Today India is poised to become a major global economic force with its brainpower and human capital being appreciated the world over. As the seventh largest country in the world with over a billion people, the Indian marketplace is already a commercial treasure trove. Add to this the fact that it is a global IT power and leading the race in offshore outsourcing and India represents an extremely attractive option for British businesses. Significantly, with English as the preferred business language as well as the language of the courts, it is also an accessible option. How can you make more of the business opportunities that India has to offer?
Setting up your business
As in the UK, companies, partnerships and sole proprietorships are all prevalent forms of business organizations in India. In general, companies are the preferred mode of conducting business and their form is very similar to that of UK companies. When choosing which business model to use the following points should be considered:
• The number of members is restricted to 50 and there are restrictions on the transfer of shares.
• There is a prohibition on inviting the public to subscribe for shares in, or debentures of, the company and on any sort of invitation or acceptance of deposits from persons other than its members, directors or their relatives.
• The minimum paid-up capital is Rs.100,000 (approx. £1,200).
• The number of members is unrestricted and it cannot impose restrictions on share transfers.
• There is no prohibition on inviting the public to subscribe for shares.
• The minimum paid-up share capital is Rs.500,000 (approx. £6,000).
• Note that a private company that is a subsidiary of a public company is also deemed to be a public company.
Foreign corporations/corporations incorporated outside India
Such corporations may have a presence in India via:
• Liaison offices – only undertake liaison work, no revenue can be earned by them and they cannot conduct any business activity.
• Project offices – set up for a particular project and last for the duration of that project.
• Branch offices – able to undertake business, however, any profits made are generally taxed at a rate 10 per cent higher than the applicable tax rate for an Indian company.
They are required to register with the Registrar of Companies in New Delhi within 30 days of establishing a place of business in India.
There are limited requirements to obtain an industrial license for certain manufacturing activities. The requirements relate to industries reserved for Government control, certain industries of strategic, social or environmental concern (ranging from the distillation and brewing of alcoholic drinks to drugs and pharmaceuticals) and to the manufacture of items reserved for the Small Scale Sector.
Furthering your business
Once your business is set up in India there are a number of factors that should help it to prosper.
The lack of obstacles to raising international capital
India’s economic policies, including its foreign investment policy, are designed to attract capital inflows on a sustained basis and to encourage technology collaborations between Indian and foreign entities. Foreign direct investment is welcomed in virtually every business.
Indian capital markets are open to foreign institutional investors and Indian companies are permitted to raise funds from international capital markets. One way of raising equity capital overseas that is permitted to qualifying Indian companies is by issuing American depository receipts, global depository receipts and foreign currency convertible bonds.
External commercial borrowings are any overseas borrowings/debts raised in foreign currency. Under Ministry of Finance guidelines they can be accessed under the automatic route or the approval route. All proposals for restricted foreign investment are considered for approval by the Government of India and the Foreign Investment Promotion Board with decisions usually being taken within 30 days of application.
Assistance from India’s foreign trade policy
In India most goods are freely importable on payment of a specified customs duty and there are no quantitative restrictions on the import of capital goods and intermediates. Export of goods is allowed freely, except for some restricted items. Import duties on equipment are lower for projects in specific sectors and there is a tariff structure that is favorable for companies wanting to import equipment to set up projects in the infrastructure sector.
Special economic zones have been set up with a view to providing an internationally competitive environment for exports by providing duty free import of certain goods and some tax incentives. In addition, there are similar incentives available for 100 per cent Export Oriented Units.
The similarity of laws
Indian contract law is similar to English contract law, as are India’s IP laws. Significantly, use of foreign brand names/trademarks for the sale of goods in India is permitted. And, as far as arbitration is concerned, India allows the contracting parties to decide upon the venue/place and procedure of the arbitration proceedings. It should be noted that, coming from a socialist backdrop, India’s labour and employment laws contain a slight protection towards the employee.
The Indian economy is growing rapidly and is expected to continue doing so for many years to come. The commercial advantages of outsourcing to India are clear and businesses are making the most of this increasing trend. With the Indian government simplifying the approval process for new ventures in certain states through ‘single window’ clearance facilities and ‘investor escort services’, with tax incentives to promote exports, business reorganisations and infrastructure development and with the free repatriation of capital investment, dividends and other profits, British businesses should now be seriously considering developing permanent bases in India.