India's $3.75 trillion economy attracts foreign businesses seeking expansion. While many record 40% year-on-year growth, others struggle with legal regulations and tax compliance complexities. If you're a foreign company planning to establish a presence in India, your biggest concern is:
‘What is the growth of international business in India?’
Let us look at some statistics to understand the scope of success in India’s economy.
- India’s average gross domestic product growth over the past decade is 5.5% making it the fastest-growing economy in the world.
- India’s economic growth surpassed the projected 7% growth mark in FY2023, led by increased private investments, government capital spending and service exports growth.
- India’s service exports grew by 14% over the last two decades, reaching $254.5 billion in 2021-22.
- The government is spending on initiatives to ease foreign direct investment (FDI), resulting in a 10% increase in FDI inflow over 2021-2022.
- India’s global innovation index rank has jumped 26 spots in the last 6 years (2016-22) from 66 to 40.
These statistics indicate India's global competitiveness and attractiveness to investors.
However, the critical question remains: Are these international business opportunities in India equally rewarding for foreign companies?
This blog post will help you decide if investing in business opportunities in India is beneficial. We'll discuss the benefits and the challenges of starting a business in India as a foreign entity.
Is India A Good Place For International Business?
“This is the best time to invest in India”
Doing business in a new country is risky and tricky. But here are 5 factors that make India attractive for international business opportunities.
1. Government Initiatives and Reforms
The Indian government has various initiatives and reforms to encourage business opportunities in India, including:
- Make in India: It offers incentives such as tax breaks, reduced regulatory hurdles and access to necessary infrastructure, promoting local production and job creation.
- Ease of doing business: It includes simplifying regulatory processes, streamlining permits and facilitating faster approvals to reduce bureaucratic hurdles.
- Single window clearance: Many states have introduced single window clearance systems, allowing companies to obtain all necessary approvals and licences through a single platform, saving time and effort.
- FDI policy: The FDI policy is liberalised, allowing foreign companies to invest with fewer restrictions on sectors, equity caps and entry routes along with automatic approval routes.
- Special economic zones (SEZs): SEZs provide incentives such as tax benefits, relaxed regulations and infrastructure support to promote foreign investment and exports.
- Intellectual property rights (IPR) protection: Strengthened IPR laws protect companies' innovations and technologies, enhancing confidence in investing in India.
- New labour codes: The new labour codes consolidate and streamline labour laws, making it easier for businesses to comply with regulations and manage their workforce more efficiently.
2. Skilled And Economic Labour
India has many strengths, including a growing middle class, competitive labour rates, English-speaking capabilities of millions and a rich history of international trade.
The top three factors that make business opportunities in India favourable are as follows:
- Skilled and cost-effective workforce: India has competitive labour costs in Asia, with the minimum daily wage for skilled workers being ₹178 (about US$2.15), translating to ₹5,340 (approximately US$65) per month.
- Skill development focus: The government's emphasis on skill development with initiatives such as vocational training programs, partnerships with industries and educational reforms led to a more capable workforce.
- Youthful demographic advantage: India accounts for the youngest population globally, with over 66% of its total population (more than 808 million) under the age of 35. This positions India to have the world's largest workforce by 2027.
3. Promising Location
Here are three factors that highlight India as a promising location for expansion:
- Competitive state measures: India's federal system has led states to compete to create business-friendly policies like streamlined approval processes, investment incentives, simplified land acquisition, labour reforms and sector-specific incentives. This fosters economic growth by reducing bureaucracy, enhancing infrastructure and offering tailored industry support.
- Infrastructure boost: Transportation, logistics and connectivity investments have improved the business environment, making operations smoother for companies. For instance, projects like the Bharatmala and Sagarmala projects have strengthened transportation and logistics networks. Similarly, port modernisation efforts simplify cargo handling and customs procedures, bolstering foreign trade.
- Central location and connectivity: India's central position in South Asia aids regional and global trade. Efficient port facilities and well-connected transportation networks further streamline the movement of goods within the country and to international markets, facilitating effective supply chain management.
4. Bigger Market-size
Expanding in India offers foreign companies access to a bigger market due to two key advantages:
- Vast consumer market: India has 400 million middle-class people who drive consumption significantly. So, while it's predicted that India's private consumer market will quadruple by 2025, foreign companies will have the opportunity to tap into this expanding consumer base.
- Diverse markets: The diverse Indian market allows foreign companies to cater to a wide range of preferences and needs enhancing the potential for business success.
5. Technological Disruption
With initiatives aimed at fostering innovation and growth, India provides several key advantages:
- Thriving information technology (IT) industry: With a strong talent pool of tech professionals, India has become a hub for software services, IT outsourcing and technology solutions, attracting foreign companies seeking skilled expertise.
- Tech-focused policies: The Indian government's policies and initiatives, such as ‘Make in India’ and ‘Digital India,’ encourage technological investments and innovations.
- Emerging technologies: India embraces technologies like artificial intelligence, blockchain and the Internet of Things (IoT). Global companies can benefit by leveraging India's technological ecosystem and collaborating with local experts.
How Can You Do International Business In India?
Running a successful global business in a new country demands a strategic approach considering multiple factors, particularly when entering the Indian market. To ensure a streamlined and successful venture, the top three considerations for foreign companies are:
- Evolving tax structure: The Goods and Services Tax (GST) has replaced various indirect taxes. Understanding how the GST impacts the applicable rates, registration requirements and compliance procedures will avoid complexities and litigations. Additionally, foreign companies should be aware of corporate income tax rates, transfer pricing regulations and India's double taxation avoidance agreements (DTAA) with various countries to prevent double taxation.
- State-specific laws: Different states have varying regulations, incentives and requirements for businesses, leading to diverse state-specific laws related to labour, land acquisition, environmental regulations, etc. Moreover, India has SEZs and industrial corridors that incentivize businesses with favourable policies, tax benefits and infrastructure support. Careful consideration of the region or state where a company plans to expand can impact the ease of doing business and overall success.
- Mode for starting a business: Foreign companies must register their entity as a branch office, liaison office or wholly-owned subsidiary. The government has introduced initiatives to streamline the process, such as the ‘Make in India’ campaign, to encourage foreign investment. However, having a clear understanding of the steps and costs involved is essential for a smooth entry into the Indian market.
Pro tip: For a step-by-step breakdown of starting a business in India as a foreign company, refer to our detailed guide.
Finding The Right Expansion Partner: The First Step For Business Success
Navigating complex Indian laws and regulations can become tedious without a team of legal experts by your side. They not only ease the compliance process but also contribute to the growth of your business. From finding the right talent to efficiently managing HR functions, an employer of record (EOR) can transform global business opportunities into success.
Rapid, India's leading EOR, is dedicated to assisting tech founders in seamless expansion within India. It offers
- 25 years of expertise in ensuring compliance with local laws, managing payroll, benefits and tax compliance.
- A hassle-free solution, providing customised contracts adhering to local compliance standards. This approach minimises legal risks, enabling quick and cost-effective team setup in India.
- A service marketplace covering diverse needs like workspace leasing, IT asset procurement, tax filing and work visas.
Want to know more? Connect with us to understand how Rapid can help you set up your India team.