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4 things you need to know about doing business in India

business-articles4 things you need to know about doing business in India

As one of the fastest growing major economies in the world, and with an estimated population of 1.35 billion, India offers enormous opportunities for foreign businesses looking to expand their operations overseas.

However, doing business in India presents a number of challenges, the complexities of which can leave even the most experienced business leaders flummoxed if they go into things unprepared.

Fortunately we’re here to help, with our latest article covering the five things you should know before doing business in India.

Regional differences

First and foremost, when looking to do business in India it’s advised that the country should not be viewed as a single market, but rather a series of interconnected regional markets, each with their own business culture and take on legislative and investment procedure.

India is huge, with a diverse population spread over a vast country resulting in a multilingual, multi-ethnic society and large cultural gaps between various regions within the nation.

Each of India’s 29 states are responsible for their own regulations, courts and taxes.

Because of this it is advisable for business to thoroughly research local business regulations for each region they plan to operate within, one size fits all generally won’t cut it when doing business in India!

Foreign investment in India

Foreign Direct Investment (FDI) in India has been progressively liberalised over the past few decades, with many investment procedures being simplified and restrictions lifted, making it easier than ever for foreigners to invest directly in India. This contributed to the country jumping 30 places in the World Bank’s Ease of Doing Business 2018 Report.

Below are a few of the features of India’s foreign investment policies:

  • Government approval for FDI in most sectors isn’t required, except for a small list of restrictions maintained by the government.

  • Proposals for investment in restricted sectors will be considered by the Foreign Investment Promotion Board.

  • Any deliberations on foreign investment proposals will generally be executed within 30 days of the application.

  • Investment and tax incentives may be offered for particular exports and sectors, including power electronics, software and food processing.

  • Repatriation of capital investment is free so long as the original investment was made in convertible foreign currency, while repatriation of profits are subject to taxes.

Anticipate bureaucratic barriers

While great strides have been made towards cutting down on bureaucratic barriers in recent years, any foreign firm is still likely to find that stacks of paperwork and slow processing times can still make first starting out in India a bit of a slog.

Businesses will also need to be wary of getting caught out by the government’s sudden policy changes, such as when it gave only two weeks’ notice for the introduction of a new service tax in 2015 or when it demonetised 86% of the currency in circulation overnight in 2016.

Perseverance will be rewarded however, with the opportunities afforded to businesses able to navigate India’s bureaucratic barriers more than making up for the challenges companies may face when doing business in the country.

Indian business hierarchy

Similarly to Indian society, Indian businesses are generally very hierarchical in structure, with roles being well-defined with set responsibilities.

This results in most domestic firms being run by a single leader, (especially so in family run companies), with all major decisions required to be signed off at the highest level.

Because of this, when entering negotiations with a local partner, foreign businesses should seek to liaise with either the head of the company or at least a very senior manager, or risk wasting a lot of time with middle management who will have little to no say on any final deal.

If a business is planning to set up an Indian office then efforts should be made to take these cultural differences on board, especially when considering interactions with other international offices where such a rigid hierarchy may not be so prevalent.
 
 
Doing business in India certainty requires a lot of research and forethought, and businesses trying to tap into the local market are likely to face a myriad of different challenges.

However, so long as you take the time to understand the intricacies of the country’s unique regulatory environment and the manner in which India’s cultural differences may influence your working relationship with potential partners and employees, India can offer almost limitless opportunities for growth.

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