly becoming popular.

1.3.1 The Indian Consumer
While developing India-focussed strategies, companies will be well advised by experts to take the following aspects into consideration: Indian lcustomers are price-sensitive like any low income country; therefore, to lead in the market, strategies have to be price-driven, and should attempt to leverage higher market shares to spread overhead costs over a wider customer base. Rapid spread of mobile telephony based on “value for customer “ strategy is a recent success story. India's l middle class is mostly peer-conscious, and new product launches generally have to pass an initial stage of referrals, before becoming widely accepted among consumers.

17

democraticunderground.com

1.5 Government and Administrative Setup
India is a union of states, and is a sovereign, socialist, secular and democratic republic, which has a parliamentary system. India has 28 states and 7 union territories.18 Delhi is the capital city The India's Constitution is unique in the world and very detailed. It provides for three layers of governance; federal, states and local. While few subjects are exclusive to a level ( like Defense to Federal), some are “concurrent” – meaning thereby joint responsibility. India has independent Judiciary, active parliament and vocal Press. Executive systems are adopted from colonial days. Administrative reforms are now in the central stage.

THE PRESS IN INDIA IN 2005-06: AT A GLANCE (Data compiled as per the annual statements received) (Source: Registrar of Newspapers for India) Periodicity Dailies Tri/Bi-Weeklies Weeklies Fortnightlies Monthlies Quarterlies Annuals Others Total Miscellaneous Publications Number 2,130 39 3,428 955 1,471 219 49 221 8,512 126 Circulation 8,88,63,048 5,66,198 5,05,80,648 1,23,09,948 2,11,36,710 15,52,138 29,86,256 27,43,665 18,07,38,611 71,69,952

T
1200 1000 800 600 400 200 0 USD(in billion)

he Indian economy began to be liberalised in 1991. India is now the fourth

largest economy after the US, China and Japan in terms of purchasing power

parity and is also one of the fastest growing economies in Asia.

Table: GDP Growth Rate at Current Price India's GDP Growth at Current Price 1099 669 783 877 1233

411

440

462

473

495

573

2001

2003

1999

2002

2005

1998

2006

2000

2004

Source: IMF
18

Indian Census

2007

2008

Economic Trends and Outlook

2

Economic Trends and Outlook

Doing Business in India Report

08 09

2.1 Recent Economic Performances and Outlook
India's GDP is constituted of the three primary sectors—Agriculture, Manufacturing and Services.

production.19 Some of the important crops produced in India are rice, wheat, coarse cereals, cotton, sugarcane, tobacco, tea, coffee, rubber, silk, pulses, groundnut and oilseeds.20 India is the world's largest producer of milk and dairy products, sugarcane and tea, and the second largest producer of rice, wheat, fruits and vegetables.21 The share of agriculture in India's GDP was 19.9 percent in 2007–08. Agriculture contributes about 15 percent to India's exports and supports 52 percent of India's workforce .22
Table: Agricultural Production
360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 FY03 Rice Wheat FY04 Coarse Cereals Pulses FY05 Oilseeds Sugarcane FY06 Cotton FY07 Jute and Mesta

Table: Sector-wise GDP Growth Rates
Sector-wise GDP Growth Rates

15 Precent 12 9 6 3 0 FY05 Agriculture FY06 Industry FY07 Services FY08E GDP 8.4 11.6 11.9 9.6 5.9 3.8 2.6 9.8 8.2 9.4 9.6 10.6 9.2 8.7

7.5

Source: Ministry of Finance

Production (in million tonnes)

Source: indiabudget

Table: Sector-wise Contribution to GDP
GDP Composition (April–December 2007) Industry 19.3% Agriculture 19.9%

2.2.2 Manufacturing
Services 60.8% Source: Ministry of Finance

In 2007–08, India's industrial sector recorded a growth of 9.2 percent, contributing 19.3 percent to the GDP. The real estate sector grew at 11.7 percent during 2007–08 and is the second largest employing sector in India.23 Indian steel production grew by 11.2 percent in 2006–07 and has maintained an average output growth rate of 12 percent per annum over the last two years. Moreover, India is increasingly being recognised as a lowcost producer of high-quality bulk drugs and formulations. The Indian pharmaceutical

2.2 Principal Sectors of the Indian Economy
2.2.1 Agriculture
The growth in the production of food grains increased at an average annual rate of 2.5 percent from 1950–51 to 2006–07, whereas the growth of the population averaged at 2.1 percent during the same period, making India self sufficient in terms of food grain

industry ranks 4th and 13th in terms of volume and value, respectively, globally, accounting for an 8 percent share of global sales.24
19 20

indiabudget winentrance.com 21 USDA 22 CIA World Fact Book 23 Ministry of Finance 24 IBEF

Doing Business in India Report

10 11

2.2.3 Services
The services sector is the largest contributor to India's GDP, contributing 60.725 percent to the GDP in 2007–08. While the financial services sector was estimated to grow at more than 13.9 percent in 2006–07, trade, hotels, transport and communication were expected to grow by 12.1 percent during 2007–08. The exports of the software and services sector grew by 32.1 percent, reaching USD 76.2 billion in revenues during 2007–08. Sectors such as transport, communications, software services, banking, insurance and real estate are also witnessing high growth.
26

Roads: India has the second largest road network in the world, of length exceeding 3.3 million kms, carrying about 65 percent of the freight and 80 percent of the passenger traffic. The total length of the highways and expressways in India is about 66,000 km, carrying 40 percent of the road traffic.30 Shipping and Ports: India has a total of 12 major and 187 minor ports along the 7,517km-long coastline.31 In 2006–07, Indian ports handled more than 463 MT of cargo, a growth of 9.5 percent over the previous year. Airports: India has more than 454 airports of which 16 are international airports. The airports handled more than 95 million passengers and more than 1.5 million tonnes of cargo during 2006–07.32 Telecommunication: India is the second largest wireless network in the world,33 with
XI Plan (2007-2012) 400 933 5,257 2,645 3,686 2,243 15,164

2.2.4 Infrastructure27
The investment layout as per the Planning Commission is as follows:
Infrastructure Airports Ports Power Railways Roads Telecom Total IX Plan (1997-2002) 66 50 866 464 546 472 2,464 X Plan (2002-2007) 129 54 1,452 847 994 989 4,465

revenues more than USD 23 billion in FY07. The industry grew by 22 percent in FY07 over FY06. By March 2008, there were more than 300 million subscribers, of which 39.42 million were fixed line and 261.09 million34 were wireless subscribers. At present, there are about 70 million CDMA35 and about 191 million37 GSM users. As of March 2008, the tele-density (number of people having phone connection out of 100 people) in India was recorded at over 26 percent.36

2.2.5 Financial Sector
The banking and financial services sector in India is characterised by sound fundamentals such as low Non Performing Assets (NPAs) and Basel I compliance. The Indian financial sector is rapidly growing and has a total estimated investment opportunity of USD 40 billion in five years.

Note: Railway Investment includes the freight corridor; Figures in INR billion Source: expresstravelworld.com

Energy: India is among the major energy producers as well one of the major energy consumers globally. The overall installed power generation capacity in India is 143 GW, and annual power generation is about 624 billion units (BU). India added an electricity generating capacity of about 23,000 MW during the 10th Five Year Plan (2002-07). while the target for the next five year plans duration is 73, 000 MW. 28 Railways: The total track length in 2006–07 was 63,327 km with 8,153 locomotives in use.29 The freight handled by the railways during April–December 2007 was 571.35 million tonnes (MT), a growth of 8.2 percent over the freight movement in the previous year. The number of passengers travelling by the Indian Railways in 2006–07 was 6,219 million.
25 26

2.2.6 Banking
The banking assets in India were recorded at around USD 664 billion in 2006. The banking assets of Indian banks have grown at a CAGR of 22 percent per annum over the last two years. The public sector or government-owned banks accounted for more than 75 percent of the assets of the overall market. The three largest foreign banks—Standard Chartered Bank, Citibank and HSBC—hold more than 65 percent of the total assets with foreign banks. The Reserve Bank of India (RBI) has issued guidelines for the adoption of Basel II by March 2008.37

30 31

CIA World Factbook Ministry of Finance 27 MOSPI Annual Report 28 World Bank 29 Indianrailways

Investment Commission of India Investment Commission of India 32 Investment Commission of India 33 TRAI 34 TRAI 35 AUSPI 36 COAI 37 TRAI

Doing Business in India Report

12 13

Types of Banks (2007) State Bank of India and Associate Banks Nationalised Banks Scheduled Commercial Banks Foreign Banks Regional Rural Banks Total

Number Of Banks 8 21 52 65 243 389

Total Assets (INR Billion) 8,057.95 16,341.90 7,454.03 2,780.16 1,057.67 35,691.71

Total Assets (USD Billion)** 201.45 408.55 186.35 69.50 26.44 892.29

2.2.8 Other Institutions - MF, Insurance, PE and VC
The Indian insurance sector is valued at USD 30 billion, of which the life insurance segment was worth USD 25 billion. Some of the major players in the insurance sector are Life Insurance Corporation, General Insurance Corporation, AIG, Aviva, MetLife, New York Life, Prudential, Allianz, Sun Life, Standard Life and Lombard. The mutual funds industry is a growing segment in the Indian financial services sector with assets under management (AUM) of more than USD 78 billion in FY 2006, marking a growth of 62 percent over the previous year. The AUM is expected to grow by 15 percent till 2010. There are more than 44 venture capital and over 100 private equity funds operating in India.39

Source: RBI - Statistical Tables Related to Banks in India - 1979-2007

2.2.7 Capital Market
The Indian capital market grew both in terms of depth and breadth during 2007. The Bombay Stock Exchange (BSE) Index scaled a high of 20,000 by the close of the calendar year 2007 while the National Stock Exchange (NSE) Index almost reached the 6,100 mark. The total capital raised through different instruments in the primary market was 31.5 percent higher in 2007 as compared to that in 2006. The total number of IPOs issued in 2007 was 100 as compared to 75 in the previous year, and the net flow of savings into mutual funds increased by more than 30 percent in 2007 and reached INR 138,270 crore. The price to earnings (P/E) ratio was higher at around 27 by end-2007 as compared to 21 in the previous year.38 The market capitalisation in India nearly doubled in 2007 as shown below:

2.3 External Trade
The exports for the period of April-March 2008 stood at USD 155.5140 billion while the imports for the same period were USD 235.91 billion. The trade deficit for the period of April-March 2008 was USD 80.39 billion, which is more than the trade deficit of USD 59.32 billion for the same period in 2007. Though the deficit increased, it was not a cause for major concern as the foreign exchange reserves increased to reach USD 309.741 billion during 2007-08. Further, the imports were directed towards industrial inputs and capital goods, which were required to expand capacity and

Market Capitalisation (INR CRORE)
Index BSE 500 BSE Sensex Nifty Nifty Junior Total 2007 (INR Billion) 64,708.81 28,613.41 35,225.27 6,436.23 134,983.72 2007 (USD Billion)* 1617.72 715.34 880.63 160.91 3374.59 2006 (INR Billion) 33,365.09 1,758.65 19,756.03 3,336.93 58,236.76 2006 (USD Billion)** 775.93 40.90 459.44 77.60 1354.34

aid growth. The Indian economy has been growing at an average growth rate of about 8.6 percent per annum over the last three years. The growth rate in 2006-07 was 9.4 percent and the growth rate in the first quarter of 2007-08 was 9.3 percent.

Table: India’s Trade Update 60 USD Billion 6.00% 4.00% 2.00% 0.00%
FY03 FY04 FY05 FY 06 FY07
FY08E(AprSep)

* 1 USD = 40 INR ** 1 USD = 43 INR

40 20 0 -20 -40 -60 -80 Invisibles (LHS) Trade Deficit Trade Deficit % to GDP (RHS) Invisibles % to GDP (RHS) Source: Ministry of Finance

-2.00% -4.00% -6.00% -8.00%

39 40 38

Investment Commission of India

PIB Investment Commission of India 41 Ministry of Commerce

Percent

Doing Business in India Report

14 15

Table: Performance of Export and Import (2000-2007) Export and Import Trend 55 Annual Percent Change 35 15 -5
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

2.5 Foreign Investment Trends
During April 2007 - March 2008, a total inflow of USD 25.57 billion has been recorded.45 The central government has estimated total FDI inflows of more than USD 30 billion for the financial year 2007-08, primarily due to investments in the auto and electronics manufacturing industries. The estimated FDI would constitute 3.3 percent of the GDP as compared to 2.5 percent of the GDP in the previous year. During 2006-07, the FDI inflows were USD 19 billion, of which USD 3.5 billion were reinvested earnings.46 India is perceived by international investors as second hottest investment destination by a number of international surveys.

Exports

Imports

Source: Exim Key

2.3.1 Balance of Payments
India was comfortably positioned with regard to the balance of payments during 200708. The merchandise trade deficit, on balance of payments basis, for the quarter October-December 2007 was recorded at USD 25.35 billion as against USD 16.53 billion for the previous quarter. The current account deficit during the same period was recorded at USD 5.39 billion.42

2.5.1 Foreign Institutional Investments
The net investments made by foreign institutional investors (FIIs) during FY 2006 were USD 9,332 million as against USD 10,172 million in FY 2005.47 By the end of 2006, the number of FIIs registered with the Securities and Exchange Board of India (SEBI) exceeded 1,000, while FIIs having offices in India increased to 1,030. In 2006, 217 new FIIs opened their offices in India. International Competitiveness India has been making impressive strides in terms of the competitiveness of its workforce when compared to the competitiveness of the global workforce. According to a study conducted by IMD International, India was among the fastest improving countries on the world competitiveness scorecard. Abundance of Human Resources: India is a resource-rich country, with a plentiful supply of human resource, unskilled and skilled manpower, at a competitive price.
Rank (1-Bes t, 100-W t) ors India's Stride on World Competitiveness Scorecard
100 90 80 70 60 50 40 30 20 10 0

2.3.2 External Debt
The total debt of India was estimated at INR 19.57 trillion during 2007-08. The internal debt of the federal government was estimated at INR 18.44 trillion, while the external debt was INR 1.13 trillion at the end of 2007-08. The external debt increased to 2.4 percent of the GDP in 2007-08 from 1.7 percent in 2003-04 whereas the internal debt declined to 39.3 percent from 41.4 percent during the same period. Although in absolute terms the external and internal debts have been increasing, as a percent of GDP, they have decreased from 43.1 percent in 2003-04 to 41.7 percent in 2007-08.43

2.4 Fiscal Developments
The fiscal deficit for 2007-2008 was 3.3 percent of the GDP. The fiscal deficit was reported at INR 82,256 crore (approximately USD 20.56 billion) in the first seven months of 2007-08 as compared to INR 81,000 crore (approximately USD 20.25 billion) in the previous year. The revenue deficit of the centre was reported at INR 57,562 crore (approximately USD 14.39 billion) up to end-October 2007, declining from INR 67,299 crore (approximately USD 16.82 billion) in the previous year.44

50 34

39 29 27

2003

2004

2005

2006

2007

Source: IMD International

Skilled Manpower: India is among the countries where the shortage of skilled manpower is the least severe in the world, according to an annual study conducted by Manpower Inc. India and the UK lead the chart with only 12 percent of the employers finding it difficult to fill vacancies.

42

43

Ministry of Finance FinancialExpress 44 thehindubusinessline

45 46

DIPP hindustantimes 47 SEBI

Demographic Dividends: India is well positioned to harness its demographic dividend for a prolonged duration in the future. India's working population (in the age

% age of employers struggling to fill the vacancies

Global Skilled Manpower Shortage Survey, 2008
73 31 63 31 61 31 57 31 52 31 12 31 12 31 22 31 15 31 18 31

100 90 80 70 60 50 40 30 20 10 0

3

Business Regulations
Business Regulations

Romania Japan

Hong Singapore Australia
Kong

UK

India

US

China

Italy

Countries

World

Source: Manpower Inc.

group of 15–64 years) accounted for 62.9 percent of its total population in 2006. According to Economic Survey for 2007–08, this figure is expected to increase steadily to 68.4 percent of the total population by 2026.48 The Knowledge Edge: India has a vast reservoir of English-speaking knowledge professionals such as engineers, doctors, managers, accountants, scientists and technicians. The country produces about 2.5 million graduates annually, specialising in IT, engineering and life sciences.

2.5.2 Proliferating R&D Centres:
With a plethora of knowledge workers, India is now seen as a preferred location for carrying out research and development work. The salary levels for the knowledge professionals in India are among the lowest in the world, which has led to the proliferation of research and development centres in India. Today, India is a global hub for R&D activities in the fields of Information Technology, Automobile Engineering, Technology, Pharmaceuticals, Biotechnology and Life Sciences, Clinical Research, Energy, Nanotechnology and others. Some of the globally renowned companies setting up their centres in India are Microsoft, IBM, DuPont, Monsanto, General Electric, AMD, Texas Instruments, Cisco, Intel, General Motors, Astra Zeneca, DaimlerChrysler, Siemens, Hyundai, Delphi, Analog Devices, Hewlett Packard and Motorola.49

48 49

economictimes alibaba.com

Doing Business in India Report

18 19

3.1 An Overview
The Indian business regulatory environment is comprised broadly of the following aspects: 1. Foreign Exchange: Foreign trade, capital transactions, inward remittances of equity, sale/transfer of shares to residents, repatriation of profit/dividends, royalties and technology fees, repatriation of share capital following disinvestment or winding up, capital gains and savings, overseas borrowings, overseas placement of equity, acquiring or investing in overseas ventures - Covered by the Foreign Exchange Management Act (FEMA)

REPATRIATION OF INVESTMENT CAPITAL AND PROFITS EARNED IN INDIA (i) All foreign investments are freely repatriable, and except for cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer. (ii) Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/tax clearance certificate issued by Income Tax authorities. (iii) For sale of shares through private arrangements, Regional offices of RBI grant

2. Company Affairs: Conduct, accounting practices and compliance - Governed by the Companies Act 3. Capital Market Regulations: Listing, IPOs, rights and preferential issue of capital, share buyback and delisting - Under the ambit of the Securities and Exchange Board of India (SEBI) guidelines 4. Business and Trade Practices Regulations: Consumer Protection Act, Substantial Acquisition and Takeovers Act, Competition Policy, etc. 5. Labour Laws and Social Security System: Industrial dispute act, Workmen's Compensation Act 1923, The Equal Remuneration Act etc. 6. Intellectual Property Regulations: Patents Act, Trademarks Act, Industrial Designs Act, Copyrights Act 7. Corporate Governance:

permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No. FEMA.20/2000 RB dated May '2000. The sale price of shares on recognized units is to be determined in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification. (iv) Profits, dividends, etc. (which are remittances classified as current account transactions) can be freely repatriated. Source: Investing in India, Department of Industrial Policy and Promotion

3.3 Trade Regulations in India
3.3.1 Import
The Government of India follows a free trade regime except for few restrictions due to international commitments and local conditions. Such items are broadly classified into the following categories: Prohibited items - The category of prohibited items includes tallow, animal fats, n certain items under the Environment Protection Act, Wild Life Act, Indian Trade Merchandise Marks Act and Arms Act.50 Restricted items - The import of restricted items requires a specific import licence n

8. Environment Regulations: Establishment, licensing, pollution control, employment regulations, industrial safety and working conditions, workmen statutory benefits registrations – Covered under Industrial Policy, Industrial Disputes Act, Factories Act, Payment of Bonus Act and Environment Protection Act

3.2 Foreign Exchange Regulations
Reserve Bank of India (RBI ) - the Central Bank administers the Foreign Exchange Management Act (FEMA) of 1999. FEMA was enacted for the purpose of facilitation of external trade and to develop the foreign exchange market in India. Highlights of the exchange controls in India include the following: The rupee is freely convertible on the current account. n Barring n a few exceptions, the rupee is also convertible on capital account for nonresidents. Profits n earned, dividends and proceeds out of the sale of investments, subject to sectoral policies, can be fully repatriated for foreign investments.

or special notification and permission. These restrictions are generally on the account of phytosanitary considerations for propagating materials (seeds, cuttings, etc.). The restrictions may also be on the basis of the non-essentiality of items such as alcohol and certain consumer goods. Canalised items - The canalised items can only be imported through designated n State Trading Enterprises (STEs). At present, items such as edible oil, wheat, fertilisers and certain petroleum products come under the purview of canalised items.

50

indiamart.com

Doing Business in India Report

20 21

3.3.2 Export
Again a free trade regime exists for exports. In act like most of the countries exports are facilitated and incentiwised within accepted international rules and norms. Export restricted items fall in the following four categories: n Prohibited items - This category includes items, the export of which have been prohibited on religious, environmental and/or bio-conservation grounds. This category includes items such as all wild animals and exotic birds and their parts, endangered plant/species declared under the CITES convention, seashells of certain species and human skeletons. n Restricted items - This category includes chemicals that are included in the Chemical Weapons Conventions. It also includes cattle, camel, horses and certain seasonal agriculture products (in which India is not fully self-sufficient). Some of the items in this category may also require an export quantity registration or licence from the Export Development Authority. Such items include skimmed milk powder, pulses, edible oil in bulk, sugar, wheat and rice (excluding basmati rice). Restrictions may also be imposed by the destination country on the grounds of health and phytosanitary grounds. n items - This category includes certain mineral products such as mica, iron Canalised ore, other ores, slag and ash, petroleum crude, naphtha, kerosene and motor spirit. Certain state agencies include onion, and niger seeds in the category of canalised items. n safeguards - Anti dumping, quality standards Import

The Act lays down the conditions that shall be complied before the termination/retrenchment or layoff of a workman who has been in continuous service for not less than one year under an employer. The workman shall be given one month's notice in writing, indicating the reasons for retrenchment and the period of the notice that has expired or the workman has been paid, in lieu of such notice, wages for the period of the notice. The workman shall also be paid compensation equivalent to 15 days' average pay for each completed year of continuous service. A notice shall also be served on the appropriate government. Workmen's Compensation Act 1923 The Workmen's Compensation Act provides that compensation shall be provided to a workman for any injury suffered during the course of his employment or to his dependents in the case of his death. Minimum Wages Act 1948 The Minimum Wages Act prescribes minimum wages for all employees in all establishments or working at home in certain employments specified in the schedule of the Act. Central and State Governments revise minimum wages specified in the schedule from time to time . Payment of Wages Act 1936 The Payment of Wages Act regulates issues relating to time limits within which wages

3.4 Labour Laws and Social Security System
Government Regulations Industrial Disputes Act The Industrial Disputes Act 1947 provides for the investigation and settlement of industrial disputes in an industrial establishment relating to lockouts, layoffs, retrenchment etc. It provides the machinery for the reconciliation and adjudication of disputes or differences between the employees and the employers. Industrial undertaking includes an undertaking carrying any business, manufacture etc. trade,

shall be distributed to employees and that no deductions other than those authorized by the law are made by the employers. Employees Provident Fund and Miscellaneous Provisions Act 1952 The Act provides for establishments of a contributory Provident Fund in which employees' contribution shall be at least equal to the contribution payable by the employer. The Equal Remuneration Act An Act to provide for the payment of equal remuneration to men and women workers and for the prevention of discrimination, on the ground of sex, against women in the matter of employment and for matters connected therewith or incidental thereto. Source: Indian embassy in US website, Labour ministry

3.5 Intellectual Property Rights51
India provides protection to Intellectual Property Rights (IPR) in accordance with its obligations under the TRIPS Agreement of the WTO.

51

Embassy of India

Doing Business in India Report

22 23

Patents, Copyrights, Trademarks, Geographical indications Patents India has undertaken exhaustive amendment of its Patents Act 1970, three times since 1999. Now Indian Patents Act is fully compliant with India's obligations under the TRIPS Agreement of the WTO. The three amendments that were carried out since 1999, introduced the following main changes in the old Patents Act:1. India carried out first amendment in the Patents Act in 1999 and introduced exclusive marketing rights and mail box facility for inventions relating to chemical and pharmaceutical products. India introduced these transitory provisions as India had availed of the transition period available till 01 January 2005 to developing countries in introducing product patent protection to all areas. 2. India carried out an exhaustive 2nd amendment to the Patents Act in year 2001. This amendment brought the Indian Patents Act in compliance with India's obligations under the TRIPS Agreement. 3. India again carried out 3rd amendment of the Patents Act in year 2005 and introduced product patents protection for chemicals and pharmaceutical products. Copyrights and related rights India's copyright law, laid down in the Indian Copyright Act 1957 as amended by Copyright (Amendment) Act 1999, fully reflects the Berne Convention on Copyrights, to which India is a party. Additionally, India is party to the Geneva Convention for the Protection of Rights of Producers of phonograms and to the Universal Copyright Convention. The copyright law has been amended periodically to keep pace with changing requirements. The recent amendment to the copyright law, which came into force in May 1995, has ushered in comprehensive changes and brought the copyright law in line with the developments in satellite broadcasting, computer software and digital technology. The amended law has made provisions for the first time, to protect performer's rights as envisaged in the Rome Convention. Several measures have been adopted to strengthen and streamline the enforcement of copyrights. These include the setting up of a Copyright Enforcement Advisory Council, training programmes for enforcement officers and setting up special policy cells to deal with cases relating to infringement of copyrights Trademarks India provides trademark protection for marks of goods and services, collective marks, certification trademarks and well-known marks under the Trademarks Act 1999. Application for registration of a trademark should be filed with the trademark registry. Trademark is registered after publication in the trademarks journal to invite opposition and after further examination. Registration is not must for protection, however, it is mandatory for taking action against infringement. Registration is valid for an initial period of ten years and can be renewed for further period of ten years.

Police officers are empowered and seized without warrant the counterfeit goods and machinery used to commit the offence. Penalties ranging from six months to three years and fines have been prescribed in the Act for trademarks violations Geographical indications Protection to geographical indications is provided under the Geographical Indications of Goods (Registration and Protection) Act 1999. A geographical indication may be registered with the Controller General of Patents, Designs and Trademarks for all goods originating in a definite territory of a country, or a region or locality in that territory. The Geographical Indications Act provides for additional protection of higher level to goods notified by the Central Government. Registration of a geographical indication is for ten years with possible renewal for further ten-year periods.
Source:indianembassy.org

3.6 Corporate Governance
Some corporate governance guidelines specified for all public listed companies are given below: 1. The Board of Directors (BoD) should have Non-executive Directors. Also, Independent Directors, who have no monetary interest, except remunerative transactions, with the company and its allied entities, should constitute at least onethird of a BoD's strength where the Chairman is a Non-executive Director. 2. All companies should have an audit committee of at least three members (with all being Non-executive Directors and at least two being independent and at least one having adequate financial and accounting knowledge). The committee must meet at least thrice a year and perform its role as specified in the guidelines; primarily ensuring the credibility of its financial statement, and other compliance norms. 3. The company should give a Management Discussion and Analysis Report with the Annual Report to the shareholders. It should outline the relevant sector specific issues, risks and key internal aspects of the company. 4. The Annual Report should have a section on corporate governance. The company should also obtain a compliance certificate from statutory auditors.

3.7 Environment Regulations
All industrial units in India need prior environmental approval from State Pollution Control Boards under the Water Pollution Act and Air Pollution Act of India. The Government of India has identified a list of 17 highly polluting industries, which include steel, aluminium, pesticides, refineries, paper, leather, dyes and pigments. The industrial units falling under this list are required to establish captive effluent

treatment plants. These effluent treatment plants are required to meet the specified discharge levels corresponding to the activities of the industrial unit. The judiciary in India has also been highly vigilant in matters concerning public health and safety over the last few years. Technical and Quality Standards In India, all businesses are mandatorily required to meet certain quality standards, especially for the products and services affecting public health, hygiene and public safety. The Ministry of Health has instituted certain safety standards, which have to be fulfilled by the business units involved in food, medicines and food processing, and by those associated with service industries. Services such as public transport and civil construction are also required to meet strict safety standards.

4
I

Taxation and Commercial Laws

ndia has a fairly well developed tax structure. The principal taxes/duties that the union government levies are income tax (except tax on agricultural income, which are levied by the state governments), customs duties, central excise and sales tax and

service tax. The main taxes levied by the state governments are sales tax, stamp duty, state excise, land revenue, tax on professions, etc. Local government bodies are mandated to tax properties, Octroi and utilities such as water supply and drainage. Owing to the process of economic liberalisation that began in 1991, the tax system in India has undergone a substantial change. Some of the changes are as follows:
n Reduced n Lower

customs and excise duties; peak customs duty at 10%

corporate tax of the tax base

n Widening n Rates

AEAN bound; GST regime by 2010.

Taxation and Commercial Laws

Doing Business in India Report

26 27

4.1 Taxation of Foreign Companies
In Indian tax laws, domestic and foreign companies are taxed differently. Indian companies (FDI/WoS/JV incorporated in India) are taxed on their global income, while foreign companies (those incorporated outside India) are taxed only on the income from Indian operations. Indian income includes royalties, technical service fees, dividends and capital gains on the sale of Indian company shares, besides business income emanating from branch or project operations. Some segments of business expenditure, such as entertainment expenses, interest remittances overseas without withholding taxes and administrative costs of overseas headquarters, are excluded or capped for calculating net income.

4.1.3 Branch Office
Permission for setting up Branch Offices is granted by the RBI. The tax rate is same as that of the Project Office (mentioned above). No other taxes are levied on the repatriation of the dividend for Branch Offices. Branch Offices are permitted to represent the parent/group companies and undertaking the following activities in India: (i) Export/Import of goods*

(ii) Rendering professional or consultancy services. (iii) Carrying out research work, in which the parent company is engaged. (iv) Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

4.1.1 Liaison Office/Representative Office
Approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). A liaison office is not taxable in India as it is not allowed to conduct any commercial activity. A Liaison Office can undertake the following activities in India: i) ii) Representing in India the parent company/group companies. Promoting export import from/to India.

(v) Representing the parent company in India and acting as buying/selling agent in India. (vi) Rendering services in Information Technology and development of software in India. (vii) Rendering technical support to the products supplied by parent/group companies. (viii) Foreign airline/shipping Company. Source: RBI

iii) Promoting technical/financial collaborations between parent/group companies and companies in India. iv) Acting as a communication channel between the parent company and Indian companies. Source: RBI

4.1.4 Wholly Owned Company/Subsidiary
A wholly owned subsidiary/company is an Indian corporate entity-a private or public limited company-and is taxed like Indian companies. 100% of its equity is held by its foreign holding company

4.1.2 Project Office
The RBI now grants permission to foreign entities to establish Project Offices subject to some specific conditions. Such offices can undertake activity that is related and incidental to the execution of the project. Project Offices may also remit outside India the surplus of the project on its completion, the general permission for which has been granted by the RBI. A project office is treated as a foreign company for taxation purposes. At present, the tax rate is 41.2 percent (tax rate of 40 percent, surcharge of 3 percent and education cess of 2 percent) of the profits of the Indian project branch. A Project Office can undertake the following activities in India provided they have secured from an Indian company to execute a project in India, and: (a) the project is funded directly by inward remittance from abroad;or (b) the project is funded by a bilateral or multilateral International Financing Agency; or (c) the project has been cleared by an appropriate authority; or (d) a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project. Source: RBI

4.1.5 Foreign Institutional Investors(FIIs)
FIIs , which are incorporated outside India , are allowed to invest in Indian stock market after registration with Securities and Exchange Board of India (SEBI). Dividends, interest, royalties and capital gains earned on portfolio investments of registered foreign institutional investors (FIIs) are treated in a similar manner as income received from Indian subsidiaries. Long-term and short-term capital gains from the sale of securities, for the FIIs, are 10 percent and 30 percent, respectively.

Doing Business in India Report

28 29

4.1.6 Double Taxation Avoidance Agreements (DTAA)
India has entered into DTAA with 65 countries. The table below lists the countries with the agreed tax rates:52 Country Australia Austria Bangladesh Belarus Belgium Brazil Bulgaria Canada China Cyprus Czechoslovakia Czech Republic Denmark Egypt Finland France Germany Greece Hungary Indonesia Israel Italy Japan Jordan Kazakhstan Kenya Korea Kyrgyzstan Libya Malaysia Malta Dividends (%) 15 20 15 15 15 15 15 25 10 15 20 10 20 20 15 10 10 20 15 15 10 20 15 10 10 15 20 10 20 20 15 Interest (%) 15 20 10 10 15 15 15 15 10 10 15 10 15 20 10 15 10 20 15 10 10 15 15 10 10 15 15 10 20 20 10 Royalties (%) 15 30 10 15 20 15 20

Country Mauritius Mongolia Morocco Namibia Nepal Netherlands New Zealand Norway Oman Philippines Poland 15 Portugal 10 15 30 10 20 30 20 10 10 30 30 15 10 20 20 20 10 20 15 15 30 30 15
52

Dividends (%) 15 15 10 10 15 10 15 15 12.5 20 15 15 10 20 10 15 10 15 15 10 15 0 15 20 10 15 10 15 15 20 15 10 15 0

Interest (%) 20 15 10 10 15 10 10 15 10 15 15 10 10 15 10 15 10 15 10 10 15 7.5 12.5 20 10 15 10 12.5 15 15 15 10 10 20

Royalties (%) 15 15 10 10 15 10 10 30 15 15 22.5 10 10 22.5 10 15 10 20 10 10 20 10 20 15 10 15 10 10 15 15 15 10 10 20

Qatar Romania Russian Federation Singapore South Africa Spain Sri Lanka Sweden Switzerland Syria Tanzania Thailand Trinidad and Tobago Turkey Turkmenistan United Arab Emirates United Kingdom United States Uzbekistan Vietnam Zambia Non-treaty countries

DIPP, Ministry of Commerce and Industry

Doing Business in India Report

30 31

4.2 Indirect Taxes
4.2.1 Central Excise Duty
Manufacturing in India comes under the Central Excise Act 1944 and the Central Excise Tariff Act 1985. Most of the products attract excise duties at the rate of 16 percent; some products also attract a special excise duty at the rate of 8 percent in addition to the 16 percent excise duty. Additionally, a 2 percent education cess is levied on the aggregate of the excise duty. Excise duty is levied on an ad valorem basis or based on the maximum retail price in certain cases.53

4.2.5 Service Tax
Service tax is applicable at the rate of 10 percent (in addition to 2 percent education cess) on certain taxable services provided in India by specified service providers. There is no service tax on taxable services provided in India if the payment for such services is received in convertible foreign exchange in India and the same is not repatriated outside India. The Government of India (GoI) guidelines on the Cenvat Credit Rules maintain that a service provider can avail and utilise the credit of additional customs/excise duty for service tax payment. According to the GoI guidelines, credit can also be provided on payment of service tax on input services for the discharge of output service tax liability.55

4.2.2 Sales Tax/VAT
Sales tax has been replaced with the value added tax system (VAT). It is levied by state governments and is only applicable on goods and not on services. The tax slabs range from 0 percent to 12.5 percent and varies from state to state.

4.3 Incentives and Subsidies
Some of the corporate income tax exemptions are listed below: v EOUs either in India's six Export Promotion Zones (EPZs) or in other 100 percent

4.2.3 Customs Duty
The Customs Act 1962 and the Customs Tariff Act 1975 govern the rate of customs duty. Imported goods in India are levied a basic customs duty, additional customs duty and education cess. The rates of basic customs duty are specified by the Tariff Act. The peak rate of the basic customs duty has been reduced to 10 percent for industrial goods. Additional customs duty is equal to the excise duty levied on similar goods manufactured in India. An education cess of 2 percent is applicable on the aggregate of customs duty on imported goods, which is applicable on the transaction value of goods. Rates of customs duty for goods imported from countries with which India has entered into free trade agreements, such as Thailand and Sri Lanka, as well as BIMSTEC, South Asian and MERCOSUR countries, are provided on the website of the Central Board of Excise and Customs (CBEC).54

areas under customs-bonded premises are entitled to 100 percent income tax exemption till 31 March 2009-10. vinstitutions and banks are allowed deductions of up to 40 percent, if their Financial profits are used or set aside for deployment in infrastructure development funds. vin infrastructure development are given a deduction of 100 percent for the Entities first five years and 30 percent for the next five years for the calculation of taxable income. v fees received by foreign companies for services rendered in projects Technical related to Indian security are exempted. Some of the export subsidies and incentives are listed below: v duty on all imported capital goods and raw materials and other inputs is Customs exempted, in addition to excise duty and sales tax on domestic inputs, for all exportoriented units. va provision for duty-free import replenishment of inputs, subject to basic There is input-output norms for approximately 600 export categories.

4.2.4 Export Duties
Export duties and cess apply to a limited list of 26 items, including certain agriculture commodities. The tariff ranges from 0.5 percent to 10 percent and in most of the cases, a floor price is set for export FOB prices.

54 53

Central Board of Excise and Customs Central Board of Excise and Customs

55

Service Tax Rules

FISCAL INCENTIVES FOR SEZ UNITS
n Different minimum land requirement for different class of SEZs; n SEZ is divided into a processing area where alone the SEZ units would come up Every

and the non-processing area where the supporting infrastructure is to be created;
n Simplified

procedures for development, operation and maintenance of the Special

Economic Zones and for setting up units and conducting business in SEZs;
n window clearance for setting up of an SEZ; Single n window clearance for setting up a unit in a Special Economic Zones; Single n window clearance for matters relating to Central as well as State Governments; Single n Simplified

5

Foreign Investment Regulations

compliance procedures and documentation with an emphasis on self

certification. Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Foreign Investment Regulations

Doing Business in India Report

34 35

Approvals of composite proposals involving foreign investment/foreign technical collaboration is also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion. Applications can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for

5.1 Government of India's Policy on Foreign Direct Investment
India has an extremely liberal and transparent foreign direct investment (FDI) policy in place. A snapshot of the various provisions for FDI is provided below. Please refer to the respective government ministries for detailed information on these policies. POLICY ON FOREIGN DIRECT INVESTMENT FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government :

further processing. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable. Source: Investing in India, Department of Industrial Policy and Promotion

5.2 Sectors where FDI is Prohibited
The extant policy does not permit FDI in the following cases: i. ii. Gambling and betting; Lottery Business,

i. ii.

Activities/items that require an Industrial Licence (Refer para2.1); iii. Atomic Energy Proposals in which the foreign collaborator has an existing financial / technical collaboration in India in the 'same' field(Refer Press Note no. 1 of 2005 series), iv. Retail Trading except in single brand upto 51% Source: Investing in India, Department of Industrial Policy and Promotion

iii.

Proposals for acquisition of shares in an existing Indian company in: a. Financial services sector and b. Where Securities & Exchange Board of India(Substantial Acquisition of Shares and Takeovers )Regulations, 1997 is attracted;

iv. All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted. (Refer Annexure II). FDI policy is reviewed on an ongoing basis and changes in sectoral policy/sectoral equity cap are notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy & Promotion. All Press Notes are available at the website (www.dipp.gov.in). FDI Policy is also notified by Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) .Please refer to RBI website (www.rbi.org.in). PROCEDURE UNDER AUTOMATIC ROUTE FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. PROCEDURE UNDER GOVERNMENT APPROVAL FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).

Doing Business in India Report

36 37

5.3 FDI in SSI Units
REGULATIONS FOR THE SSI SECTOR SMALL-SCALE SECTOR An industrial undertaking is defined as a small-scale unit, if the capital investment in plant and machinery exceeds twenty five lakh rupees but does not exceed five crore rupees.. Small-scale units can get registered with the Directorate of Industries/District Industries Centre of the State Government. Such units can manufacture any item, and are also free from locational restrictions. The Government has reserved 34 items for exclusive manufacture in the small-scale sector. (List available at www.dipp.gov.in) MANUFACTURE OF ITEMS RESERVED FOR SMALL-SCALE SECTOR Non small-scale units can manufacture items reserved for the small-scale sector only after obtaining an industrial license. In such cases, the non-small scale unit is required to undertake an obligation to export 50 per cent of the production of SSI reserved items. FDI IN SSI UNITS A small-scale unit can not have more than 24 per cent equity in its paid up capital from any non- SSI entity, either foreign or domestic. If the equity from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status and shall require an industrial license to manufacture items reserved for small-scale sector. Source: Investing in India, Department of Industrial Policy and Promotion

5.6 Investment Schemes and Incentives of the Government of India
There are special provisions for companies that have been set up for the exclusive export of products outside India. Such a unit can be set up in: A 100 n percent Export

Oriented Unit (EOU) within the domestic territory A notified n Zone (FTZ) An Export n Processing Zone (EPZ); an EPZ is a specified bonded area promoted Free Trade

by the government to develop exports

5.6.1 EOUs: Benefits
RECENT POLICY CHANGES IN THE EOU SCHEME Procurement n and export of spares/components up to one and half percent of the FOB value of exports will be allowed to the same consignee/buyer of the export article within the warranty period. The exports of such spares/components could be effected separately from the capital goods.

5.4 Investment in Indian Companies
Foreign business entities are allowed to take a shareholding in Indian companies, which has to be accordance with the same guidelines as those applicable while applying for fresh investments through the automatic route n the specific approval route n

In order n

to facilitate the smooth functioning of the EOU units, the Development Commissioners will fix time limits for finalizing the disposal of matters relating to EOUs.

New n

units engaged in export of Agriculture/Horticulture/Aqua-Culture products have been now allowed to remove capital goods inputs to the DTA farm on producing bank guarantee equivalent to the duty foregone on the capital goods/input proposed to be taken out.

The n

5.5 Investment in Overseas Issues of Indian Companies
Indian business entities can raise foreign currency capital via Foreign Currency Convertible Bonds (FCCBs) and by issuing ordinary equity shares to foreigners via Global Depository Receipts (GDRs) or American Depository Receipts (ADRs).

EOU units in Textile Sector are allowed to dispose off the left over material/fabrics up to 2 per cent of Cost Insurance Freight (CIF) value of imports, on consignment basis. Recognizing that settling the accounts for every consignment is complex and time consuming it has been decided to allow disposal of left over material on the basis of previous year's imports. Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Doing Business in India Report

38 39

5.6.2 Taxation
SPECIAL ECONOMIC ZONES (SEZs) TAX EXEMPTIONS TO SEZ DEVELOPERS
n Exemption

SEZ units enjoy the following benefits:
n free Duty

import/domestic procurement of goods for development, operation

and maintenance of SEZ units.
n 100 per

from Customs/Excise duties for development of SEZs for authorized operations approved by the Board of Approval.

cent Income Tax exemption on export income for SEZ units under

Section 10AA of the Income Tax Act for first 5 years, 50 per cent for next 5 years thereafter and 50 per cent of the ploughed back export profit for next 5 years.
n Exemption from Minimum Alternate Tax under section 115JB of the Income Tax

n Income Tax exemption on export income for a block of 10 years in 15 years under

Section 80-IAB of the Income Tax Act.
n Exemption

Act. from Minimum Alternate Tax under Section 115 JB of the Income Tax
n External

Act.
n Exemption from Dividend Distribution Tax under Section 115 O of the Income Tax

commercial borrowing by SEZ units up to US $ 500 million a year

without any maturity restriction through recognized banking channels. Act.
n Exemption from Central Sales Tax (CST) and Service Tax (Section 7, 26 and Second n Exemption from Central Sales Tax, Service Tax, State Sales Tax and other levies

as extended by the respective State Governments. Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Schedule of the SEZ Act). Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

5.7 Institutional and Portfolio Investments
5.6.3 Software Technology Parks (STPs)
Foreign Institutional Investors
n The Government of India has launched the Software Technology Parks Scheme

(FIIs) can invest in Indian securities (shares, debentures, warrants, mutual funds, government securities and derivative instruments) in both the primary and secondary capital markets. FIIs are established to make investment in Indian securities. They are required to register with the Securities and Exchange Board of India (SEBI) and have to comply with the regulations of the RBI.

to provide impetus to the electronics and software sector. The STP scheme is similar to the EOU scheme.
n offer STPs

a single window facilitation service to investors, high speed Internet

connection, state-of-the-art telecommunication infrastructure, etc. The following can avail all the export benefits that are offered in EOUs till 31 March 2009.
n Software export units n Business

process outsourcing and POLICY ON FII INVESTMENTS Main features of the policy on investment by FII are: a. FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30. However, it is also possible for an FII to declare itself a 100% debt FII in which case it can make its entire investment in debt instruments. b. FIIs can buy/sell securities on Stock Exchanges. They can also invest in listed and unlisted securities outside Stock Exchanges where the price has been approved by RBI.

information technology enabled services (medical transcription, remote back office, KPOs, call centres, etc.)

5.6.4 Investment in Special Economic Zones (SEZs)
nare duty-free areas and are deemed as foreign territory; all activities within SEZs

SEZs are considered to be beyond the purview of local authorities.
nare set up to become positive net foreign exchange earnings. SEZs n 100 percent FDI is allowed via the automatic route in SEZs, but this FDI is Up to

subject to sectoral norms.
n SEZ units enjoy the following benefits:

Doing Business in India Report

38 39

c.

No individual FII/sub-account can acquire more than 10% of the paid up capital of an Indian company.

d.

All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company.

e.

Indian Companies can raise the above mentioned 24% ceiling to the Sectoral Cap / Statutory Ceiling as applicable by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by its General Body in terms of Press Release dated Sept.20, 2001 and FEMA Notification No.45 dated Sept. 20, 2001. No permission from RBI is needed so long as the FIIs purchase and sell on recognized stock exchange. All non-stock exchange sales/purchases require RBI permission. Source: Investing in India, Department of Industrial Policy and Promotion

6

Implementation and Operational Aspects

Implementation and Operational Aspects

Doing Business in India Report

42 43

6.1 Entry options for Foreign Companies in India
Any foreign company that wants to set up operations in India can utilise any of the following options: Entry Options for Foreign Companies in India A foreign company planning to set up business operations in India has the following options : AS AN INCORPORATED ENTITY i) By incorporating a company under the Companies Act,1956 through i. Joint Ventures; or ii. Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to any equity caps prescribed in respect of the area of activities under the Foreign Direct Investment (FDI) policy.

INCORPORATION OF COMPANY COMPANY'S ACT 1956 Incorporation of a company in India is governed by the Companies Act, 1956. Part II of the Act deal with the incorporation of a company and matters related to. PRIVATE COMPANY Private company means a company which has a minimum paid-up capital of Rs,1,00,000/or such higher paid-up capital as may be prescribed, and by its articles, (a) restricts the rights to transfer its shares, if any; (b) limits the number of its members to fifty, not including i) persons who are in the employment of the company ;and ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment have continued to be members after the employment ceased; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; (d) Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. PUBLIC COMPANY

AS AN UNINCORPORATED ENTITY ii) As a foreign Company through i. Liaison Office/Representative Office ii. Project Office iii. Branch Office Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000. Source: Investing in India, Department of Industrial Policy and Promotion The formation of a company is governed by the Indian Companies Act, which differentiates between public and private companies, and also between companies having limited and unlimited liabilities.

A public company is a company which is not a private company and has a minimum paidup capital of Rs,5,00,000/-or such higher paid-up capital, as may be prescribed; is a private company which is a subsidiary of a company which is not a private company. FORMATION OF A PRIVATE LIMITED COMPANY A private Company can be formed either by i. ii. incorporation of a new company for doing a new business, or conversion of existing business of a sole proprietory concern or partnership firm into a company.

Government of India has made available online company incorporation facilities. NAME OF COMPANY The name of a corporation is the symbol of its personal existence. Any suitable name may be selected for registration subject to the following guidelines : a. The promoters should select three to four alternative names, quite distinct from each other.

6.2 Procedure for Incorporating a Company in India
To register and incorporate a company, the foreign entity has to file an application with the Registrar of Companies (ROC). After the registration and incorporation, the company is subject to the same Indian laws and regulations as applicable to other domestic Indian companies. More details on this aspect is available at the website of the Ministry of Company Affairs (http://dca.nic.in).

b. The names should include, as far as possible, activity as per the main objects of the proposed company. c. d. The names should not too closely resemble with the name of any other registered company. The official guidelines issued by the Central Government should be followed while selecting the names.

Besides, the names so selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.e. Apply in form 1-A to the Registrar of Companies having jurisdiction along with a filing fee.

Doing Business in India Report

44 45

MEMORANDUM OF ASSOCIATION An important step in the formation of a company is to prepare a document called Memorandum of Association. It is the charter of the company and it contains the basic conditions on which the company is incorporated. The Memorandum contains the name, the State in which the registered office is to be situated, main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects, liability of the members and the authorized capital of the company. The main purpose of the memorandum is to state the scope of activities and powers of the company. ARTICLES OF ASSOCIATION Articles of Association of the company contain rules, regulation and bye-laws for the general management of the company. It is compulsory to get the Articles of Associations registered along with the Memorandum of Association in case of a private company. The Articles are subordinate to the Memorandum of Association. Therefore, the Articles should not contain any regulation, which is contrary to provisions of the Memorandum or the Companies Act. The Articles are binding on the members in relation to the company as well as on the company in its relation to members. REGISTRATION OF COMPANY AND ISSUE OF CAPITAL After completion of the preliminaries as enumerated above, the application with necessary documents are required to be filed with the Registrar of Companies of the State in which the company is proposed to be incorporated. These include: a. b. c. d. e. f. Memorandum of Association (duly stamped) and a duplicate thereof. Articles of Association (duly stamped) and a duplicate thereof The agreement, if any, which the company proposes to enter into with any individual for appointments as its managing or whole time director or manager. A copy of the letter of the Registrar of Companies intimating the availability of the proper name Documents evidencing payment of prescribed registration and filing fee, i.e. a bank draft or a treasury challan. Documents evidencing the directorship and situation of Registered Office in Form 32 and Form 18 respectively and declaration of compliance with requirements of the Companies Act in Form No.1 and Form 29 for giving consent to act as a Director in case of public company are also given.

the company will issue shares to the subscribers to its memorandum and other members of the company. The issued capital must not exceed the authorized capital of the company. It is necessary for a public limited company to obtain the Certificate of Commencement of Business before commencing the business. For more details please contact Ministry of Company Affairs at http://dca.nic.in Source: Investing in India, Department of Industrial Policy and Promotion Online filing facility is provided on http://www.mca.gov.in/, which can be accessed for further reference.

6.3 Acquiring Land/Property in India
No prior approval is generally required by Indian citizens and companies for the purchase of property. However, restrictions are placed on foreign companies for acquiring property in India. Can an office of a foreign company purchase immovable property in India? A foreign company which has established a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. The payment for acquiring such a property should be made by way of foreign inward remittance through proper banking channel. A declaration in form IPI should be filed with Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorised Dealer as a security for other borrowings. On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of Reserve Bank. Further, acquisition of immovable property by entities who had set up Branch Offices in India and incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of Reserve Bank to acquire such immovable property. However, if the foreign company has established a Liaison Office, it can not acquire immovable property . In such cases, Liaison Offices, can take property by way of lease not exceeding 5 years Source: FAQ's, RBI

6.4 Approvals Required for Setting Up Industries
Other than the routine general approvals required by a foreign company to operate in India, a few other clearances/permissions, such as industrial licenses, might be required. Industrial Licensing INDUSTRIAL LICENSING POLICY Industrial Licenses are regulated under the Industries (Development & Regulation) Act, 1951. With progressive liberalization and deregulation of the economy, the requirements of industrial licensing have been substantially reduced. At present industrial licence for manufacturing is required only for the following : i. ii. Industries retained under compulsory licensing, Manufacture of items reserved for small scale sector by non-SSI units; and

The amount of registration fee payable is regulated with reference to the amount of authorized capital of the proposed company. CERTIFICATE OF INCORPORATION Upon compliance with all requirements, the Registrar will register the company and issue a Certificate of Incorporation of company. It brings the company into existence as a legal entity. ISSUE OF SHARE CAPITAL After obtaining registration, the company proceeds with its business for which it requires funds. In case of a private company, the capital is to be raised by way of private arrangements whereas a Public Ltd. company can raise funds from the public. First of all,

iii. When the proposed location attracts locational restriction

Doing Business in India Report

38 39

INDUSTRIES REQUIRING COMPULSORY LICENSING The following industries require compulsory industrial license: i. ii. Cigars and cigarettes of tobacco and manufactured tobacco substitutes; Electronic Aerospace and defence equipment: all types;

iii. Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches; iv. Hazardous chemicals; a. Hydrocyanic acid and its derivatives b. Phosgene and its derivatives c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate). PROCEDURE FOR OBTAINING INDUSTRIAL LICENSE Industrial License is granted by the Secretariat for Industrial Assistance (SIA) on the recommendation of the Licensing Committee. Application for industrial license is required to be submitted in the prescribed form. (Form FC-IL). This form is available in the Public Relation and Complaint Section (PR&C) of the SIA, all outlets dealing in Government Publications, Indian Embassies, and can be downloaded from the web site http://www.dipp.gov.in. Application accompanied with a crossed demand draft of Rs. 2500/- (appr. US$ 55) may be submitted to the Public Relation and Complaint Section (PR&C) of Department of Industrial Policy & Promotion. Decisions are usually taken within 4-6 weeks of filing the application. Source: Investing in India, Department of Industrial Policy and Promotion

7

Business Operations

Business Operations

Doing Business in India Report

48 49

7.1 Identifying the Right Location
Choosing an appropriate location for establishing operations is one of the main decisions to be considered while setting up a business in India. Many factors such as the availability and cost of land, power and water dictate the decision, depending on the business' requirements. Some of the other factors considered are availability of labour, suitable infrastructure and state government incentives.

About Department of Industrial Policy & Promotion
The Department of Industrial Policy & Promotion, established in 1995, is responsible for the formulation and administration of overall Industrial Policy. With the progressive liberalization of the Indian economy, initiated in July 1991, there has been a consistent expansion in the role and functions of this Department. From regulation and administration of the industrial sector, the role of this Department has been transformed into facilitation of technology and investment flows and promotion of industrial development in the liberalized environment. The role and functions of the Department of Industrial Policy and Promotion primarily include: Formulation and implementation of industrial policy and strategies for industrial n development in conformity with the developmental needs and national objectives in order to make the Indian industry internationally competitive; Monitoring and stimulation of industrial growth in general, and performance of n industries specifically assigned to it, in particular, and guidance in the creation of an enabling environment, infrastructure, technology transfer / collaborations on all industrial and technical matters; Approval n of foreign technology collaborations at enterprise level and formulation of policy parameters for the same, for enhancing productivity, with reference to international benchmarking; Formulation of Foreign Direct Investment (FDI) Policy and amendments thereto n as well as promotion and facilitation of direct foreign and non-resident investment in industrial and service projects; Association as nodal department for investment-related issues in Bilateral / n Regional Economic Cooperation Agreements; Formulation of policies relating to Intellectual Property Rights in the fields of n Patents, Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations and rules made thereunder; Administration of Industries (Development & Regulation) Act, 1951; n Promotion of Industrial development of industrially backward remote, hilly and n inaccessible areas of the special category States of North-Eastern Region (including Sikkim), Jammu & Kashmir, Himachal Pradesh and Uttrakhand through special incentive packages; Promotion of international cooperation through productivity, quality and technical n cooperation; Compilation of data / statistics on Foreign Direct Investment & analysis thereof; n and Compilation of monthly industrial production statistics for use in the construction n of Index of Industrial Production (IIP).

7.1.1 State Incentives
State incentives play a major role in attracting high FDI inflows. In addition to specific exemptions and sops, quality of governance and social infrastructure are also major factors that have to be considered by foreign investors.

7.2 Human Resource
India has a large pool of trained and technical manpower. The Indian educational system is also rated highly worldwide, with some of the best universities located in the country.

7.2.1 Employment
Though collective bargaining is a part of the industrial landscape, white collar positions are non-unionised. Employment contracts in the service industry are generally terminable with one-to-three months notice, and utilise all relevant clauses for the protection of the company's security infrastructure. Most disputes between the employee and employer come under the purview of civil courts, with the non-payment of dues being handled by the labour courts. India is also viewed as a provider of good managerial talent and Indians are increasingly being recruited to manage the global headquarters of MNCs.

7.2.2 Visa
A visa is needed to enter the country unless one is an Indian citizen. Employment visas are valid for a specific period and allow for the remittance of salaries earned in India. In addition, foreign workers need residence permits to reside in India for a duration longer than six months.

For more information please log on to http://dipp.gov.in/

Sign up to vote on this title
UsefulNot useful