Is starting business
in India a good idea?
Setting up a business
in India is still an extremely difficult task when compared to other countries.
Long legal formalities and procedural delays are common. This can turn your
plans into a time-consuming effort. Consider this – setting up a business
in India takes 33 days and closing your business here takes 10 days. (Source:
World Bank’s Report: “Doing Business in 2008”) According to the same report,
the number of procedures involved in setting up business in India is 13. On the
whole, the “Doing Business 2008 Rank for India” is 120 for 2008. India ranked
as the second most favoured destination for FDI over 2010-12 (World Investment
Prospects Survey 2010-12, UNCTAD)
Since the early 1990's, when the Indian government began
its (slow) process of liberalizing the economy, there have been profound
changes in attitudes, expectations, and processes within the
country. There has also been significant growth, evident in the
rising wealth of India's middle class and in the success of many new entrepreneurial
businesses.
The new buzzwords are "productivity",
"quality", "marketing", and
"management structure". Both imports and
exports are rising, and overseas markets are being tested by newly confident
Indian companies. Foreign companies, sensing India's potential, have
also become increasingly involved here. Economic growth, while
bringing many positive changes, has also severely taxed the country's
infrastructure capacity. It has threatened an entrenched business
elite as well as a powerful government bureaucracy, and has put pressure on the
social fabric of the country. It is not yet easy to do business in
India, for either Indians or foreigners, but it is increasingly becoming
rewarding. This section explores the potential, the problems, and
the possible solutions for doing business in India, whether you are an
established Indian company, a rising entrepreneur, or a foreign company
thinking about coming in.
Your options
Today, India has
gained prominence as a premier investment destination. It would be difficult
for you to keep track of the constantly changing procedures and laws related to
the same. But professional advisors and Chartered Accountants can be of immense
help in evaluating the risks and rewards of setting up your business in India.
You can set up public sector companies, private sector companies, branch
offices or even project offices here with the approval of the government of
India.
Setting up business
in India: the necessary checklist
- Check your eligibility to set up business here. Remember only NRIs and PIOs can invest in proprietary concerns or partnership firms in India today.
- Make sure that you get a PAN card issued by the Indian Income Tax department. You’ll need a PAN for all your business transactions. The process to obtain your PAN card is easy and can be done online as well.
- Identify and select your business partners and also peruse your finance options carefully. Seek the services of an established lawyer or accountant to draw up the necessary contracts.
- Check for restrictions on setting up a business in India. As an NRI you cannot start any business in the following areas – agriculture, real estate or the print media.
Foreign Investments in India
The
FDI regime has been progressively liberalized during the course of the 1990s (particularly
after 2000). A number of restrictions on foreign investment have been removed
and procedures simplified. With limited exceptions, foreigners can invest
directly in India, either on their own or as a joint venture industries where
foreign investment is prohibited. Moreover, investment ceilings, which are
applicable in certain cases, are gradually being removed/phased out. India has
witnessed a steady increase of foreign inflows over the years. FDI net inflows
have grown at a rate of over 30% compounded annually over the last decade.
Features of the government’s foreign investment
policies and incentives offered by it:
·
No government
approval is required for FDI in virtually all the sectors/activities, except
for a small negative list formulated by the government.
·
The government
has formulated ‘Sector-Specific Guidelines for FDI,’ wherein investments up to
specified sectoral caps are covered under the automatic route, with a few
exceptions.
·
Foreign
Investment Promotion Board considers proposals for foreign participation that
do not qualify for automatic approval.
·
Decisions on all
foreign investment proposals are usually taken within 30 days of submitting an
application.
·
Free
repatriation of capital investment is permitted, provided the original
investment (on a repatriable basis) was made in convertible foreign exchange.
Further, free repatriation of profits on capital investment is permitted,
subject to payment of taxes and other specified conditions.
·
Indian capital
markets are open to FIIs.
·
Indian companies
are permitted to raise funds from international capital markets.
·
Special
investment and tax incentives are given for exports and sectors, including
power, electronics, software and food processing.
·
‘Single window’
clearance facilities and ‘investor escort services’ are available in various
states to simplify the approval process for new ventures.
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