Market Challenges In India

India is the land of the great. Since time immemorial this land has something which the entire globe wants. Think about it, just dig in to the history of India and you would know that India as a country has never been poor. We had trade and culture when western countries were still living in the caves. Coming to the present times, India now is again a most sought after business destination. Everybody in the world wants to invest here. Thats a good thing, but we still have certain market challenges which need to be taken care of. Below we are putting forward some of the marketing challenges that the business faces while operating in India. The following content has been curated from the best of internet resources and is reproduced as it was published.

Starting a Business
The cost of starting a business in India is astronomical, and the procedures involved can be daunting without local knowledge. There are 12 procedures to complete in the initial set up of a business costing 49.8% of income per capita. It takes almost a month (27 days) to complete the tasks on average, which is well above the OECD average of 12 days.

Dealing with Construction Permits
Construction permits are also a costly pursuit, involving 34 procedures and taking 196 days. Obtaining Intimation of Disapproval from the Building Proposal Office and paying fees takes around a month, and NOCs must be sought from the Tree Authority, the Storm Water and Drain Department, the Sewerage Department, the Electric Department, the Environmental Department, the Traffic & Coordination Department and the CFO.

Getting Electricity
The cost of getting electricity is relatively cheap in comparison to the rest of South Asia, but the number of procedures involved can be rather daunting. What’s more, each procedure is in itself quite time constraining, taking around eight days to receive an external site inspection and three weeks to get externally connected, have a meter installed and conduct a test installation.

Registering Property
Registering a property requires quite a bit of legwork and can also incur substantial charges. Stamp duty of 5% of the property and a 1% charge on the market value of the property incurred at the Sub-Registrar of Assurances are the two fees to look out for, although the lawyer charges and fees at the Land & Survey Office can also pinch.

Getting Credit
India performs the best of all South Asian economies for ease of getting credit, ranking 23rd in the world according to the World Bank and International Finance Corporation. The 2013 report this to when a “unified collateral registry, which is centralised geographically, became operational in India strengthening access to credit and the secured transaction regime”.

Protecting Investors and enforcing contracts
The concept of investor protection is one that has garnered a lot of attention of late, and new bodies such as the Securities and Exchange Board of India (SEBI) have been set up to that effect. Enforcing contracts will also be an area that must be looked at; India ranks as one of the worst countries in the world for the ability to enforce a contract, taking an average of 1,420 days.

Paying Taxes
Businesses operating in India are required to make 33 tax payments a year, taking 243 hours’ worth of attention. The headline corporation tax rate stands at 30%, but companies can also incur charges in the form of a central sales tax, dividend tax, property tax, fuel tax, vehicle tax, VAT and excise duty.

Trading Across Borders
Despite India opening its borders to international trade, there are still several hurdles to overcome when importing and exporting goods. Several layers of bureaucracy make it very challenging to move goods efficiently, and companies must file a long list of documents before moving goods across borders.

Resolving Insolvency
It takes 4.3 years to resolve insolvency in India, far longer than the South Asian and OECD average. The laborious court system can often slow business relations.

India is a cultural hotbed, and business is more about building relations than presenting figures and sums. The poly-chronic culture can be difficult to adapt to for outsiders, and due diligence into the destination is important before travelling.

Problems with the country’s roads, railroads, ports, airports, education, power grid, and telecommunications are significant obstacles as the nation strives to achieve its full economic potential. India’s ongoing urbanization, together with rising incomes, has resulted in a heightened need for improved infrastructure, both to deliver public services and to sustain economic growth.  India will invest approximately $38 billion in creating and upgrading infrastructure by the next fiscal year as per the Government of India’s 2017 budget announcement and is looking for private sector participation to fund half of this massive expansion largely through its home-grown Public-Private Partnership (PPP) model. U.S. companies have been successful in certain areas of India’s infrastructure development, but competition from other countries remains stiff.  As a result, U.S. industry’s market share in India in this sector has been declining. Unfortunately, the current PPP model has had a mixed record, slowing the development of numerous metro transit, road/highways, airport, mining and energy projects.  One of the main shortcomings of the PPP model is that it assigns too much risk to the private sector.  As a result, a government-sponsored committee has made recommendations on ways to improve the model with a view to establishing a more equitable risk sharing arrangement. Some of the recommendations of the committee such as kick-starting delayed projects have been implemented.  At the same time, the government has yet to act on other key recommendations, including: setting up a dedicated institute for PPPs, establishing proper risk-sharing measures, proposing independent regulations for key sectors, and enhancing private investment protection for infrastructure projects.

High Tariffs and Protectionist Policies
Exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes.  Many U.S. services have limited access to the market.  According to the World Bank survey on the ease of doing business for 2016, India is ranked 130 out of 189 countries due to its difficult business climate.

Local Content Requirements
The Indian government is pursuing local content requirements in specific areas including information and communications technologies (ICT), electronics, and solar energy to spur an increase in the manufacturing sector’s contribution to GDP.  These policies negatively affect U.S. exporters.

With regard to ICT, India drafted a policy expressing preference for domestically manufactured telecommunications and ICT products in government procurement, citing security concerns.  In addition, all telecom and ICT product purchases by the government that have security implications have to be notified to the Department of Telecommunications.  All imported ICT equipment requires mandatory licensing and certification from accredited labs in India. This regulation has not been fully enforced due to the limited capacity of Indian testing labs.

Food Product Approval
Importers must seek formal product approval for any foods or food products that have not been standardized from the Product Approval Division of the Food Safety and Standards Authority of India (FSSAI).  These products have been termed by FSSAI as ‘non-specified food and food ingredients.”  The various categories of food products covered under this category are:

  • Novel foods or foods containing novel ingredients which do not have a history of human consumption in India;
  • Food ingredients that have a history of human consumption in India, but are not specified under and preexisting regulations under the Food Safety Act, 2006;
  • New additives and processing aids; and
  • Foods manufactured or processed using novel technology

All procedures and formats can be found in detail on the website of FSSAI.

Powers of States
On June 2, 2014, Andhra Pradesh was officially split creating two states: Telangana and Andhra Pradesh. Companies should be prepared to face varying business and economic conditions across India’s now 29 states and 7 union territories. Power and decision-making are decentralized in India, with differences at the state level in political leadership, quality of governance, regulations, taxation, labor relations, and education levels.

Gujarat is an example of a state with a positive business climate that has succeeded in attracting significant foreign investment. West Bengal, on the other side of the spectrum, has a much lower level of foreign owned-business activity, but in response to competitive pressure from other states, is implementing state-level reforms to attract more investment. West Bengal’s continued efforts to make land more easily available through the government’s “Land Bank” could spark interest in small greenfield projects. However, not enough land is available in tracts for heavy industrial projects.  To do business in India successfully, an investor firm should factor differences in approach by different states into its national business strategy.  An “Ease of Doing Business” state-by-state ranking is maintained by the Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion (DIPP) and can be found online.

Source: export gov. & tmf group



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