The Indian business environment offers a wide range of opportunities to foreign investors & businesses. These include one of the youngest populations in the world, a skilled talent pool, inexpensive resources, a large national market (population of 1.2 billion) and a middle class of more than 350 million with rapidly growing purchasing power.
Additionally, India has one of the world’s most diversified populations, with a democratic political system, a free press, and a robust judicial system.
But despite all the above, doing business in India can still be challenging. Below we have highlighted the five biggest challenges business will face when setting up and running their operations in India.
Key takeaways
- India is the world’s fastest-growing trillion-dollar economy that ranks fifth overall and has a lot to offer to businesses seeking expansion opportunities. However, plenty of challenges remain for those looking to conduct business in this country. Among them are:
- The expensive and cumbersome process of starting a business that involves a lot of paperwork and is rather lengthy
- India’s tax system is complex, where filing and paying taxes takes an average of 214 hours per year
- Intellectual property issues within India – although local laws are extensive and mainly compatible with US and EU IP laws, there is still some concern about the proper enforcement of these laws.
India is known for its elaborate legal systems and overloaded courts. Therefore, obtaining the licenses and permits needed to launch a business in India requires much effort from international enterprises.
A business’s initial setup comprises multiple steps and takes around a month to complete, which is well above the OECD average (12 days). However, the advantages gained from a successful market entry generally outweigh the challenges posed by India’s red-tapism and bureaucratic hurdles.
Handling the construction permits
Obtaining construction permits is also costly, involving multiple complex procedures and taking around 190 days on average. Securing Intimation of Disapproval from the Building Proposal Office and paying all the fees included takes about a month, and NOCs must be obtained from the following departments: Electric Department, the Storm Water and Drain Department, the Tree Authority, the Sewerage Department, the Traffic & Coordination Department, the Environmental Department and the CFO.
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Paying taxes
Apart from the difficulties related to obtaining required licenses and permits, another factor impacts a company’s setup process and product prices – taxes. The World Bank estimates that filing and paying taxes in India takes an average of 252 hours per year.
Additionally, India has one of the highest corporate tax rates in the world, with foreign businesses subjecting a staggering 30% corporate income tax (CIT), plus a surcharge and an education cess. When a foreign company’s revenue reaches INR 1,00,00,000, a 2% surcharge is applied, and a 5% surcharge is applied if the revenue surpasses INR 10,00,00,000.
The education cess rate is 2%, while secondary and higher education cess is subject to 1%. Regulation surrounding taxes can be tricky. As a result, foreign businesses may make incorrect tax payments without professional guidance.
Trading across borders
Despite opening its borders to foreign trade, India still has several obstacles to overcome when exporting and importing goods. Moving goods efficiently is complicated due to the numerous layers of bureaucracy, and businesses must submit many documents before transporting goods across borders.
Infrastructure
India’s infrastructure—including its roads, trains, airports, seaports, power grids, and telecommunications infrastructure—presents challenges to its expanding economy and capacity to provide public services.
Fast urbanisation, rapid population growth, and increasing incomes put pressure on the government to enhance the country’s infrastructure. As a result, the government invests a significant amount of its budget in infrastructure initiatives.
Intellectual property rights protection
If you plan to do business in India, it is also essential to know how to use, protect and enforce your ownership rights to your company logo, name, design or invention. India has sufficient copyright laws and accedes to the WIPO Internet Treaties in July 2018, including WIPO Performances and Phonograms Treaty (WPPT) and the WIPO Copyright Treaty (WCT).
However, this enforcement is relatively weak, and piracy of copyrighted materials is extensive. So, if you are experiencing an infringement while doing business in India, collecting as much evidence as possible and working alongside licensed law specialists is important.
A large and fragmented market
The size and diversity of the Indian market can also present a concern for businesses and investors. Indian states are frequently compared to individual nations, given their vast and unique nature in terms of culture, language, infrastructure and talent. This results in a significant variance in corporate landscapes.
Additionally, regulations, rules, and policies can vary from state to state, as can subjective interpretations of prevailing laws. Cultural differences, too, must be understood and navigated.
How Acclime can help
India is one of the fastest-growing countries in the world with great economic potential but navigating its diverse and complex corporate landscape can only be challenging without local help.
To make sure you avoid any pitfalls when starting a business in India, Acclime India can professionally help you with the procedures to establish your company and comply with the necessary regulations.
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