entering india report
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Doing Business in India:
2013 Country Commercial Guide for U.S. Companies
INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.
Chapter 1: Doing Business In India Chapter 2: Political and Economic Environment Chapter 3: Selling U.S. Products and Services Chapter 4: Leading Sectors for U.S. Export and Investment Chapter 5: Trade Regulations, Customs and Standards Chapter 6: Investment Climate Chapter 7: Trade and Project Financing Chapter 8: Business Travel Chapter 9: Contacts, Market Research and Trade Events Chapter 10: Guide to Our Services
Return to table of contents Chapter 1: Doing Business in India
Market Overview Market Challenges Market Opportunities Market Entry Strategy Market Fact Sheet link
Market Overview Return to top The Republic of India is one of the worlds most politically-active democracies and the tenth largest economy. It is the third largest Asian economy after China and Japan. Among the major emerging markets of Brazil, Russia, India, China, and South Africa (BRICS), India ranks second in terms of economic growth with the IMF forecasting a GDP growth rate of 5.7 percent for 2013. It is the second most populous country in the world with approximately thirty percent of its 1.2 billion inhabitants residing in urban areas. India's industrialized economy encompasses diverse manufacturing sectors (steel production, oil and gas refining, auto, plastics, textiles) that contribute just 18 percent to a GDP that also includes traditional village farming, agriculture, and handicrafts. The services sector, especially information technology, continues to be the major source of economic growth. Services account for more than half of India's GDP output and employ less than one third of its labor force, currently estimated to be 471 million workers, making it the second biggest workforce on the planet. India is the 18th largest export market for U.S. goods. Led by civil aircraft, engines, equipment and parts, U.S. goods exports to India in 2012 reached $22.3 billion, up 3.9 percent from the previous year. Corresponding U.S. imports from India, primarily diamonds, pharmaceuticals, and petrochemical products, totaled $40.5 billion, up 12.1 percent. Preliminary data show that U.S. exports of private commercial services (i.e., excluding military and government sales) to India stood at $12 billion in 2012 and U.S. imports were $17.7 billion. Total two way trade in goods and services is expected to top $100 billion in the near term. The stock of U.S. foreign direct investment (FDI) in India was $24.7 billion in 2011 (latest data available), down from $24.8 billion in 2010. U.S. FDI in India is largely in the professional, scientific, and technical services, finance/insurance services, and the information services sectors. The Indian economy has posted an average growth rate of 6.9 percent since 1998, and according to the Government of India, reduced poverty by about 10 percentage points to 29.8 percent. Dependent on services exports and private domestic consumption, Indias 2012 GDP grew approximately 4.5 percent, reaching $1.945 trillion with a GDP per capita of $1,592. The World Bank estimates Indias 2013-14 GDP growth at 6.1 percent. Economists estimate that creating jobs for millions of its citizens in order to alleviate poverty in India requires economic growth of 7 to 8 percent per year through 2020, the year India is expected to overtake China as the most populous nation on earth. In 2011, economic growth in India began a quarter-on-quarter deceleration from 8.5 percent GDP growth in 2010 to what many believe was the bottom at 4.5 percent GDP at the end of 2012. Supply side constraints, policy paralysis, and the government's inability to roll back the 2008 fiscal stimulus programs that contributed to the surge in the fiscal deficit contributed to the downturn. However, experts speculate that the Indian economy will grow faster in 2013 compared to 2012 due to business and investor friendly reform measures announced recently by the Indian government. Under the threat of a stalled Indian investment cycle, a possible credit rating downgrade over a burgeoning fiscal deficit, and a rising current account deficit, the government relaxed foreign investment rules in sectors such as retail and civil aviation and set up a ministerial panel to fast-track implementation of large industrial and infrastructure projects. Political fallout over the decision to implement FDI in the multi-brand retail sector resulted in the loss of political allies in the parliament. Nevertheless, Prime Minister Manmohan Singh expressed confidence that the government will pass long pending reforms needed to reverse the country's worst economic slowdown in recent years. Restrictions on single-brand retail were relaxed; the Government of India on a case by case basis has been known to adjust the requirement to source a proportion of inventory from domestic industry, a factor which discouraged foreign investment. Opening up the domestic aviation sector to foreign investment should help to ease indebtedness of the industry (estimated at $20 billion in 2011/12), and in turn should ease some of the pressure on public sector banks, which have a large degree of exposure to domestic airlines. The government also raised the FDI cap in broadcasting services (to 74 percent, from 49 percent previously). The Indian government also approved the sale of stakes in state-owned companies in the aluminum, oil and copper sectors.
The Government of India continues to consider laws that would allow foreign investment in the pension sector (49 percent) and raise the FDI cap on the insurance sector (to 49 percent, from 26 percent currently). With the 2011 introduction of a new land acquisition bill, the government began the process of reforming and modernizing hundred year old land acquisition rules. It is also taking an across the board review of FDI caps that can be removed or relaxed without legislative action. The reform efforts were welcomed by business leaders as a signal that India is open for business. But much remains to be done. The 2012 nominal exchange rate was 53.38 Indian rupees per 1 USD. According to the 2013 Indian Government Economic Survey, unemployment reached 6.6 percent in 2010, however, as much as 90 percent of total employment is in the informal economy. Minimum wages in India vary from state to state and range from $130 per month for unskilled workers to $160 per month for skilled workers. Among the professional ranks rapidly rising salaries with generous perks (cars, housing allowances) have generated high turnover. An increased security presence in urban areas combined with conservative monetary and fiscal policies have allowed India to become one of the more stable economies in the region and thereby lessened the impact of the ongoing global economic downturn. Despite persistently high inflation of 7.5 percent in 2012 for wholesale prices, Indias growing middle class and its relatively stable political environment compared to its neighbors makes it an attractive destination for U.S. companies. Principal U.S. interests run the gamut of industry sectors. Major U.S. companies include: AECOM, Bank of America, Bell Helicopter, Black and Veatch, Coca-Cola, DuPont, Federal Express, General Electric, General Motors, Jacobs Engineering, KFC, Lockheed Martin, McDonalds, Microsoft, Kimberly Clark, PepsiCo, Raytheon, Starbucks, and United Airlines, among many others. Recent FDI reflects well-known hotel brands such as Marriott, Hilton and Hyatt and major engineering firms are pursuing huge infrastructure projects such as the Delhi-Mumbai Industrial Corridor and the Chennai-Bangalore highway project. Indias economy is gradually being transformed by Indias highly entrepreneurial and rapidly globalizing private sector. Notwithstanding a recent slowdown in domestic investment, Indian firms are investing in infrastructure projects, growing their advanced manufacturing capabilities, and investing in new volume-based business models that tap into rising incomes and consumption in towns and rural economies across the country. Increasingly they are also investing abroad, including into the United States. In terms of long-range economic forecasts, major consulting firms project that more than 400 million people, a full 40 percent of the population, will enter Indias middle class over the next 15 to 20 years. Given the expected dramatic increase in the size of the Indian middle class, the critical role played by private consumption is likely to endure, notwithstanding the Government of Indias efforts to become more export-oriented. This demographic dividend of Indias growing under-35 population is anticipated to be one of the key drivers of long-term growth, provided sufficient employment can be generated. India would like to be viewed as a major economy and world power, but it is difficult to overlook that India is home to the largest number of poor people in the world, with an estimated 350 million people living below the poverty line (living on less than $1.25 a day) according to the CIA World Factbook. Market Challenges Return to top Infrastructure Problems with the country's roads, railroads, ports, airports, education, power grid, and telecommunications are significant obstacles to Indias economy growing to its full potential. Indias ongoing urbanization, together with rising incomes, have resulted in a heightened need for improved infrastructure, both to deliver public services and to sustain economic growth. India is seeking to invest $1 trillion in its infrastructure during the 12th Five-Year Plan (2012-2017) and is looking for private sector participation to fund