Doing Business In India

A Hand Book

Department of Industrial Policy & Promotion

Government of India
Contents
1 India-An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Indian Society and Demography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.1 Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.2 Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.3 Society and Traditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.4 Currency System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Indian Economy: An Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 The Indian Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3.1 The Indian Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Indian Business Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.5 Government and Administrative Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2 Economic Trends and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.1 Recent Economic Performances and Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Principal Sectors of the Indian Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.1 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.2 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2.3 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2.4 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2.5 Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.6 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.7 Capital Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2.8 Other Institutions – MF, Insurance, PE and VC . . . . . . . . . . . . . . . . . 13
2.3 External Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3.1 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3.2 External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Fiscal Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Foreign Investment Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5.1 Foreign Institutional Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5.2 Proliferating R&D Centres: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3 Business Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Foreign Exchange Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.3 Trade Regulations in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3.1 Import. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3.2 Export. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 Labour Laws and Social Security System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.5 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.6 Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Environment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
 India -An Overview
1
4. Taxation and Commercial Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.1 Taxation of Foreign Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.1 Liaison Office/Representative Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.2 Project Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.3 Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1.4 Wholly Owned Company/Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 27
India-An Overview
4.1.5 Foreign Institutional Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1.6 Double Taxation Avoidance Agreements (DTAA) . . . . . . . . . . . . . . 28
4.2 Indirect Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2.1 Central Excise Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2.2 Sales Tax/VAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2.3 Customs Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2.4 Export Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2.5 Service Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.3 Incentives and Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

5 Foreign Investment Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.1 Government of India's Policy on Foreign Direct Investment. . . . . . . . . . . . 34
5.2 Sectors where FDI is Prohibited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 FDI in SSI Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4 Investment in Indian Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.5 Investment in Overseas Issues of Indian Companies . . . . . . . . . . . . . . . . . . . 36
5.6 Investment Schemes and Incentives of the Government of India . . . . . . . . 37
5.6.1 EOUs: Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.6.2 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6.3 Software Technology Parks (STPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6.4 Investment in Special Economic Zones (SEZs) . . . . . . . . . . . . . . . . . . 38
5.7 Institutional and Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6 Implementation and Operational Aspects . . . . . . . . . . . . . . . . . . . . . . 41

6.1 Entry options for Foreign Companies in India. . . . . . . . . . . . . . . . . . . . . . . . . 42
6.2 Procedure for Incorporating a Company in India . . . . . . . . . . . . . . . . . . . . . . 42
6.3 Acquiring Land/Property in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4 Approvals Required for Setting Up Industries. . . . . . . . . . . . . . . . . . . . . . . . . 45

7 Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1 Identifying the Right Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.1.1 State Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

I
ndia is an ancient yet modern civilisation with a rich culture and heritage. Indian
7.2 Human Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
economy has been on the global central stage always. From Indus Valley Civilization
7.2.1 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2.2 Visa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 uptil 1700 Mughal Emperor Akbar, Indian economy was largest for most of the time.1
Over the years, the country has made rapid progress and currently stands tenth in the
world in terms of industrialisation. It is the seventh largest country in the world, with a
land area of approximately 3.28 million square kilometres, extending from the snow-
covered Himalayas to the tropical rain forests of Kerala.2 India's population is estimated
to reach 1.14 billion by July 2008. Nearly 25 percent of the Indian population live in urban
areas. Mumbai, Kolkata and Delhi are among the important metropolitan cities, each
with a population exceeding 10 million.
 Doing Business in India Report 02 03

1.1 Indian Society and Demography 1.2 Indian Economy: An Overview

1.1.1 Language Post Independence , India's economic development strategy was modelled on the key
3 tenets of self-reliance, import substitution, and social equity. These policies set the
India's most distinctive feature is its diverse languages and dialects. The Indian
foundations for a modern India and helped create a robust industrial base. Till the 1980s, a
Constitution recognises 22 languages as national languages.4 Hindi, the most widely
system of licensing was followed; there were controls placed on foreign exchange and
spoken language, is the official language of the Union of India.5 At the state level, regional
restrictions on imports. Economic reforms of 1991 transformed the country to bring
languages are the official languages of the states concerned. English is also recognised as
greater unision with rest of the World. , India is still undergoning a continuous process of
an official language and as the language of the executive, legislative and judicial institutions
liberalisation and globalization based on “inclusiveness”. Significantly India had a GDP
of the Union of India.
growth of around 8 percent per annum over the last four years, far more than “hindu”
1.1.2 Religion rates of 2 –3% during pre-liberalization era.9
Freedom of religion is a fundamental right guaranteed by the Constitution of India. As per Salient features of the Indian economy are:
the decennial census of 2001, Hinduism was the religion practised by over 80 percent.
l
The estimated GDP for 2007–08 is USD
The other prominent religions include Islam (practiced by 13.4 percent of the population
1.09 trillion, with a nominal GDP of USD
or 110 million), Christianity (20 million), Sikhism (18 million), Buddhism (6 million),6
1,081 per capita.10
Jainism, Judaism and Zorastrianism.7
l
India is the fourth largest economy after the
1.1.3 Society and Traditions US, China and Japan in terms of purchasing
There is great diversity in the food habits, social customs and traditions of different power parity.
regions of India. l
The Services sector is largest contributor
Every region in the country has its own peculiar cuisine. The Indian cuisine is renowned to India's GDP. The sector's estimated
for its exotic gravies. The Mughlai cuisine of the North, the Wazwan style of Kashmir, contribution to the national GDP was
Bengal's Macher Jhol, Rajasthan's Dal Bati, the kebabs of Uttar Pradesh and Punjab's 60.712 percent in 2007–08. The Services sector was estimated to have grown at
Sarson Ka Saag and Makki di Roti are some of the well known Indian delicacies. about 11.2 percent in 2006–07.

Festivals in India are never restricted to the family—the entire community or l

India has a robust and diverse industrial base. It also has the capacity to
neighbourhood takes active part to bring the occasion to life. Some of the most widely manufacture an extensive range of products. India sends satellites with payloads ;
celebrated Indian festivals include Diwali, Holi, Id, Christmas, and Mahaveer Jayanthi. it makes pins also.
Another important occasion that is celebrated with great fanfare is the wedding l
India has a mature financial sector—the capital market has more than 9,000 listed
ceremony where all family members and friends take active part. companies14 with a market capitalisation of over USD 70 trillion, according to
December 2007 figures.15
1.1.4 Currency System
l
India's external trade deficit has been stable, ranging between 1.5 percent and 2
The rupee is the currency of India. One rupee is made of up of 100 paise. As on 16 May
percent of GDP, despite the fact that the country is highly dependent on
2008, the exchange value of the Indian currency was roughly INR 42.64 per USD, INR 66
petroleum imports.
per EUR, INR 83 per GBP and INR 40.8 per Yen. Travellers' chequesand credit cards are
16
commonly used in India. There are two traditional terms used in the Indian counting l
Foreign exchange reserves increased to USD 314 billion as on May 16, 2008
system different from the international counting system —the lakh (hundred thousand)
and the crore (ten million).
9
1
IMF
Timeline of the economy of India: wikipedia 10
2
1 IMF
National Portal of India: Profile 11
3
CIA World Fact book
Britannica 12
4
CIA World Fact book
PIB 13
5
CIA World Fact book
National Portal of India: knowindia 14
6
Mayfield.com
www.tradewingstours.com 15
7
Economictimes
National Portal of India: knowindia 16
IMF
 Doing Business in India Report 04 05
l
The standard of customer service is an important determinant for creating
Table: Annual Growth Rate of GNP customer loyalty in the case of high-value goods and institutional sales.

10.0 9.6 l
India's rural market is increasingly becoming important. Based on the rural
8.1 8.6
spending trends, rural India accounts for more than 50 percent of the total
9.7
6.5 6.7 market and presents a market that is hugely untapped.
6
5.0 5.4 7.3 7.3 l
Foreign brands may need to adapt to the cultural needs of the Indian market. It is
6.4
% 5.9 advisable that foreign companies do not blindly base their Indian ventures on
4.5 successful models implemented in other countries. As a matter of fact, even
4 4
global brands such as McDonald's have had to mould their products to meet the
1.4 requirements of Indian customers.
0.0
l
India's younger generation is increasingly becoming techno savvy and places

)
1

1
199 6

00
2

2
3

3
9
8
4

4
5

5
7

6(P

7(Q
0-9

0-0
5-9
1-9

1-0
2-9

2-0
8-9
7-9
3-9

3-0
4-9

4-0
6-9

-20
prime importance on gadgets that are made using the latest technologies.

5-0
199

200
199
199

200
199

200
199
199
199

200
199

200

6-0
99

200
19

200
Year l
The spending power of Indian consumers is growing as rising per capita incomes
Source: indiabudget have increased the disposable income available with the population. Further, it is
estimated that the consumer spending in India will quadruple by 2025 from the
present levels of US% 370 billion in retail .17
1.3 The Indian Market
Post the economic reforms of 1991, India adopted policies to allow all private sector
companies including foreign to operate in all sectors of manufacturing. and services
1.4 Indian Business Entities
including consumer goods sectors, raising expectations of international business Indian businesses are not immune to the strong regional influences that are a result of a
community. India has more than one billion consumers, thereby representing a nascent long tradition of trade and commerce, the country's geographical size, differences in the
but a highly profitable market. levels of regional development and the cultural diversity that exists in different parts of
1.3.1 The Indian Consumer India. All these factors have led to an extremely diverse business system, with most
businesses being local in nature. Not many enterprises have a pan Indian presence and
While developing India-focussed strategies, companies will be well advised by experts to
most businesses have higher a penetration in semi-urban areas.
take the following aspects into consideration:
Although many businesses in India have started shifting towards professional
l
Indian customers are price-sensitive like any low income country; therefore, to
management, a majority continue to be family managed. Many companies are managed
lead in the market, strategies have to be price-driven, and should attempt to
directly by the majority shareholders themselves, via management control of the board
leverage higher market shares to spread overhead costs over a wider customer
of directors, unlike the delegation of management in the case of many other economies.
base. Rapid spread of mobile telephony based on “value for customer “ strategy
However, things are fast changing and professional management is increasingly becoming
is a recent success story.
popular.
l
India's middle class is mostly peer-conscious, and new product launches
generally have to pass an initial stage of referrals, before becoming widely
accepted among consumers.

17
democraticunderground.com
 2
1.5 Government and Administrative
Setup
India is a union of states, and is a sovereign, socialist, secular and Economic Trends

Economic Trends
democratic republic, which has a parliamentary system. India has 28

and Outlook
states and 7 union territories.18 Delhi is the capital city

The India's Constitution is unique in the world and very detailed. It

and Outlook
provides for three layers of governance; federal, states and local.
While few subjects are exclusive to a level ( like Defense to Federal),
some are “concurrent” – meaning thereby joint responsibility. India
has independent Judiciary, active parliament and vocal Press.
Executive systems are adopted from colonial days. Administrative
reforms are now in the central stage.

THE PRESS IN INDIA IN 2005-06: AT A GLANCE

(Data compiled as per the annual statements received)
(Source: Registrar of Newspapers for India)
Periodicity Number Circulation
Dailies 2,130 8,88,63,048
Tri/Bi-Weeklies 39 5,66,198
Weeklies 3,428 5,05,80,648
Fortnightlies 955 1,23,09,948
Monthlies 1,471 2,11,36,710
Quarterlies 219 15,52,138
Annuals 49 29,86,256
Others 221 27,43,665
Total 8,512 18,07,38,611
Miscellaneous Publications 126 71,69,952

T
he Indian economy began to be liberalised in 1991. India is now the fourth
largest economy after the US, China and Japan in terms of purchasing power
parity and is also one of the fastest growing economies in Asia.

Table: GDP Growth Rate at Current Price

India's GDP Growth at Current Price

1233
1200 1099
1000 877
USD(in billion)

783
800 669
573
600 440 462 473 495
411
400
200
0

2001

2003

2005
1999

2002

2006
1998

2008
2000

2004

2007
Source: IMF
18
Indian Census
 Doing Business in India Report 08 09
production.19 Some of the important crops produced in India are rice, wheat, coarse
2.1 Recent Economic Performances and cereals, cotton, sugarcane, tobacco, tea, coffee, rubber, silk, pulses, groundnut and
Outlook oilseeds.20 India is the world's largest producer of milk and dairy products, sugarcane and
tea, and the second largest producer of rice, wheat, fruits and vegetables.21 The share of
India's GDP is constituted of the three primary sectors—Agriculture, Manufacturing and agriculture in India's GDP was 19.9 percent in 2007–08. Agriculture contributes about 15
Services. percent to India's exports and supports 52 percent of India's workforce .22

Table: Agricultural Production

Table: Sector-wise GDP Growth Rates
Sector-wise GDP Growth Rates 360

Production (in million tonnes)

340
15 320
300
11.6 11.9 280
12 9.8 10.6 260
9.6
Precent

8.4 9.2 240

9 8.2 9.4 9.6 220
8.7 200
7.5
6 5.9 180
3.8 160
2.6 140
3 120
100
0 80
60
FY05 FY06 FY07 FY08E 40
Agriculture Industry Services GDP 20
0
Source: Ministry of Finance FY03 FY04 FY05 FY06 FY07
Rice Wheat Coarse Cereals Pulses Oilseeds Sugarcane Cotton Jute and Mesta
Source: indiabudget

Table: Sector-wise Contribution to GDP

GDP Composition (April–December 2007)

Industry
Agriculture
19.3%
19.9%

2.2.2 Manufacturing

Services In 2007–08, India's industrial sector recorded a growth of 9.2 percent, contributing 19.3
60.8% percent to the GDP. The real estate sector grew at 11.7 percent during 2007–08 and is
the second largest employing sector in India.23 Indian steel production grew by 11.2
Source: Ministry of Finance
percent in 2006–07 and has maintained an average output growth rate of 12 percent per
annum over the last two years. Moreover, India is increasingly being recognised as a low-
cost producer of high-quality bulk drugs and formulations. The Indian pharmaceutical
2.2 Principal Sectors of the Indian industry ranks 4th and 13th in terms of volume and value, respectively, globally,
accounting for an 8 percent share of global sales.24
Economy
19
indiabudget
2.2.1 Agriculture 20
winentrance.com
21
The growth in the production of food grains increased at an average annual rate of 2.5 USDA
22
percent from 1950–51 to 2006–07, whereas the growth of the population averaged at CIA World Fact Book
23
Ministry of Finance
2.1 percent during the same period, making India self sufficient in terms of food grain 24
IBEF
 Doing Business in India Report 10 11
2.2.3 Services Roads: India has the second largest road network in the world, of length exceeding 3.3
million kms, carrying about 65 percent of the freight and 80 percent of the passenger
The services sector is the largest contributor to India's GDP, contributing 60.725 percent traffic. The total length of the highways and expressways in India is about 66,000 km,
to the GDP in 2007–08. While the financial services sector was estimated to grow at carrying 40 percent of the road traffic.30
26
more than 13.9 percent in 2006–07, trade, hotels, transport and communication were
expected to grow by 12.1 percent during 2007–08. The exports of the software and Shipping and Ports: India has a total of 12 major and 187 minor ports along the 7,517-
services sector grew by 32.1 percent, reaching USD 76.2 billion in revenues during km-long coastline.31 In 2006–07, Indian ports handled more than 463 MT of cargo, a
2007–08. Sectors such as transport, communications, software services, banking, growth of 9.5 percent over the previous year.
insurance and real estate are also witnessing high growth. Airports: India has more than 454 airports of which 16 are international airports. The
airports handled more than 95 million passengers and more than 1.5 million tonnes of
2.2.4 Infrastructure27
cargo during 2006–07.32
The investment layout as per the Planning Commission is as follows:
Telecommunication: India is the second largest wireless network in the world,33 with
revenues more than USD 23 billion in FY07. The industry grew by 22 percent in FY07
Infrastructure IX Plan X Plan XI Plan
over FY06. By March 2008, there were more than 300 million subscribers, of which 39.42
(1997-2002) (2002-2007) (2007-2012)
Airports 66 129 400 million were fixed line and 261.09 million34 were wireless subscribers. At present, there
Ports 50 54 933 are about 70 million CDMA35 and about 191 million37 GSM users. As of March 2008, the
Power 866 1,452 5,257 tele-density (number of people having phone connection out of 100 people) in India was
Railways 464 847 2,645 recorded at over 26 percent.36
Roads 546 994 3,686
Telecom 472 989 2,243 2.2.5 Financial Sector
Total 2,464 4,465 15,164

Note: Railway Investment includes the freight corridor; Figures in INR billion The banking and financial services sector in India is characterised by sound fundamentals
Source: expresstravelworld.com such as low Non Performing Assets (NPAs) and Basel I compliance. The Indian financial
sector is rapidly growing and has a total estimated investment opportunity of USD 40
Energy: India is among the major energy producers as well billion in five years.
one of the major energy consumers globally. The overall
installed power generation capacity in India is 143 GW, and 2.2.6 Banking
annual power generation is about 624 billion units (BU).
The banking assets in India were recorded at around USD 664 billion in 2006. The
India added an electricity generating capacity of about
banking assets of Indian banks have grown at a CAGR of 22 percent per annum over the
23,000 MW during the 10th Five Year Plan (2002-07). while
last two years. The public sector or government-owned banks accounted for more than
the target for the next five year plans duration is 73, 000
75 percent of the assets of the overall market. The three largest foreign banks—Standard
MW. 28
Chartered Bank, Citibank and HSBC—hold more than 65 percent of the total assets with
Railways: The total track length in 2006–07 was 63,327 foreign banks. The Reserve Bank of India (RBI) has issued guidelines for the adoption of
km with 8,153 locomotives in use.29 The freight handled by Basel II by March 2008.37
the railways during April–December 2007 was 571.35
million tonnes (MT), a growth of 8.2 percent over the
freight movement in the previous year. The number of
passengers travelling by the Indian Railways in 2006–07 was
6,219 million. 30
Investment Commission of India
31
25
Investment Commission of India
CIA World Factbook 32
Investment Commission of India
26 33
Ministry of Finance TRAI
27 34
MOSPI Annual Report TRAI
35
28
World Bank AUSPI
36
29 COAI
Indianrailways 37
TRAI
 Doing Business in India Report 12 13
Types of Number Of Total Assets Total Assets 2.2.8 Other Institutions - MF, Insurance, PE and VC
Banks (2007) Banks (INR Billion) (USD Billion)**
State Bank of India 8 8,057.95 201.45 The Indian insurance sector is valued at USD 30 billion, of which the life insurance
and Associate Banks
segment was worth USD 25 billion. Some of the major players in the insurance sector are
Nationalised Banks 21 16,341.90 408.55
Life Insurance Corporation, General Insurance Corporation, AIG, Aviva, MetLife, New
Scheduled 52 7,454.03 186.35
Commercial Banks York Life, Prudential, Allianz, Sun Life, Standard Life and Lombard. The mutual funds
Foreign Banks 65 2,780.16 69.50 industry is a growing segment in the Indian financial services sector with assets under
Regional Rural Banks 243 1,057.67 26.44 management (AUM) of more than USD 78 billion in FY 2006, marking a growth of 62
Total 389 35,691.71 892.29 percent over the previous year. The AUM is expected to grow by 15 percent till 2010.
Source: RBI - Statistical Tables Related to Banks in India - 1979-2007
There are more than 44 venture capital and over 100 private equity funds operating in
2.2.7 Capital Market India.39

The Indian capital market grew both in terms of depth and breadth during 2007. The
Bombay Stock Exchange (BSE) Index scaled a high of 20,000 by the close of the calendar
2.3 External Trade
year 2007 while the National Stock Exchange (NSE) Index almost reached the 6,100 The exports for the period of April-March 2008 stood
mark. The total capital raised through different instruments in the primary market was at USD 155.5140 billion while the imports for the same
31.5 percent higher in 2007 as compared to that in 2006. The total number of IPOs issued period were USD 235.91 billion. The trade deficit for
in 2007 was 100 as compared to 75 in the previous year, and the net flow of savings into the period of April-March 2008 was USD 80.39 billion,
mutual funds increased by more than 30 percent in 2007 and reached INR 138,270 crore. which is more than the trade deficit of USD 59.32
The price to earnings (P/E) ratio was higher at around 27 by end-2007 as compared to 21 billion for the same period in 2007. Though the deficit
in the previous year.38 The market capitalisation in India nearly doubled in 2007 as shown increased, it was not a cause for major concern as the
below: foreign exchange reserves increased to reach USD
309.741 billion during 2007-08. Further, the imports
were directed towards industrial inputs and capital
goods, which were required to expand capacity and
Market Capitalisation (INR CRORE)
aid growth. The Indian economy has been growing at
Index 2007 (INR 2007 (USD 2006 (INR 2006 (USD
Billion) Billion)* Billion) Billion)** an average growth rate of about 8.6 percent per
BSE 500 64,708.81 1617.72 33,365.09 775.93 annum over the last three years. The growth rate in
BSE Sensex 28,613.41 715.34 1,758.65 40.90 2006-07 was 9.4 percent and the growth rate in the
Nifty 35,225.27 880.63 19,756.03 459.44 first quarter of 2007-08 was 9.3 percent.
Nifty Junior 6,436.23 160.91 3,336.93 77.60
Total 134,983.72 3374.59 58,236.76 1354.34 Table: India’s Trade Update

60 6.00%
* 1 USD = 40 INR 40 4.00%
** 1 USD = 43 INR

USD Billion
20 2.00%

Percent
0 0.00%
FY03 FY04 FY05 FY 06 FY07 FY08E(Apr-
-20 -2.00%
Sep)
-40 -4.00%
-60 -6.00%
-80 -8.00%
Invisibles (LHS) Trade Deficit Trade Deficit % to GDP (RHS)
Invisibles % to GDP (RHS) Source: Ministry of Finance

39
PIB
40
Investment Commission of India
38 41
Investment Commission of India Ministry of Commerce
 Doing Business in India Report 14 15
Table: Performance of Export and Import (2000-2007)
Export and Import Trend 2.5 Foreign Investment Trends
55
During April 2007 - March 2008, a total inflow of USD 25.57 billion
Annual
35
Percent has been recorded.45 The central government has estimated total
Change
15 FDI inflows of more than USD 30 billion for the financial year
-5 2007-08, primarily due to investments in the auto and electronics
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
manufacturing industries. The estimated FDI would constitute 3.3
Exports Imports Source: Exim Key
percent of the GDP as compared to 2.5 percent of the GDP in the
previous year. During 2006-07, the FDI inflows were USD 19

2.3.1 Balance of Payments
India was comfortably positioned with regard to the balance of payments during 2007-
08. The merchandise trade deficit, on balance of payments basis, for the quarter
October-December 2007 was recorded at USD 25.35 billion as against USD 16.53
billion for the previous quarter. The current account deficit during the same period was
recorded at USD 5.39 billion.42
2.3.2 External Debt
The total debt of India was estimated at INR 19.57 trillion during 2007-08. The internal
debt of the federal government was estimated at INR 18.44 trillion, while the external
debt was INR 1.13 trillion at the end of 2007-08. The external debt increased to 2.4
percent of the GDP in 2007-08 from 1.7 percent in 2003-04 whereas the internal debt
declined to 39.3 percent from 41.4 percent during the same period. Although in absolute
terms the external and internal debts have been increasing, as a percent of GDP, they
have decreased from 43.1 percent in 2003-04 to 41.7 percent in 2007-08.43
billion, of which USD 3.5 billion were reinvested earnings.46 India is
perceived by international investors as second hottest investment
destination by a number of international surveys.
2.5.1 Foreign Institutional Investments
The net investments made by foreign institutional investors (FIIs) during FY 2006 were
USD 9,332 million as against USD 10,172 million in FY 2005.47 By the end of 2006, the
number of FIIs registered with the Securities and Exchange Board of India (SEBI)
exceeded 1,000, while FIIs having offices in India increased to 1,030. In 2006, 217 new FIIs
opened their offices in India.
International Competitiveness
India has been making impressive strides in terms of the competitiveness of its workforce
when compared to the competitiveness of the global workforce. According to a study
conducted by IMD International, India was among the fastest improving countries on the
world competitiveness scorecard.

Abundance of Human Resources: India is a resource-rich country, with a plentiful

2.4 Fiscal Developments supply of human resource, unskilled and skilled manpower, at a competitive price.

The fiscal deficit for 2007-2008 was 3.3 percent of the India's Stride on World Competitiveness Scorecard

Rank (1-Bes t, 100-Wors t)

GDP. The fiscal deficit was reported at INR 82,256 crore 100
90
(approximately USD 20.56 billion) in the first seven 80
70 50 39
months of 2007-08 as compared to INR 81,000 crore 60
50 34 29 27
40
(approximately USD 20.25 billion) in the previous year. 30
20
The revenue deficit of the centre was reported at INR 10
0
57,562 crore (approximately USD 14.39 billion) up to 2003 2004 2005 2006 2007
end-October 2007, declining from INR 67,299 crore Source: IMD International
(approximately USD 16.82 billion) in the previous year.44
Skilled Manpower: India is among the countries where the shortage of skilled manpower
is the least severe in the world, according to an annual study conducted by Manpower Inc.
India and the UK lead the chart with only 12 percent of the employers finding it difficult to
fill vacancies.

42
Ministry of Finance 45
DIPP
43 46
FinancialExpress hindustantimes
47
44
thehindubusinessline SEBI
 3
Demographic Dividends: India is well positioned to harness its demographic
dividend for a prolonged duration in the future. India's working population (in the age

% age of employers struggling to

Global Skilled Manpower Shortage Survey, 2008
100
90 73
Business Regulations
fill the vacancies
80 63
70 61 57
60 52
50 31 31 31 31 31 31 31 22 31
40 12 12 15 31 18 31
30
20
10
0
Romania Japan Hong Singapore Australia UK India US China Italy
Kong
Countries World Source: Manpower Inc.

Business Regulations
group of 15–64 years) accounted for 62.9 percent of its total population in 2006.
According to Economic Survey for 2007–08, this figure is expected to increase steadily
to 68.4 percent of the total population by 2026.48

The Knowledge Edge: India has a vast reservoir of English-speaking knowledge

professionals such as engineers, doctors, managers, accountants, scientists and
technicians. The country produces about 2.5 million graduates annually, specialising in IT,
engineering and life sciences.

2.5.2 Proliferating R&D Centres:

With a plethora of knowledge workers, India is now seen as a preferred location for
carrying out research and development work. The salary levels for the knowledge
professionals in India are among the lowest in the world, which has led to the
proliferation of research and development centres in India. Today, India is a global hub
for R&D activities in the fields of Information Technology, Automobile Engineering,
Technology, Pharmaceuticals, Biotechnology and Life Sciences, Clinical Research,
Energy, Nanotechnology and others. Some of the globally renowned companies setting
up their centres in India are Microsoft, IBM, DuPont, Monsanto, General Electric, AMD,
Texas Instruments, Cisco, Intel, General Motors, Astra Zeneca, DaimlerChrysler,
Siemens, Hyundai, Delphi, Analog Devices, Hewlett Packard and Motorola.49

48
economictimes
49
alibaba.com

3.1 An Overview
The Indian business regulatory environment is comprised broadly of the following
aspects:
1. Foreign Exchange: Foreign trade, capital transactions, inward remittances of
equity, sale/transfer of shares to residents, repatriation of profit/dividends, royalties
and technology fees, repatriation of share capital following disinvestment or winding
up, capital gains and savings, overseas borrowings, overseas placement of equity,
acquiring or investing in overseas ventures - Covered by the Foreign Exchange
Management Act (FEMA)
2. Company Affairs: Conduct, accounting practices and compliance - Governed by
the Companies Act
3. Capital Market Regulations: Listing, IPOs, rights and preferential issue of
capital, share buyback and delisting - Under the ambit of the Securities and Exchange
Board of India (SEBI) guidelines
4. Business and Trade Practices Regulations: Consumer Protection Act,
Substantial Acquisition and Takeovers Act, Competition Policy, etc.
5. Labour Laws and Social Security System: Industrial dispute act, Workmen's
Compensation Act 1923, The Equal Remuneration Act etc.
6. Intellectual Property Regulations: Patents Act, Trademarks Act, Industrial
Designs Act, Copyrights Act
7. Corporate Governance:
8. Environment Regulations: Establishment, licensing, pollution control,
employment regulations, industrial safety and working conditions, workmen
statutory benefits registrations – Covered under Industrial Policy, Industrial
Disputes Act, Factories Act, Payment of Bonus Act and Environment Protection Act
3.2 Foreign Exchange Regulations
Reserve Bank of India (RBI ) - the Central Bank administers the Foreign Exchange
Management Act (FEMA) of 1999. FEMA was enacted for the purpose of facilitation of
external trade and to develop the foreign exchange market in India.
Highlights of the exchange controls in India include the following:
n
The rupee is freely convertible on the current account.
n
Barring a few exceptions, the rupee is also convertible on capital account for non-
residents.
n
Profits earned, dividends and proceeds out of the sale of investments, subject to
sectoral policies, can be fully repatriated for foreign investments.
Doing Business in India Report 18 19
REPATRIATION OF INVESTMENT CAPITAL AND PROFITS EARNED
IN INDIA
(i) All foreign investments are freely repatriable, and except for cases where NRIs
choose to invest specifically under non-repatriable schemes. Dividends declared on
foreign investments can be remitted freely through an Authorised Dealer.
(ii) Non-residents can sell shares on stock exchange without prior approval of RBI and
repatriate through a bank the sale proceeds if they hold the shares on repatriation
basis and if they have necessary NOC/tax clearance certificate issued by Income
Tax authorities.
(iii) For sale of shares through private arrangements, Regional offices of RBI grant
permission for recognized units of foreign equity in Indian company in terms of
guidelines indicated in Regulation 10.B of Notification No. FEMA.20/2000 RB dated
May '2000. The sale price of shares on recognized units is to be determined in
accordance with the guidelines prescribed under Regulation 10B(2) of the above
Notification.
(iv) Profits, dividends, etc. (which are remittances classified as current account
transactions) can be freely repatriated.
Source: Investing in India, Department of Industrial Policy and Promotion
3.3 Trade Regulations in India
3.3.1 Import
The Government of India follows a free trade regime except for few restrictions due to
international commitments and local conditions. Such items are broadly classified into
the following categories:
n
Prohibited items - The category of prohibited items includes tallow, animal fats,
certain items under the Environment Protection Act, Wild Life Act, Indian Trade
Merchandise Marks Act and Arms Act.50
n
Restricted items - The import of restricted items requires a specific import licence
or special notification and permission. These restrictions are generally on the
account of phytosanitary considerations for propagating materials (seeds, cuttings,
etc.). The restrictions may also be on the basis of the non-essentiality of items such
as alcohol and certain consumer goods.
n
Canalised items - The canalised items can only be imported through designated
State Trading Enterprises (STEs). At present, items such as edible oil, wheat,
fertilisers and certain petroleum products come under the purview of canalised
items.
50
indiamart.com
 Doing Business in India Report 20 21
3.3.2 Export The Act lays down the conditions that shall be complied before the
termination/retrenchment or layoff of a workman who has been in continuous service
Again a free trade regime exists for exports. In act like most of the countries exports are
for not less than one year under an employer. The workman shall be given one month's
facilitated and incentiwised within accepted international rules and norms. Export
notice in writing, indicating the reasons for retrenchment and the period of the notice
restricted items fall in the following four categories:
that has expired or the workman has been paid, in lieu of such notice, wages for the
n
Prohibited items - This category includes items, the export of which have been period of the notice. The workman shall also be paid compensation equivalent to 15 days'
prohibited on religious, environmental and/or bio-conservation grounds. This average pay for each completed year of continuous service. A notice shall also be served
category includes items such as all wild animals and exotic birds and their parts, on the appropriate government.
endangered plant/species declared under the CITES convention, seashells of certain
Workmen's Compensation Act 1923
species and human skeletons.
The Workmen's Compensation Act
n
Restricted items - This category includes chemicals that are included in the
provides that compensation shall be
Chemical Weapons Conventions. It also includes cattle, camel, horses and certain
provided to a workman for any injury
seasonal agriculture products (in which India is not fully self-sufficient). Some of the
suffered during the course of his
items in this category may also require an export quantity registration or licence
employment or to his dependents in
from the Export Development Authority. Such items include skimmed milk powder,
the case of his death.
pulses, edible oil in bulk, sugar, wheat and rice (excluding basmati rice). Restrictions
may also be imposed by the destination country on the grounds of health and Minimum Wages Act 1948
phytosanitary grounds. The Minimum Wages Act prescribes
n
Canalised items - This category includes certain mineral products such as mica, iron minimum wages for all employees in all
ore, other ores, slag and ash, petroleum crude, naphtha, kerosene and motor spirit. establishments or working at home in certain employments specified in the schedule of
Certain state agencies include onion, and niger seeds in the category of canalised the Act. Central and State Governments revise minimum wages specified in the schedule
items. from time to time .

n
Import safeguards - Anti dumping, quality standards Payment of Wages Act 1936

The Payment of Wages Act regulates issues relating to time limits within which wages
3.4 Labour Laws and Social Security shall be distributed to employees and that no deductions other than those authorized by
the law are made by the employers.
System Employees Provident Fund and Miscellaneous Provisions Act 1952
Government Regulations The Act provides for establishments of a contributory Provident Fund in which
Industrial Disputes Act employees' contribution shall be at least equal to the contribution payable by the
employer.
The Industrial Disputes Act 1947 provides for the investigation and settlement of
industrial disputes in an industrial establishment relating to lockouts, layoffs, The Equal Remuneration Act
retrenchment etc. It An Act to provide for the payment of equal remuneration to men and women workers
provides the machinery and for the prevention of discrimination, on the ground of sex, against women in the
for the reconciliation and matter of employment and for matters connected therewith or incidental thereto.
adjudication of disputes
Source: Indian embassy in US website, Labour ministry
or differences between
the employees and the
employers. Industrial 3.5 Intellectual Property Rights51
undertaking includes an India provides protection to Intellectual Property Rights (IPR) in accordance with its
undertaking carrying any obligations under the TRIPS Agreement of the WTO.
business, trade,
manufacture etc.
51
Embassy of India

Patents, Copyrights, Trademarks, Geographical indications
Patents
India has undertaken exhaustive amendment of its Patents Act 1970, three times since
1999. Now Indian Patents Act is fully compliant with India's obligations under the TRIPS
Agreement of the WTO. The three amendments that were carried out since 1999,
introduced the following main changes in the old Patents Act:-
1. India carried out first amendment in the Patents Act in 1999 and introduced
exclusive marketing rights and mail box facility for inventions relating to chemical and
pharmaceutical products. India introduced these transitory provisions as India had
availed of the transition period available till 01 January 2005 to developing countries in
introducing product patent protection to all areas.
2. India carried out an exhaustive 2nd amendment to the Patents Act in year 2001. This
amendment brought the Indian Patents Act in compliance with India's obligations under
the TRIPS Agreement.
3. India again carried out 3rd amendment of the Patents Act in year 2005 and
introduced product patents protection for chemicals and pharmaceutical products.
Copyrights and related rights
India's copyright law, laid down in the Indian Copyright Act 1957 as amended by
Copyright (Amendment) Act 1999, fully reflects the Berne Convention on Copyrights,
to which India is a party. Additionally, India is party to the Geneva Convention for the
Protection of Rights of Producers of phonograms and to the Universal Copyright
Convention.
The copyright law has been amended periodically to keep pace with changing
requirements. The recent amendment to the copyright law, which came into force in
May 1995, has ushered in comprehensive changes and brought the copyright law in line
with the developments in satellite broadcasting, computer software and digital
technology. The amended law has made provisions for the first time, to protect
performer's rights as envisaged in the Rome Convention.
Several measures have been adopted to strengthen and streamline the enforcement of
copyrights. These include the setting up of a Copyright Enforcement Advisory Council,
training programmes for enforcement officers and setting up special policy cells to deal
with cases relating to infringement of copyrights
Trademarks
India provides trademark protection for marks of goods and services, collective marks,
certification trademarks and well-known marks under the Trademarks Act 1999.
Application for registration of a trademark should be filed with the trademark registry.
Trademark is registered after publication in the trademarks journal to invite opposition
and after further examination. Registration is not must for protection, however, it is
mandatory for taking action against infringement. Registration is valid for an initial
period of ten years and can be renewed for further period of ten years.
Doing Business in India Report 22 23
Police officers are empowered and seized without warrant the counterfeit goods and
machinery used to commit the offence. Penalties ranging from six months to three years
and fines have been prescribed in the Act for trademarks violations
Geographical indications
Protection to geographical indications is provided under the Geographical Indications of
Goods (Registration and Protection) Act 1999.
A geographical indication may be registered with the Controller General of Patents,
Designs and Trademarks for all goods originating in a definite territory of a country, or a
region or locality in that territory. The Geographical Indications Act provides for
additional protection of higher level to goods notified by the Central Government.
Registration of a geographical indication is for ten years with possible renewal for further
ten-year periods.
Source:indianembassy.org
3.6 Corporate Governance
Some corporate governance guidelines specified for all public listed companies are given
below:
1. The Board of Directors (BoD) should have Non-executive Directors. Also,
Independent Directors, who have no monetary interest, except remunerative
transactions, with the company and its allied entities, should constitute at least one-
third of a BoD's strength where the Chairman is a Non-executive Director.
2. All companies should have an audit committee of at least three members (with all
being Non-executive Directors and at least two being independent and at least one
having adequate financial and accounting knowledge). The committee must meet at
least thrice a year and perform its role as specified in the guidelines; primarily
ensuring the credibility of its financial statement, and other compliance norms.
3. The company should give a Management Discussion and Analysis Report with the
Annual Report to the shareholders. It should outline the relevant sector specific
issues, risks and key internal aspects of the company.
4. The Annual Report should have a section on corporate governance. The company
should also obtain a compliance certificate from statutory auditors.
3.7 Environment Regulations
All industrial units in India need prior environmental
approval from State Pollution Control Boards under
the Water Pollution Act and Air Pollution Act of
India. The Government of India has identified a list of
17 highly polluting industries, which include steel,
aluminium, pesticides, refineries, paper, leather,
dyes and pigments. The industrial units falling under
this list are required to establish captive effluent
 4
treatment plants. These effluent treatment plants are required to meet the specified
discharge levels corresponding to the activities of the industrial unit. The judiciary in
India has also been highly vigilant in matters concerning public health and safety over the
last few years.

Technical and Quality Standards

Taxation and
In India, all businesses are mandatorily required to meet certain quality standards,
especially for the products and services affecting public health, hygiene and public safety.
Commercial Laws
The Ministry of Health has instituted certain safety standards, which have to be fulfilled
by the business units involved in food, medicines and food processing, and by those
associated with service industries. Services such as public transport and civil
construction are also required to meet strict safety standards.

Commercial Laws
Taxation and
I
ndia has a fairly well developed tax structure. The principal taxes/duties that the
union government levies are income tax (except tax on agricultural income, which
are levied by the state governments), customs duties, central excise and sales tax and
service tax. The main taxes levied by the state governments are sales tax, stamp duty,
state excise, land revenue, tax on professions, etc. Local government bodies are
mandated to tax properties, Octroi and utilities such as water supply and drainage.

Owing to the process of economic liberalisation that began in 1991, the tax system in
India has undergone a substantial change. Some of the changes are as follows:
Reduced
n customs and excise duties; peak customs duty at 10%
Lower
n corporate tax
Widening
n of the tax base
Rates
n AEAN bound; GST regime by 2010.

4.1 Taxation of Foreign Companies
In Indian tax laws, domestic and foreign companies are taxed differently. Indian
companies (FDI/WoS/JV incorporated in India) are taxed on their global income, while
foreign companies (those incorporated outside India) are taxed only on the income from
Indian operations. Indian income includes royalties, technical service fees, dividends and
capital gains on the sale of Indian company shares, besides business income emanating
from branch or project operations. Some segments of business expenditure, such as
entertainment expenses, interest remittances overseas without withholding taxes and
administrative costs of overseas headquarters, are excluded or capped for calculating
net income.
4.1.1 Liaison Office/Representative Office
Approval for establishing a liaison office in India is granted by the Reserve Bank of India
(RBI). A liaison office is not taxable in India as it is not allowed to conduct any commercial
activity.
A Liaison Office can undertake the following activities in India:
i) Representing in India the parent company/group companies.
ii) Promoting export import from/to India.
iii) Promoting technical/financial collaborations between parent/group companies and
companies in India.
iv) Acting as a communication channel between the parent company and Indian
companies.
Source: RBI
4.1.2 Project Office
The RBI now grants permission to foreign entities to establish Project Offices subject to
some specific conditions. Such offices can undertake activity that is related and incidental
to the execution of the project. Project Offices may also remit outside India the surplus
of the project on its completion, the general permission for which has been granted by
the RBI.
A project office is treated as a foreign company for taxation purposes. At present, the
tax rate is 41.2 percent (tax rate of 40 percent, surcharge of 3 percent and education
cess of 2 percent) of the profits of the Indian project branch.
A Project Office can undertake the following activities in India provided they have
secured from an Indian company to execute a project in India, and:
(a) the project is funded directly by inward remittance from abroad;or
(b) the project is funded by a bilateral or multilateral International Financing Agency; or
(c) the project has been cleared by an appropriate authority; or
(d) a company or entity in India awarding the contract has been granted Term Loan by a
Public Financial Institution or a bank in India for the project.
Source: RBI
Doing Business in India Report 26 27
4.1.3 Branch Office
Permission for setting up Branch Offices is granted by the RBI. The tax rate is same as that
of the Project Office (mentioned above). No other taxes are levied on the repatriation of
the dividend for Branch Offices.
Branch Offices are permitted to represent the parent/group companies and undertaking
the following activities in India:
(i) Export/Import of goods*
(ii) Rendering professional or consultancy services.
(iii) Carrying out research work, in which the parent company is engaged.
(iv) Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.
(v) Representing the parent company in India and acting as buying/selling agent in India.
(vi) Rendering services in Information Technology and development of software in India.
(vii) Rendering technical support to the products supplied by parent/group companies.
(viii) Foreign airline/shipping Company.
Source: RBI
4.1.4 Wholly Owned Company/Subsidiary
A wholly owned subsidiary/company is an Indian corporate entity-a private or public
limited company-and is taxed like Indian companies. 100% of its equity is held by its
foreign holding company
4.1.5 Foreign Institutional Investors(FIIs)
FIIs , which are incorporated outside India , are allowed
to invest in Indian stock market after registration with
Securities and Exchange Board of India (SEBI). Dividends,
interest, royalties and capital gains earned on portfolio
investments of registered foreign institutional investors
(FIIs) are treated in a similar manner as income received
from Indian subsidiaries. Long-term and short-term
capital gains from the sale of securities, for the FIIs, are
10 percent and 30 percent, respectively.
 Doing Business in India Report 28 29
4.1.6 Double Taxation Avoidance Agreements (DTAA) Country Dividends Interest Royalties
(%) (%) (%)
India has entered into DTAA with 65 countries. The table below lists the countries with
the agreed tax rates:52 Mauritius 15 20 15
Mongolia 15 15 15
Country Dividends Interest Royalties Morocco 10 10 10
(%) (%) (%)
Namibia 10 10 10
Australia 15 15 15
Nepal 15 15 15
Austria 20 20 30
Netherlands 10 10 10
Bangladesh 15 10 10
New Zealand 15 10 10
Belarus 15 10 15
Norway 15 15 30
Belgium 15 15 20
Oman 12.5 10 15
Brazil 15 15 15
Philippines 20 15 15
Bulgaria 15 15 20
Poland 15 15 22.5
Canada 25 15 15
Portugal 15 10 10
China 10 10 10
Qatar 10 10 10
Cyprus 15 10 15
Romania 20 15 22.5
Czechoslovakia 20 15 30
Russian Federation 10 10 10
Czech Republic 10 10 10
Singapore 15 15 15
Denmark 20 15 20
South Africa 10 10 10
Egypt 20 20 30
Spain 15 15 20
Finland 15 10 20
Sri Lanka 15 10 10
France 10 15 10
Sweden 10 10 10
Germany 10 10 10
Switzerland 15 15 20
Greece 20 20 30
Syria 0 7.5 10
Hungary 15 15 30
Tanzania 15 12.5 20
Indonesia 15 10 15
Thailand 20 20 15
Israel 10 10 10
Trinidad and Tobago 10 10 10
Italy 20 15 20
Turkey 15 15 15
Japan 15 15 20
Turkmenistan 10 10 10
Jordan 10 10 20
United Arab Emirates 15 12.5 10
Kazakhstan 10 10 10
United Kingdom 15 15 15
Kenya 15 15 20 United States 20 15 15
Korea 20 15 15 Uzbekistan 15 15 15
Kyrgyzstan 10 10 15 Vietnam 10 10 10
Libya 20 20 30 Zambia 15 10 10
Malaysia 20 20 30 Non-treaty countries 0 20 20
Malta 15 10 15
52
DIPP, Ministry of Commerce and Industry

4.2 Indirect Taxes
4.2.1 Central Excise Duty
Manufacturing in India comes under the Central Excise Act 1944 and the Central Excise
Tariff Act 1985.
Most of the products attract excise duties at the rate of 16 percent; some products also
attract a special excise duty at the rate of 8 percent in addition to the 16 percent excise
duty. Additionally, a 2 percent education cess is levied on the aggregate of the excise
duty. Excise duty is levied on an ad valorem basis or based on the maximum retail price in
certain cases.53
4.2.2 Sales Tax/VAT
Sales tax has been replaced with the value added tax system (VAT). It is levied by state
governments and is only applicable on goods and not on services. The tax slabs range
from 0 percent to 12.5 percent and varies from state to state.
4.2.3 Customs Duty
The Customs Act 1962 and the Customs Tariff Act
1975 govern the rate of customs duty. Imported goods
in India are levied a basic customs duty, additional
customs duty and education cess. The rates of basic
customs duty are specified by the Tariff Act. The peak
rate of the basic customs duty has been reduced to 10
percent for industrial goods. Additional customs duty is
equal to the excise duty levied on similar goods
manufactured in India. An education cess of 2 percent is
applicable on the aggregate of customs duty on
imported goods, which is applicable on the transaction
value of goods.
Rates of customs duty for goods imported from
countries with which India has entered into free trade
agreements, such as Thailand and Sri Lanka, as well as BIMSTEC, South Asian and
MERCOSUR countries, are provided on the website of the Central Board of Excise and
Customs (CBEC).54
4.2.4 Export Duties
Export duties and cess apply to a limited list of 26 items, including certain agriculture
commodities. The tariff ranges from 0.5 percent to 10 percent and in most of the cases, a
floor price is set for export FOB prices.
54
Central Board of Excise and Customs
53
Central Board of Excise and Customs
Doing Business in India Report 30 31
4.2.5 Service Tax
Service tax is applicable at the rate of 10 percent (in addition to 2
percent education cess) on certain taxable services provided in
India by specified service providers. There is no service tax on
taxable services provided in India if the payment for such services
is received in convertible foreign exchange in India and the same
is not repatriated outside India. The Government of India (GoI)
guidelines on the Cenvat Credit Rules maintain that a service
provider can avail and utilise the credit of additional
customs/excise duty for service tax payment. According to the
GoI guidelines, credit can also be provided on payment of service
tax on input services for the discharge of output service tax liability.55
4.3 Incentives and Subsidies
Some of the corporate income tax exemptions are listed below:
v
100 percent EOUs either in India's six Export Promotion Zones (EPZs) or in other
areas under customs-bonded premises are entitled to 100 percent income tax
exemption till 31 March 2009-10.
v
Financial institutions and banks are allowed deductions of up to 40 percent, if their
profits are used or set aside for deployment in infrastructure development funds.
v
Entities in infrastructure development are given a deduction of 100 percent for the
first five years and 30 percent for the next five years for the calculation of taxable
income.
v
Technical fees received by foreign companies for services rendered in projects
related to Indian security are exempted.
Some of the export subsidies and incentives are listed below:
v
Customs duty on all imported capital goods and raw materials and other inputs is
exempted, in addition to excise duty and sales tax on domestic inputs, for all export-
oriented units.
v
There is a provision for duty-free import replenishment of inputs, subject to basic
input-output norms for approximately 600 export categories.
55
Service Tax Rules
 5
FISCAL INCENTIVES FOR SEZ UNITS

Different minimum land requirement for different class of SEZs;

n

Every SEZ is divided into a processing area where alone the SEZ units would come up
n

and the non-processing area where the supporting infrastructure is to be created; Foreign Investment
Simplified
n procedures for development, operation and maintenance of the Special
Economic Zones and for setting up units and conducting business in SEZs; Regulations
Single window clearance for setting up of an SEZ;
n

Single window clearance for setting up a unit in a Special Economic Zones;

n

Single window clearance for matters relating to Central as well as State Governments;
n

Simplified
n compliance procedures and documentation with an emphasis on self
certification.

Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT

ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

Foreign Investment
Regulations
 Doing Business in India Report 34 35
Approvals of composite proposals involving foreign investment/foreign technical
collaboration is also granted on the recommendations of the FIPB. Application for all FDI
cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units
(EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA),
Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA
in Department of Industrial Policy & Promotion. Applications can also be submitted with
Indian Missions abroad who forward them to the Department of Economic Affairs for
5.1 Government of India's Policy on further processing. Application can be made in Form FC-IL, which can be downloaded
from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also
Foreign Direct Investment accepted. No fee is payable.

India has an extremely liberal and transparent foreign direct investment (FDI) policy in Source: Investing in India, Department of Industrial Policy and Promotion
place. A snapshot of the various provisions for FDI is provided below. Please refer to the
respective government ministries for detailed information on these policies. 5.2 Sectors where FDI is Prohibited
POLICY ON FOREIGN DIRECT INVESTMENT The extant policy does not permit FDI in the following cases:
FDI up to 100% is allowed under the automatic route in all activities/sectors except the i. Gambling and betting;
following which require prior approval of the Government :
ii. Lottery Business,
i. Activities/items that require an Industrial Licence (Refer para2.1);
iii. Atomic Energy
ii. Proposals in which the foreign collaborator has an existing financial / technical
iv. Retail Trading except in single brand upto 51%
collaboration in India in the 'same' field(Refer Press Note no. 1 of 2005 series),
Source: Investing in India, Department of Industrial Policy and Promotion
iii. Proposals for acquisition of shares in an existing Indian company in:

a. Financial services sector and

b. Where Securities & Exchange Board of India(Substantial Acquisition of Shares

and Takeovers )Regulations, 1997 is attracted;

iv. All proposals falling outside notified sectoral policy/caps or under sectors in which
FDI is not permitted. (Refer Annexure II).

FDI policy is reviewed on an ongoing basis and changes in sectoral policy/sectoral equity
cap are notified through Press Notes by the Secretariat for Industrial Assistance (SIA),
Department of Industrial Policy & Promotion. All Press Notes are available at the
website (www.dipp.gov.in). FDI Policy is also notified by Reserve Bank of India (RBI)
under Foreign Exchange Management Act (FEMA) .Please refer to RBI website
(www.rbi.org.in).

PROCEDURE UNDER AUTOMATIC ROUTE

FDI in sectors/activities to the extent permitted under automatic route does not require
any prior approval either by the Government or RBI. The investors are only required to
notify the Regional office concerned of RBI within 30 days of receipt of inward
remittances and file the required documents with that office within 30 days of issue of
shares to foreign investors.

PROCEDURE UNDER GOVERNMENT APPROVAL

FDI in activities not covered under the automatic route, requires prior Government
approval and are considered by the Foreign Investment Promotion Board (FIPB).
 Doing Business in India Report 36 37

5.3 FDI in SSI Units 5.6 Investment Schemes and Incentives of

REGULATIONS FOR THE SSI SECTOR the Government of India
SMALL-SCALE SECTOR
There are special provisions for
An industrial undertaking is defined as a small-scale unit, if the capital investment in plant companies that have been set up
and machinery exceeds twenty five lakh rupees but does not exceed five crore rupees.. for the exclusive export of
Small-scale units can get registered with the Directorate of Industries/District Industries products outside India. Such a
Centre of the State Government. Such units can manufacture any item, and are also free
unit can be set up in:
from locational restrictions. The Government has reserved 34 items for exclusive
manufacture in the small-scale sector. A 100
n percent Export
Oriented Unit (EOU)
(List available at www.dipp.gov.in)
within the domestic
MANUFACTURE OF ITEMS RESERVED FOR SMALL-SCALE SECTOR territory
Non small-scale units can manufacture items reserved for the small-scale sector only A notified
n Free Trade
after obtaining an industrial license. In such cases, the non-small scale unit is required to Zone (FTZ)
undertake an obligation to export 50 per cent of the production of SSI reserved items.
An Export
n Processing Zone (EPZ); an EPZ is a specified bonded area promoted
FDI IN SSI UNITS
by the government to develop exports
A small-scale unit can not have more than 24 per cent equity in its paid up capital from
any non- SSI entity, either foreign or domestic. If the equity from another company 5.6.1 EOUs: Benefits
(including foreign equity) exceeds 24 per cent, even if the investment in plant and RECENT POLICY CHANGES IN THE EOU SCHEME
machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status
nProcurement and export of spares/components up to one and half percent of the
and shall require an industrial license to manufacture items reserved for small-scale
FOB value of exports will be allowed to the same consignee/buyer of the export
sector.
article within the warranty period. The exports of such spares/components could be
Source: Investing in India, Department of Industrial Policy and Promotion effected separately from the capital goods.

nIn order to facilitate the smooth functioning of the EOU units, the Development
5.4 Investment in Indian Companies Commissioners will fix time limits for finalizing the disposal of matters relating to
EOUs.
Foreign business entities are allowed to take a shareholding in Indian companies, which
has to be accordance with the same guidelines as those applicable while applying for nNew units engaged in export of Agriculture/Horticulture/Aqua-Culture products
fresh investments through have been now allowed to remove capital goods inputs to the DTA farm on
producing bank guarantee equivalent to the duty foregone on the capital
the automatic route
n
goods/input proposed to be taken out.
the specific approval route
n
nThe EOU units in Textile Sector are allowed to dispose off the left over
material/fabrics up to 2 per cent of Cost Insurance Freight (CIF) value of imports, on
5.5 Investment in Overseas Issues of consignment basis. Recognizing that settling the accounts for every consignment is
complex and time consuming it has been decided to allow disposal of left over
Indian Companies material on the basis of previous year's imports.
Indian business entities can raise foreign currency capital Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT ORIENTED UNITS
via Foreign Currency Convertible Bonds (FCCBs) and by (EOUs), Department of Commerce ,Government of India
issuing ordinary equity shares to foreigners via Global
Depository Receipts (GDRs) or American Depository
Receipts (ADRs).
 Doing Business in India Report 38 39
5.6.2 Taxation SEZ units enjoy the following benefits:

SPECIAL ECONOMIC ZONES (SEZs) Duty free

n import/domestic procurement of goods for development, operation
and maintenance of SEZ units.
TAX EXEMPTIONS TO SEZ DEVELOPERS
100 per
n cent Income Tax exemption on export income for SEZ units under
nExemption from Customs/Excise duties for development of SEZs for authorized
Section 10AA of the Income Tax Act for first 5 years, 50 per cent for next 5 years
operations approved by the Board of Approval.
thereafter and 50 per cent of the ploughed back export profit for next 5 years.
nIncome Tax exemption on export income for a block of 10 years in 15 years under
Exemption from Minimum Alternate Tax under section 115JB of the Income Tax
n
Section 80-IAB of the Income Tax Act.
Act.
nExemption from Minimum Alternate Tax under Section 115 JB of the Income Tax
Act. External
n commercial borrowing by SEZ units up to US $ 500 million a year
without any maturity restriction through recognized banking channels.
nExemption from Dividend Distribution Tax under Section 115 O of the Income Tax
Act. Exemption from Central Sales Tax, Service Tax, State Sales Tax and other levies
n
as extended by the respective State Governments.
nExemption from Central Sales Tax (CST) and Service Tax (Section 7, 26 and Second
Schedule of the SEZ Act). Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT
ORIENTED UNITS (EOUs), Department of Commerce ,Government of India
Source: SPECIAL ECONOMIC ZONES (SEZs)/EXPORT
ORIENTED UNITS (EOUs), Department of Commerce ,Government of India

5.7 Institutional and Portfolio Investments

5.6.3 Software Technology Parks (STPs)
Foreign Institutional Investors
The Government of India has launched the Software Technology Parks Scheme
n
(FIIs) can invest in Indian
to provide impetus to the electronics and software sector. The STP scheme is securities (shares, debentures,
similar to the EOU scheme. warrants, mutual funds,
STPs offer
n a single window facilitation service to investors, high speed Internet government securities and
connection, state-of-the-art derivative instruments) in both
telecommunication infrastructure, etc. the primary and secondary
capital markets.
The following can avail all the export benefits
that are offered in EOUs till 31 March 2009. FIIs are established to make
investment in Indian securities. They are required to register with the Securities and
Software export units
n
Exchange Board of India (SEBI) and have to comply with the regulations of the RBI.
Business
n process outsourcing and
POLICY ON FII INVESTMENTS
information technology enabled
services (medical transcription, Main features of the policy on investment by FII are:
remote back office, KPOs, call centres, a. FIIs are required to allocate their investment between equity and debt instruments
etc.) in the ratio of 70:30. However, it is also possible for an FII to declare itself a 100%
5.6.4 Investment in Special Economic Zones (SEZs) debt FII in which case it can make its
entire investment in debt
SEZs are duty-free areas and are deemed as foreign territory; all activities within
n
instruments.
SEZs are considered to be beyond the purview of local authorities.
b. FIIs can buy/sell securities on Stock
SEZs are set up to become positive net foreign exchange earnings.
n
Exchanges. They can also invest in
Up to 100 percent FDI is allowed via the automatic route in SEZs, but this FDI is
n listed and unlisted securities outside
subject to sectoral norms. Stock Exchanges where the price has
SEZ units enjoy the following benefits:
n
been approved by RBI.
 Doing Business in India Report 38 39

6
c. No individual FII/sub-account can acquire more than 10% of the paid up capital of an
Indian company.

d. All FIIs and their sub-accounts taken together cannot acquire more than 24% of the
paid up capital of an Indian Company. Implementation and
e. Indian Companies can raise the above mentioned 24% ceiling to the Sectoral Cap /
Statutory Ceiling as applicable by passing a resolution by its Board of Directors
followed by passing a Special Resolution to that effect by its General Body in terms
Operational Aspects
of Press Release dated Sept.20, 2001 and FEMA Notification No.45 dated Sept. 20,
2001. No permission from RBI is needed so long as the FIIs purchase and sell on
recognized stock exchange. All non-stock exchange sales/purchases require RBI
permission.

Source: Investing in India, Department of Industrial Policy and Promotion

Implementation and
Operational Aspects
 Doing Business in India Report 42 43
INCORPORATION OF COMPANY
6.1 Entry options for Foreign Companies
COMPANY'S ACT 1956
in India Incorporation of a company in India is governed by the Companies Act, 1956. Part II of
the Act deal with the incorporation of a company and matters related to.
Any foreign company that wants to set up operations in India can utilise any of the
following options: PRIVATE COMPANY

Entry Options for Foreign Companies in India Private company means a company which has a minimum paid-up capital of Rs,1,00,000/-
or such higher paid-up capital as may be prescribed, and by its articles,
A foreign company planning to set up business operations in India has the following
(a) restricts the rights to transfer its shares, if any;
options :
(b) limits the number of its members to fifty, not including
AS AN INCORPORATED ENTITY
i) persons who are in the employment of the company ;and
i) By incorporating a company under the Companies Act,1956
ii) persons who, having been formerly in the employment of the company, were
through members of the company while in that employment have continued to be
i. Joint Ventures; or members after the employment ceased; and

ii. Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the
requirements of the investor, subject to any equity caps prescribed in respect of the area
of activities under the Foreign Direct Investment (FDI) policy.
AS AN UNINCORPORATED ENTITY
ii) As a foreign Company through
i. Liaison Office/Representative Office
ii. Project Office
iii. Branch Office
Such offices can undertake activities permitted under the Foreign Exchange Management
(Establishment in India of Branch Office of other place of business) Regulations, 2000.
Source: Investing in India, Department of Industrial Policy and Promotion
The formation of a company is governed by the Indian Companies Act, which
differentiates between public and private companies, and also between companies
having limited and unlimited liabilities.
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of,
the company;
(d) Prohibits any invitation or acceptance of deposits from persons other than its
members, directors or their relatives.
PUBLIC COMPANY
A public company is a company which is not a private company and has a minimum paid-
up capital of Rs,5,00,000/-or such higher paid-up capital, as may be prescribed; is a private
company which is a subsidiary of a company which is not a private company.
FORMATION OF A PRIVATE LIMITED COMPANY
A private Company can be formed either by
i. incorporation of a new company for doing a new business, or
ii. conversion of existing business of a sole proprietory concern or partnership firm
into a company.
Government of India has made available online company incorporation facilities.
NAME OF COMPANY
The name of a corporation is the symbol of its personal existence. Any suitable name may
be selected for registration subject to the following guidelines :

6.2 Procedure for Incorporating a a. The promoters should select three to four alternative names, quite distinct from
each other.
Company in India b. The names should include, as far as possible, activity as per the main objects of the
proposed company.
To register and incorporate a company, the foreign entity has to file an application with
the Registrar of Companies (ROC). After the registration and incorporation, the c. The names should not too closely resemble with the name of any other registered
company is subject to the same Indian laws and regulations as applicable to other company.
domestic Indian companies. d. The official guidelines issued by the Central Government should be followed while
selecting the names.
More details on this aspect is available at the website of the Ministry of Company Affairs
(http://dca.nic.in). Besides, the names so selected should not violate the provisions of the Emblems and
Names (Prevention of Improper Use) Act, 1950.e. Apply in form 1-A to the Registrar of
Companies having jurisdiction along with a filing fee.

MEMORANDUM OF ASSOCIATION
An important step in the formation of a company is to prepare a document called
Memorandum of Association. It is the charter of the company and it contains the basic
conditions on which the company is incorporated. The Memorandum contains the
name, the State in which the registered office is to be situated, main objects of the
company to be pursued by the company on its incorporation and objects incidental or
ancillary to the attainment of the main objects, liability of the members and the
authorized capital of the company. The main purpose of the memorandum is to state the
scope of activities and powers of the company.
ARTICLES OF ASSOCIATION
Articles of Association of the company contain rules, regulation and bye-laws for the
general management of the company. It is compulsory to get the Articles of Associations
registered along with the Memorandum of Association in case of a private company. The
Articles are subordinate to the Memorandum of Association.
Therefore, the Articles should not contain any regulation, which is contrary to
provisions of the Memorandum or the Companies Act. The Articles are binding on the
members in relation to the company as well as on the company in its relation to
members.
REGISTRATION OF COMPANY AND ISSUE OF CAPITAL
After completion of the preliminaries as enumerated above, the application with
necessary documents are required to be filed with the Registrar of Companies of the
State in which the company is proposed to be incorporated. These include:
a. Memorandum of Association (duly stamped) and a duplicate thereof.
b. Articles of Association (duly stamped) and a duplicate thereof
c. The agreement, if any, which the company proposes to enter into with any individual
for appointments as its managing or whole time director or manager.
d. A copy of the letter of the Registrar of Companies intimating the availability of the
proper name
e. Documents evidencing payment of prescribed registration and filing fee, i.e. a bank
draft or a treasury challan.
f. Documents evidencing the directorship and situation of Registered Office in Form
32 and Form 18 respectively and declaration of compliance with requirements of
the Companies Act in Form No.1 and Form 29 for giving consent to act as a
Director in case of public company are also given.
The amount of registration fee payable is regulated with reference to the amount of
authorized capital of the proposed company.
CERTIFICATE OF INCORPORATION
Upon compliance with all requirements, the Registrar will register the company and
issue a Certificate of Incorporation of company. It brings the company into existence as a
legal entity.
ISSUE OF SHARE CAPITAL
After obtaining registration, the company proceeds with its business for which it
requires funds. In case of a private company, the capital is to be raised by way of private
arrangements whereas a Public Ltd. company can raise funds from the public. First of all,
Doing Business in India Report 44 45
the company will issue shares to the subscribers to its memorandum and other members
of the company. The issued capital must not exceed the authorized capital of the
company. It is necessary for a public limited company to obtain the Certificate of
Commencement of Business before commencing the business.
For more details please contact Ministry of Company Affairs at http://dca.nic.in
Source: Investing in India, Department of Industrial Policy and Promotion
Online filing facility is provided on http://www.mca.gov.in/, which can be accessed for
further reference.
6.3 Acquiring Land/Property in India
No prior approval is generally required by Indian citizens and companies for the purchase
of property. However, restrictions are placed on foreign companies for acquiring
property in India.
Can an office of a foreign company purchase immovable property in India?
A foreign company which has established a Branch Office or other place of business in
India, in accordance with FERA / FEMA regulations, can acquire any immovable property
in India, which is necessary for or incidental to carrying on such activity. The payment for
acquiring such a property should be made by way of foreign inward remittance through
proper banking channel. A declaration in form IPI should be filed with Reserve Bank
within ninety days from the date of acquiring the property. Such a property can also be
mortgaged with an Authorised Dealer as a security for other borrowings. On winding up
of the business, the sale proceeds of such property can be repatriated only with the prior
approval of Reserve Bank. Further, acquisition of immovable property by entities who
had set up Branch Offices in India and incorporated in Pakistan, Bangladesh, Sri Lanka,
Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of Reserve Bank
to acquire such immovable property. However, if the foreign company has established a
Liaison Office, it can not acquire immovable property . In such cases, Liaison Offices, can
take property by way of lease not exceeding 5 years
Source: FAQ's, RBI
6.4 Approvals Required for Setting Up
Industries
Other than the routine general approvals required by a foreign company to operate in
India, a few other clearances/permissions, such as industrial licenses, might be required.
Industrial Licensing
INDUSTRIAL LICENSING POLICY
Industrial Licenses are regulated under the Industries (Development & Regulation) Act,
1951. With progressive liberalization and deregulation of the economy, the
requirements of industrial licensing have been substantially reduced. At present
industrial licence for manufacturing is required only for the following :
i. Industries retained under compulsory licensing,
ii. Manufacture of items reserved for small scale sector by non-SSI units; and
iii. When the proposed location attracts locational restriction
 Doing Business in India Report 38 39

7
INDUSTRIES REQUIRING COMPULSORY LICENSING
The following industries require compulsory industrial license:
i. Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
ii. Electronic Aerospace and defence equipment: all types; Business Operations
iii. Industrial explosives, including detonating fuses, safety fuses, gun powder,
nitrocellulose and matches;
iv. Hazardous chemicals;
a. Hydrocyanic acid and its derivatives
b. Phosgene and its derivatives
c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified
(example: Methyl Isocyanate).
PROCEDURE FOR OBTAINING INDUSTRIAL LICENSE
Industrial License is granted by the Secretariat for Industrial Assistance (SIA) on the
recommendation of the Licensing Committee. Application for industrial license is
required to be submitted in the prescribed form. (Form FC-IL). This form is available in
the Public Relation and Complaint Section (PR&C) of the SIA, all outlets dealing in
Government Publications, Indian Embassies, and can be downloaded from the web site
http://www.dipp.gov.in.
Application accompanied with a crossed demand draft of Rs. 2500/- (appr. US$ 55) may
be submitted to the Public Relation and Complaint Section (PR&C) of Department of
Industrial Policy & Promotion. Decisions are usually taken within 4-6 weeks of filing the
application.
Source: Investing in India, Department of Industrial Policy and Promotion

Business Operations

7.1 Identifying the Right Location
Choosing an appropriate location for establishing operations is one of the main decisions
to be considered while setting up a business in India. Many factors such as the availability
and cost of land, power and water dictate the decision, depending on the business'
requirements. Some of the other factors considered are availability of labour, suitable
infrastructure and state government incentives.
7.1.1 State Incentives
State incentives play a major role in attracting high FDI inflows. In addition to specific
exemptions and sops, quality of governance and social infrastructure are also major
factors that have to be considered by foreign investors.
7.2 Human Resource
India has a large pool of trained and technical manpower. The Indian educational system
is also rated highly worldwide, with some of the best universities located in the country.
7.2.1 Employment
Though collective bargaining is a part of the industrial landscape, white collar positions
are non-unionised. Employment contracts in the service industry are generally
terminable with one-to-three months notice, and utilise all relevant clauses for the
protection of the company's security infrastructure. Most disputes between the
employee and employer come under the purview of civil courts, with the non-payment
of dues being handled by the labour courts. India is also viewed as a provider of good
managerial talent and Indians are increasingly being recruited to manage the global
headquarters of MNCs.
7.2.2 Visa
A visa is needed to enter the country unless one is an Indian citizen. Employment visas
are valid for a specific period and allow for the remittance of salaries earned in India. In
addition, foreign workers need residence permits to reside in India for a duration longer
than six months.
Doing Business in India Report 48 49
About Department of Industrial Policy
& Promotion
The Department of Industrial Policy & Promotion, established in 1995, is responsible
for the formulation and administration of overall Industrial Policy. With the
progressive liberalization of the Indian economy, initiated in July 1991, there has been
a consistent expansion in the role and functions of this Department. From regulation
and administration of the industrial sector, the role of this Department has been
transformed into facilitation of technology and investment flows and promotion of
industrial development in the liberalized environment. The role and functions of the
Department of Industrial Policy and Promotion primarily include:
n
Formulation and implementation of industrial policy and strategies for industrial
development in conformity with the developmental needs and national objectives
in order to make the Indian industry internationally competitive;
n
Monitoring and stimulation of industrial growth in general, and performance of
industries specifically assigned to it, in particular, and guidance in the creation of
an enabling environment, infrastructure, technology transfer / collaborations on all
industrial and technical matters;
n
Approval of foreign technology collaborations at enterprise level and formulation
of policy parameters for the same, for enhancing productivity, with reference to
international benchmarking;
n
Formulation of Foreign Direct Investment (FDI) Policy and amendments thereto
as well as promotion and facilitation of direct foreign and non-resident investment
in industrial and service projects;
n
Association as nodal department for investment-related issues in Bilateral /
Regional Economic Cooperation Agreements;
n
Formulation of policies relating to Intellectual Property Rights in the fields of
Patents, Trademarks, Industrial Designs and Geographical Indications of Goods
and administration of regulations and rules made thereunder;
n
Administration of Industries (Development & Regulation) Act, 1951;
n
Promotion of Industrial development of industrially backward remote, hilly and
inaccessible areas of the special category States of North-Eastern Region
(including Sikkim), Jammu & Kashmir, Himachal Pradesh and Uttrakhand through
special incentive packages;
n
Promotion of international cooperation through productivity, quality and technical
cooperation;
n
Compilation of data / statistics on Foreign Direct Investment & analysis thereof;
and
n
Compilation of monthly industrial production statistics for use in the construction
of Index of Industrial Production (IIP).
For more information please log on to http://dipp.gov.in/