India Entry Strategies

Brief About Indian Economy
Doing Business in India - Brochure

India is one of the fastest growing economies in the world and has emerged as a key destination for the foreign investors in the recent years. Economic reforms initiated in 1991 have grown in scope and scale and yielded increasingly salutary dividends. One of them is the steady improvement in India’s relative position in the global economy, reflected in New Delhi’s growing influence in international institutions (G-8, G-20) and negotiating free trade areas (with ASEAN, EU). Another is the improved efficiency in the economy and adoption of international “best practices” in the production of a range of goods and services. A third outcome is India ranking amongst the top ten investment destinations since 2007-09, attracting US $ 190 billion in FDI and Net US $ 108 billion in FII over the past 5 years.

  • World's largest democracy with 1.2 billion people.
  • Stable political environment and responsive administrative set up.
  • Well established judiciary to enforce rule of law.
  • Land of abundant natural resources and diverse climatic conditions.
  • India's growth will start to outpace China's within three to five years and hence will become the fastest large economy with 9-10 per cent growth over the next 20-25 years (Morgan Stanley).
  • Investor friendly policies and incentive based schemes.
  • India's economy will grow fivefold in the next 20 years (McKinsey).
  • Cost competitiveness; low labour costs.
  • Total labour force of nearly 530 million.
  • Large pool of skilled manpower; strong knowledge base with significant English speaking population.
  • Young country with a median age of 30 years by 2025: India's economy will benefit from this "demographic dividend".
  • The proportion of population in the working age group (15-59 years) is likely to increase from approximately 58 per cent in 2001 to more than 64 per cent by 2021.
  • Huge untapped market potential.
  • Progressive simplification and rationalization of direct and indirect tax structures.
  • Robust banking and financial institutions.
Foreign Direct Investment in India

Trends in India’s Foreign Direct Investment (FDI) are an endorsement of its status as a preferred investment destination amongst global investors. India’s competitive strengths span telecommunications, information technologies, auto components, chemicals, apparels, pharmaceuticals and jewellery.

India’s steady economic liberalization and its embrace of the global economy have been key factors in attracting FDI. The government recently opened up multi-brand retail, civil aviation markets, defense devices, insurance and medical devices and with more reforms expected in banking and pension sectors and land acquisition among others.

Starting Business in India

Depending upon the needs of the business, a foreign company can choose between various options stated below under the FDI guidelines.

Options for setting up business in India:

  • Liaison Office (LO)
  • Branch Office (BO)
  • Project Office (PO)
  • Wholly owned subsidiary (WOS)
Structure type Purpose Pros Cons
Liaison Office
  • Promote Trade and collaboration with India
  • Represent parent company in India
  • Paves the way for future investment in India
  • Relatively easy to establish
  • Not subject to taxation in India
  • Business activities not permitted
  • Must sustain itself through private remittances from parent company
  • Not a separate legal entity
Project Office
  • Business activities as per contract
  • Suitable for one off projects
  • Not subject of taxation in India
  • Exists only as long as duration of contract
  • Not a separate legal entity
Branch Office
  • Export and Import of goods
  • Professional services
  • Permitted scope of business activities broader than liaison office
  • Relatively easy to establish
  • Separate legal entity
  • Business activities must be same as parent company
  • Typically forbidden from retail trading, manufacturing, or processing within India
Wholly Owned Subsidiary
  • Broad range of permitted business activities
  • Total control over business activities
  • Limited liability for foreign investors
  • Few restrictions on scope of business
  • Methods to augment capital
  • Company surplus can be used
  • Separate legal entity
  • Works on going concern basis, therefore relatively complicated to wind up
  • Annual compliance and regular reporting may add on to operational costs