DOING BUSINESS
IN INDIA
Contents
03 Key facts for international investors
05 Why India?
07 Investment opportunities
09 Business culture
11 Guidance
13 Our India team
// 02
HERBERT SMITH FREEHILLS
Key facts for international investors
LEGAL SYSTEM
29
0
COMMON LAW (WITH
WRITTEN CONSTITUTION)
STATES
e
e
APEX COURT
PARLIAMENTARY
DEMOCRACY
SUPREME COURT
OF INDIA
3
es e
e
YEARS
GOVERNMENT
TENURE
DISPUTE RESOLUTION
INDIAN COURTS AND
INTERNATIONAL ARBITRATIONS
1
OFFICIAL
LANGUAGES
MAJOR STOCK
EXCHANGES
e
HINDI AND ENGLISH
BSE
4
AND NSE
5
G
8
CENTRAL BANK
LANGUAGE
OF BUSINESS
2
RESERVE BANK OF
INDIA (RBI)
ENGLISH
KEY BUSINESS
CENTRES
RICHEST STATES
f)
7
MUMBAI, DELHI
6
MAHARASHTRA AND
TAMIL NADU
,
BENGALURU, HYDERABAD,
AHMEDABAD, CHENNAI,
PUNE AND KOLKATA
1. Next elections in 2019
2. Popular local business languages: Hindi, Gujarati, Punjabi, Maharathi and Tamil
3. Supreme Court of India (situated in Delhi)
4. Bombay Stock Exchange (BSE)
5. National Stock Exchange (NSE)
6. Includes Gurugram and Noida
7. By GDP
DOING BUSINESS IN INDIA
Jammu and
Kashmir
Himachal Pradesh
Chandigarh
Punjab
Arunachal
Pradesh
Uttarakhand
Haryana
Meghalava
Delhi
Sikkim
Assam
Rajasthan
Uttar Pradesh
Bihar
Nagaland
Manipur
Jharkhand
Tripura
West
Bengal
Gujarat
Mizoram
Madhya Pradesh
Kolkata
Orissa
Daman and Diu
Chhattisgarh
Dadra and Nagar Haveli
Maharashtra
Mumbai
Pune
Hyderabad
Telangana
Karnataka
Goa
Andhra
Pradesh
Chennai
Bangaluru
Tamil
Nadu
Kerala
// 04
HERBERT SMITH FREEHILLS
Why India?
India is one of the fastest
growing newly-industrialised
economies exhibiting the
strongest GDP growth
amongst the G20 nations
of 6%-8% with GDP
of over US$2.3 trillion.
DOING BUSINESS IN INDIA
This growth is being driven in particular by its demography, notably with almost 50% of its 1.3 billion population below the age of 25 and an expanding middle
class. The country is also currently in the midst of a wave
of urbanisation, having recorded the highest annual
growth amongst major economies between 2010 and
2015, and it is currently projected that 600 million
people will live in Indian cities by 2031. Indian cities
already contribute more than 60% to the country’s GDP.
Headline initiatives
•• Make in India
•• Digital India
•• Skill India
•• New pan-India goods and services tax
(GST)
•• New IPR policy
The IMF's latest world economic data reveals that the
Indian economy is the world’s sixth largest by nominal
GDP and third largest by purchasing power parity.
And it is expected to become the 5th largest consumer
economy by 2025.
•• New bankruptcy code
•• Smart cities
•• Relaxing foreign investment restrictions
•• Anti-corruption drive
India has also recently moved up in the World Bank's
Doing Business rankings from 130th position to 100th
position. Corruption and bureaucracy which have
historically been considered to be the primary factors
for India's low rankings are being very seriously tackled,
and India aims to be in the top 50.
•• Startup India
•• New companies law/corporate
governance
•• Competition between states
Today, for international investors, this second largest
country by population and the largest democracy in the
world offers significant opportunities.
•• The Indian economy’s robust growth rate figures, the
large market size and current high returns are further
endorsed by a politically stable and a strong majority
government in the centre, which has over the last
few years introduced a significant number of
structural reforms aimed at creating a business
friendly environment in particular for international
investors. And it is currently considered likely that this
government will be re-elected in 2019, thus promising
political stability until 2024.
•• At a socio-economic level, India needs to create jobs
in order to accommodate the vast number of new
entrants to the labour market each year. This is a
significant driver behind the government's “Make in
India” campaign which seeks to bring more of the
benefits of increased international investment
physically into India, with a greater share of the actual
manufacturing undertaken within India. For further
details, please see here: www.makeinindia.com
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HERBERT SMITH FREEHILLS
Investment opportunities
States
India has a federal structure with the entire country
divided into 29 states and seven union territories, with
each being run by its state or UT government. Whilst
the state or the UT government is primarily responsible
for governance in its region, there are certain subject
matters which fall outside its jurisdiction and are
exclusively the responsibility of the central government.
As shown in table 2 whilst Maharashtra (Mumbai being
its capital city, which is often referred to as the financial
capital of India) is the biggest state by GDP, we expect
that the next round of growth will take place in India's
emerging states (as also indicated in table 1). In terms of
cities, we expect that Mumbai, Delhi (includes
Gurugram and Noida) and Bengaluru will continue to be
the main financial centres in India, with Ahmedabad
and Hyderabad as emerging ones.
To boost competition amongst states, the central
government has in the last few years introduced the
concept of “cooperative federalism”, ranking states on
the basis of ease of doing business. State rankings can
now be monitored here: www.eodb.dipp.gov.in.
So if you are in an initial stage of considering which part
of India to invest in, table 1, table 2 and table 3 will
provide a helpful indication.
Growth rate in emerging states is quite robust but given
the vastness of the country, the level of infrastructure
(roads and electricity) and political instability at the
state government level could vary substantially across
some of the emerging states.
Sectors
Table 1: Top 10 states
Ease of doing business rankings
2016
2015
STATES
In terms of sectors, India has emerged as home to
globally recognised companies in information
technology, pharmaceuticals, textiles, steel and
telecommunications sectors. However, India is one of
the few economies which are well placed with almost
all important sectors showing signs of growth.
1.
2. Andhra Pradesh
1.
13.
Telangana
3.
1.
Gujarat
4.
4.
Chhattisgarh
Table 3: Based on implementation of
reforms, States have been divided into
four categories
5.
5. Madhya Pradesh
6.
14. Haryana
CATEGORY
STATES
7.
3.
Jharkhand
Leaders
8.
6.
Rajasthan
(90-100%)
9.
23. Uttarakhand
10.
8. Maharashtra
Andhra Pradesh, Telangana, Gujarat,
Chhattisgarh, Madhya Pradesh,
Haryana, Jharkhand, Rajasthan,
Uttarakhand, Maharashtra, Odisha,
Punjab
Table 2: Top 10 richest states (by GDP)
Aspiring
Leaders
(70-90%)
Karnataka, Uttar Pradesh, West
Bengal and Bihar
2014-15
STATES
1. Maharashtra (US$250 billion)
2.
Tamil Nadu (US$150 billion)
3.
Uttar Pradesh (US$150 billion)
Acceleration
Required
(40-70%)
Himachal Pradesh, Tamil Nadu
and Delhi
4.
Gujarat (US$130 billion)
5.
West Bengal (US$120 billion)
6.
Karnataka (US$100 billion)
Jump Start
Needed
(0-40%)
Kerala, Goa, Tripura, Daman & Diu,
Assam, Dadra & Nagar Haveli,
Puducherry, Nagaland, Manipur,
7.
Rajasthan (US$85 billion)
Mizoram, Sikkim, Arunachal Pradesh,
8.
Andhra Pradesh (US$77 billion)
Jammu and Kashmir, Chandigarh,
Meghalaya, Andaman & Nicobar
Islands, and Lakshadweep
9. Madhya Pradesh (US$75 billion)
10.
Delhi (US$67 billion)
DOING BUSINESS IN INDIA
// 08
HERBERT SMITH FREEHILLS
Business culture
Promoter culture
Language
English is the language of business in India and Indians
are hesitant in saying “no”, as it is often considered
offensive, and instead they prefer saying “will try” or
“will see”. Also, asking too many questions or trying to
elicit a clear response can often be counter-productive.
It is quite common for the big Indian corporates
(including the ones listed on the Indian stock exchanges)
to be majority-controlled by the promoters. Unlike other
countries, in India the promoters usually exercise a
significant influence in the day-to-day operations of
their businesses.
Relationship with promoters
Understand promoter's key motivations and future
plans (including succession plans). Alignment
between the promoter and the investor is absolutely
key to running a successful operation in India.
Holidays
India has more bank holidays than many other countries
and most of these are religion based (lasting more than a
couple of days) and sometimes specific to certain regions.
So do check the Indian holiday calendar before arranging
a meeting, and avoid meetings in the week which has a
big festival (eg Diwali, Holi or Ganesh Chathurthi).
Indian culture
India is a vast and diverse country, with 22 languages
Not only about work
India is well-known for its hospitality and food and
it is quite common to be invited home by your Indian
counterpart for a meal with the family. It is considered
polite to talk about family, even during business
meetings. And it is popularly known about India, if
you win an Indian's trust, they are likely to go out of
their way to help.
(which have an official status in addition to English),
thousands of dialects (which change every 100 kilometres
in certain region) and at least four main religions.
Its vastness and diversity has an impact on how business
is done in each region and it is therefore very difficult to
make generalisations about the Indian business culture.
If you are visiting India for meetings, the following tips
may be useful across the country.
Greetings
Etiquette typically allows a handshake. Namaste is
a common greeting in India but less used during
Written communication
Calls and meetings are more prevalent than written
detailed communication and calling on mobile phones
is considered normal (landline phones are not so
popular now). Also, texting and messaging on apps
(such as Whatsapp) are used regularly for business
communication nowadays.
business meetings.
Generalisation
Given India's vastness and diversity, be cautious of
generalising the Indian business culture.
DOING BUSINESS IN INDIA
Our top four tips for India are as follows:
1
2
3
4
Long-term planning
Presence of
senior personnel
Bespoke Indian
business plan
Wider commitment
to India
Achieving sustainability
and profitability in
operations will require a
longer term outlook and
planning
Presence of senior
personnel (both in
terms of age and
experience) on
the ground is
helpful to ensure
swifter progress
Replicating a business
plan from another
country is likely not
to work in India and
therefore international
investors must look
at creating a bespoke
You may find local
integration to be
much easier if your
investment has, or
comes with, elements
of wider commitment
to India
India focussed business
plan after having
completed an initial
thorough research.
Overtime Indianising
your India operations
will likely bring more
efficiency
// 10
HERBERT SMITH FREEHILLS
Guidance
Approvals
agreed between India and the relevant counterparty
country, new investments by international investors into
India, and by Indian investors into other countries, will
cease to receive BIT protections, which is unattractive
for international investors.
Dealing with Indian regulators can be a time-consuming
process, although the current Indian government has
undertaken and is continuing to undertake measures to
ensure that there is an efficient regulatory environment.
Tax
Corporate governance
Whilst most of the Indian companies generally follow
sophisticated business practices, there are instances of
less developed financing reporting, regulatory
Whilst the previous government enacted a legislation
which proved certain challenges for international
investors (as well as Indian investors), no new legislation
has been introduced under the current government.
compliance and corporate governance.
Intellectual property
Foreign investment/FDI laws
India is making vital improvements to its IPR legislations
and enforcement procedures
India has undergone a significant relaxation of its foreign
investment (or FDI) laws over the last few years, most
recently in August 2017 and January 2018. Under the new
regime, FDI approval applications are being processed at
a much faster pace and the list of sectors/activities where
prior government approval is required has been
significantly reduced. The direction of travel of the
Indian government has been towards significant
de-regulation in order to promote and accelerate
further international investment into India.
Over-leveraged/distressed assets
Indian judicial systems
Some of the Indian businesses have been victims of
over-leveraging resulting in creation of distressed
assets. Whilst a number of promoters of such Indian
businesses have focussed on the sale of their non-core
assets and of strategic stakes to raise funds to reduce
borrowings, at a macro level the Indian government has
recently introduced the Insolvency and Bankruptcy
Code 2016 with the aim to make insolvency and
bankruptcy procedures more streamlined and efficient
(which were previously spread over a number of Indian
statutes that often did not generally produce desired
outcomes). For further details, please see our bulletin
here.
The senior judiciary in India is well-respected and
comprises highly regarded judges and advocates.
However, the significant backlog of cases in the Indian
judicial system, which stands at an astounding 24
million, increases the risk of litigation in India when
compared with developed economies. A dispute in
Indian courts can take 10 years or more to reach
judgment, and enforcing an international arbitral award
can also be lengthy and challenging. Also, given India's
vastness and diversity, the style and availability of the
High Courts and their local bar can vary away from the
main commercial centres.
Summary of key pitfalls
•• Lack of rigorous due dilligence on the target
•• Non-alignment of incentives of the promoter/
management of the target
•• Poor/ineffective corporate governance structures
of the target
For further details, please see Our Guide on
India Related Commercial Contracts and
http://hsfnotes.com
•• Failure to track the covenants and undertakings in
effect during the life cycle of the investment
BIT changes
•• Lack of consideration of:
structuring issues, in particular in relation to
debt; and
the evolving tax aspects
In 2016-17, India decided to terminate bilateral
investment treaties (BITs) with close to 60 countries.
India's actions sent mixed messages at a time when the
Indian government was making renewed efforts to
attract inbound investment with its ‘Make in India’
campaign, and when outbound investment by Indian
companies continued to increase into both developed
and developing economies. Until new arrangements are
•• Governing law and dispute resolution
DOING BUSINESS IN INDIA
Indian judicial structure
Supreme Court of India
Popular arbitration centres
Key regulators/other
authorities
•• LCIA (London)
24 high courts
•• NCLT/NCLAT (Company
Law Tribunal)
•• SIAC (Singapore)
•• SEBI (securities)
•• HKIAC (Hong Kong)
•• RBI (central bank)
•• ICC (London, Hong Kong,
Singapore or Paris)
•• DIPP (foreign investment)
Enforcement
8
Appeals
•• CCI (anti-trust)
Sector specific:
•• TRAI (telecoms)
•• IRDA (insurance)
•• CERC (power)
Civil courts
Criminal courts
Commercial courts
Other district courts
8 India is a party to the New York Convention (recognition and enforcements of foreign arbitral awards)
// 12
HERBERT SMITH FREEHILLS
Our India team
Chris Parsons
Chairman, India Practice
T +44 7785 255 006
Alex Aitken
Head of Finance, India
T +852 90931946
Philip Lee
Head of DCM, India
T +65 68688085
Roddy Martin
Head of Corporate, India
T +44 7785 254 936
Alan Montgomery
Head of M&A, India
T +44 7809 200 437
Nicholas Peacock
Head of Disputes, India
T +44 7809 200 087
Siddhartha Sivaramakrishnan
Head of ECM, India
T +65 97723250
Nicola Yeomans
Head of Corporate, South East Asia
T +65 83395896
No foreign law firm is entitled to advise on Indian law and as a result we work closely with top Indian
law firms to deliver a seamless service.
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