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Doing Business in India

Government Agencies Dealing with Starting a Business in India

Economies outside the U.S. are becoming more and more important, both as markets for goods, sources of labor and their abundant untapped natural resources.

India’s economy has been showing growth during recent economic troubles.  Such an environment displays opportunities for foreign investment and starting a business in India.   The government has a site set up to help inform and promote foreign business and companies to these opportunities India has to offer.

The major government agency dealing with foreign business is ‘The Ministry of Commerce and Industry’, within the realm of promotion and regulation of foreign trade in India.  The major offices are the ‘Directorate General of Foreign Trade (DGFT)’, which is responsible for implementing the Foreign Trade Policy.  Its other major function and duty is to issue  licenses to exporters.

The Reserve Bank of India (RBI) is one of two major financial institutions in India.  RBI is responsible for regulating the operations of money market.  The ‘money market’ refers to short-term funds needed by businesses.

The other major financial institution is the ‘Securities and Exchange Board of India’ (SEBI).  It is in charge of the ‘capital market’, namely long-term funds.  It is given authority to supervise the functioning of the capital market.

The Indian government also offers the ability to search for small or medium sized businesses to enter into business relations with.  This can be done through the ‘Commissionerates of Industries’ which assists and guides new entrepreneurs in starting up an industrial unit in the concerned State.  Each list varies according to the state, so it is only useful when one knows the area and business they wish to establish.

While a government agency, the disclaimer of the website makes one doubt relying on the site for anything beyond the name and contact information of an Indian business.  It states that the “…Ministry will accept no responsibility and liability, of whatever nature, for the correctness of the material on Website… users are advised to verify, in their own interest, the correctness of the facts.”

By – Domenic Gabriella for IndiaExports.com

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Sourcing

Sourcing Steel from India

Of the main industries that is popular for sourcing from India is finished steel, also referred to as carbon steel.  This is a product in demand within India and the United States.  The steel industry is a large import for the U.S. in its basic form, and in automobile construction.

Steel Industry in India

The steel industry within India has its major focus in two States in particular: West Bengal and Orissa.  Of the two Orissa can be considered the better of the two choices for its adequate source of power for industry, transportation for finished goods both within India and to foreign market, and of course its vast reservoirs of natural resources.  Orissa is said to hold the reputation as, “the soul of India” for this and its other qualities.

Steel Tariffs

There are various tariffs for steel being imported into the United States that depend on the form of the metal and its composition when imported.  Assuming that one is importing finished steel that has a composition containing by weight more than 4 percent of carbon, then the rate of the tariff would be 10.5%.  The rates for importing steel can range from .5% to those above 30% depending. Visit the US International Trade Commission for a list of the different rates of all steels, as well as any other item.

Beyond the tariff, there is no incentive by the American government to prevent the sourcing of steel in India.  There are no limits to the monetary sum one is allowed to invest into the Indian ventures, at least on the American side.  One could make the argument that the United States does not need to put up limits or restraints to what one can invest into a foreign market, because of the limits other governments put up on foreign investments.

Internal Trade Commission

For those in charge of the importing any product, the nearest would be the Internal Trade Commission.  The USITC is is headed by six Commissioners who are nominated by the President and confirmed by the U.S. Senate.  The six currently in charge are Deanna Tanner Okun (Chairman), Charlotte R. Lane, Daniel R. Pearson, Shara L. Aranoff, Irving A. Williamson, Dean A. Pinkert.

By – Domenic Gabriella for IndiaExports.com

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Trade Law

Law Offices Specializing in India Trade Laws

While there is always help offered on websites, a credible opinion is much more valuable when one is thinking of doing business in India. One would like to be aware of both the trade laws, as well as the various regulations of a different government. Many companies exist and thrive off of helping businessmen make the transition into a market like India.

Madaan & Co. Attorneys at Law

One company, ‘Madaan & Co. Attorneys at law’ specializes in business relations and knowledge of the laws between U.S., E.U. and India. They offer free information on their web page the about the basic facts about Investing in India, as well as general procedures for different kinds of business ventures. These vary from Investing in India, Outsourcing to India, Trading with India, etc.

Madaan & co. also offers a list broken down step by step of the typical formalities in India, including how to start a business in India. This breakdown shows not only the ‘formalities’ but the typical amount of time they take to be processed, so one can plan accurately the cost and time of entering a new market.

Madaan & Co. has a listing of Entry Strategies in India for Foreign Investors, with breakdowns by the type of company one wishes to enter.

Aggarwal Raman & Associates (ARA)

Another firm offering services in a similar fashion is ’Aggarwal Raman & Associates (ARA)’. This firm is great for doing business from the U.S. to India, as they are members of both “The Institute of Chartered Accountants of India” and “The Institute of Internal Auditors”  in the United State, along with other international certifications.

They have a wide range of services to allow that will help you in doing business in India. These services  include:

  • Incorporation and Formation of company
  • Audit and assurance services
  • Accounting (tax) services
  • Regulatory Services
  • International Tax Planning
  • Advice on double taxation treaty

Such companies offer services with their knowledge of laws and regulations to ease entry into a foreign market; a commendable asset for a foreigner.

By – Domenic Gabriella for IndiaExports.com

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Investing in India

Restrictions to Investments in India

There are many opportunities for investments in India , even though it is still developing economy.  Many banks, both public and privately owned, offer aid to investors.  Although India has been loosening the rules and regulations of the government to promote foreign investment, there are still restrictions on what/how much one can invest in as a foreigner.

Restrictions on Investing in India

One section of Indian rule prohibits any investment of foreigners into certain areas of business.  These industries are: retail trades (except single-brand retail), atomic energy, lotteries, gambling and betting, housing and real-estate business, and certain types of agriculture.  No entry of any kind will be permitted to a foreigner in these fields.

Some sectors are allowed investment, but have it capped to some portion (normally 26%, 49% or 74%).  These amounts are chosen to both protect the right of foreigners to invest into the Indian market, while still ensuring that foreigners never fully establish control over these areas of business in India.

  • Industries limited to 26%: defense industries, print media, insurance
  • Projects limited to 49%: broadcasting, domestic airlines, infrastructure/service sectors
  • Products with 74% foreign ownership: establishment and operation of satellites, atomic minerals, exploration and mining of coal

Those that are not in this category can be fully owned by a foreign investor.  However, those that are fully owned by foreign investors will usually need to be given a license by ‘The Ministry of Commerce and Industry’ or approval from the ‘Foreign Investment Promotion Board’.  Also, retaining to the financial sector, one can only invest subject to approval by the Reserve Bank of India.  Both the limits on the ownership and approval are safeguards to protect Indian ownership of their market as a whole.

The government of India, in contrast to its limits on foreign investment in certain areas, strongly desires to have foreign capital put into their markets.  They have a well established financial system similar to our banks, where economic savings are effectively allocated among the ultimate investors.  The money is loaned out by various banks, financial institutions, non-banking financial companies and venture capital companies.

By – Domenic Gabriella for IndiaExports.com

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Doing Business in India

Bureau of Indian Standards

When planning on doing business in India, one can only judge their ‘partners’ by what they observe of the business practices first hand, discussions with the owners and communicating with previous customers and business partners.  Fraud and scams by businesses happen all too often.  Within the United States and Canada, one has the Better Business Bureau (BBB), which offers its free evaluation of businesses and charities to ensure validity.  While the BBB does not possess legal and policing powers, they do frequently work closely with police, report fraud, and provide information about marketplace fraud.

Bureau of Indian Standards

For those interested in business in India, or setting up businesses in another country, there are not always reliable sources of information to gauge another business on accurately.  In India, they do possess a government organization that begins to fill such a need, the Bureau of Indian Standards (BIS).

The BIS was originally The Indian Standards Institution was  formed to ‘promote standards it needed for nationalization, orderly industrial and commercial growth, quality production and competitive efficiency.”  However, due to fast changing socio-economic standards in 1986, the Bureau of Indian Standards replaced The Indian Standards institution as the nations hallmark of standards for business in India.

The functions of the BIS is not a parallel of the Bureau of better Business in what it offers. The BIS does not directly regulate and rate a business on its actions, it only regulates the standards of the products a business can produce from its list of standards. While not as useful as the BBB standards, it does allow one to have an unbiased look at the quality of work offered, which can speak greatly towards the integrity of a business one is considering doing business with.

There are many uncertainties when dealing with a business venture overseas and determining the credibility of potential business partners is one of the larger ones.  While there is always going to be uncertainty in any decision one makes, the BIS is a good step in the direction of India’s businesses becoming more transparent to foreign investors in terms of credibility and for promoting security in international trade.

By – Domenic Gabriella for IndiaExports.com

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Doing Business in India

Purchasing Business Insurance in India

As with any investment, there is risk.  Investing in India is risky, but not as risky as investing in other foreign markets such as China.  While India has rules and regulations on foreigners investing in or starting business in India, they do recognize private property and non-public entities, giving one a sense of ownership into their investment lacking in other developing nations.

Investment Risks

The larger risks of business in India are things such as the currency, variations on laws, The Ministry of Commerce and Industry, as well as the other agencies that one must have approval from.  Adding to the risk of business is the differences in laws and regulations when operating a business.  Risks such as these can be overcome with the help of businesses who thrive off of helping one transition from their own rules and regulations to those of India, such as Madaan & Co. Attorneys at law. 

Other risks are the everyday risks of business that one has so long as they are in business.  This includes accidents in deliveries, destruction of property from fires, floods, accidents, and other such disasters that an owner would not normally foresee in their day to day business activities.  To insure from such risks one needs to find an insurance company within India or a global insurance that India recognizes.

Business Insurance in India

One particular company that offers global reinsurance and risk solution is Export Credit Guarantee Corporation of India Limited (ECGC).  ECGC is a company founded in India and adheres to: The Companies Act, 1956; Insurance Act, 1938; General Insurance Business (Nationalisation) Act, 1972; General Insurance Business (Nationalisation) Amendment Act, 2002; Insurance Regulatory and Development Authority Act, 1999.

The ECGC was initially not a government entity until the General Insurance Business (Nationalization) Act, 1972 (GIBNA).  This act nationalized all of the insurance companies within India at the time.  As the main government issued insurance for investors, and the current trend to promote foreign capital into the Indian market, the insurance is reliable, but concerning as is in essence a government monopoly on domestic insurance in India.

By – Domenic Gabriella for IndiaExports.com

Categories
Investing in India

Benefits to Foreign Investing

American regulation on foreign investing as a global power is very slim.  Businesses often invest into business offshore or simply start a business in another nation like India for their superior talent, cost and quality over the domestic market.  Not to mention America’s Treasury for International Affairs has a standing policy to, “support U.S. economic prosperity by strengthening the external environment for U.S. growth.”

Benefits to Foreign Investing

There are, of course points to encourage foreign investing.  The largest is the tax loophole for companies doing business outside of the United.  This loophole is in the U.S. tax code allows domestic companies to defer taxes on revenue that those companies earn through their overseas subsidiaries. The catch is that the revenue must stay off the company’s US books in order for this loophole to apply. Such a feature can help a company that, if in the highest corporate tax bracket, would pay 35% in taxes on its net income, and instead invest into a foreign market where there will not be as high a tax rate, along with the exemption of American taxes on money not on the books overseas.

Investing in India

The Democratic base of both India and the United States also allows for an open amount of free trade, and continued discussions will only continue to remove any trade barriers between the two nations.  At the beginning of the month, President Obama visited for India’s State Department reception for Indian External Affairs Minister Krishna, for both discussions of future trade relations, as well as to promote the American-Indian trade relations.   U.S. officials have been frequenting India to try and increase the ease of trade between the two nations on a regular basis.

On a note of reflection, one could make the argument that India, not China will become the Asian superpower of the next few decades.  While China shows an amazing rate of growth, business and output, it is still a command economy and has much stricter limits on foreign investment with less sign of change than India.  Even as China leans towards a more capitalistic form of rule, without property rights or a change in the ruling body, one could expect to see a shift towards investment in India over China in the years to come.

By – Domenic Gabriella for IndiaExports.com