India Briefing

The Practical Application of India Business

Series Editor

Chris Devonshire-Ellis

For further volumes:http://www.springer.com/series/10356http://www.asiabriefingmedia.com

Dezan Shira & Associates is a specialist foreign direct investment practice, pro-viding business advisory, tax, accounting, payroll and due diligence services tomultinationals investing in China, Hong Kong, India and Vietnam. Established in1992, the firm is a leading regional practice in Asia with nineteen offices in fourjurisdictions, employing over 170 business advisory and tax professionals.

We also provide useful business information through our media and publishinghouse, Asia Briefing.

Dezan Shira & AssociatesChris Devonshire-EllisEditors

Doing Business in India

Third Edition

123

Dezan Shira & AssociatesKowloonHong Kong SAR

Chris Devonshire-EllisDezan Shira & AssociatesAsia Briefing Ltd.KowloonHong Kong SAR

ISBN 978-3-642-27617-0 e-ISBN 978-3-642-27618-7DOI 10.1007/978-3-642-27618-7Springer Heidelberg New York Dordrecht London

Library of Congress Control Number: 2012933320

� Asia Briefing Ltd. 2010, 2011, 2012This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part ofthe material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformation storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodology now known or hereafter developed. Exempted from this legal reservation are briefexcerpts in connection with reviews or scholarly analysis or material supplied specifically for thepurpose of being entered and executed on a computer system, for exclusive use by the purchaser of thework. Duplication of this publication or parts thereof is permitted only under the provisions ofthe Copyright Law of the Publisher’s location, in its current version, and permission for use must alwaysbe obtained from Springer. Permissions for use may be obtained through RightsLink at the CopyrightClearance Center. Violations are liable to prosecution under the respective Copyright Law.The use of general descriptive names, registered names, trademarks, service marks, etc. in thispublication does not imply, even in the absence of a specific statement, that such names are exemptfrom the relevant protective laws and regulations and therefore free for general use.While the advice and information in this book are believed to be true and accurate at the date ofpublication, neither the authors nor the editors nor the publisher can accept any legal responsibility forany errors or omissions that may be made. The publisher makes no warranty, express or implied, withrespect to the material contained herein.

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Preface

This book is a timely introduction to foreign direct investment in India, coming asit does on the cusp of massive increases of foreign capital and cash flows into thecountry. Although over the past 20 years India has been seen to lag behindthe phenomenal growth story that is China, that period has now come to an end.The era of a resurgent, confident India is now at hand.

The future success of India lies in its people—India has a massive population of300 million aged 15 and under, and the work force strength the nation nowpossesses will turn it into one of the great economic powerhouses of this century,perhaps even surpassing China. That inherent intellect, and the realization byIndians that their destiny is on their own hands, has unleashed a wave of entre-preneurial spirit and can-do attitudes that it is hard to match anywhere else.

I also hear often about India’s decayed infrastructure, the chaos in transporta-tion and the inefficient bureaucracy. Yet looking back, the same was also true ofChina 15 years ago. The road to Beijing airport used to be populated by theoccasional donkey and cart. Now it is an eight lane tollway, with locally madesedans cruising the highway en route to international flights. I am reminded of howrecent the Beijing donkey episode was when I see the road sign on Mumbai’simpressive new Bandra–Worli Sealink: ‘‘No Buffalo Carts.’’ Just as China madethe transition from agricultural base to urban renewal, so India is doing as well.It is also true that within the infrastructure problems, great opportunities aboundfor the foreign investor. Millions of dollars are to be made by the private sector byworking with the Indian government in public–private partnerships, and asexpertise and experience are required to bring the nations transportation, energy,communications and many other sectors into the modern world, many more will becreated.

Another factor in India’s favor is the local resilience. While shocked and stillmourning the dead after the horrific Mumbai terrorist attacks, the reality is thatafter the blood was mopped up and remembrances held, society just got on withlife as always. It’s a bold reminder of a people long able to cope with difficultiesand to move on. In an emerging market, which will undoubtedly experience its

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own economic and financial bumps in the road, such resilience is a vitalcommodity.

This book signals not just how to do business in India (although I hope ourreaders will join this lucky band who do so) but also the beginning of a new India:confident, welcoming, and part of the global community. I hope you will find theinformation within these pages of use.

Welcome to business in India.

Yours faithfullyChris Devonshire-Ellis

vi Preface

About Asia Briefing’sIndia Business Guide

Thank you for buying this book. Asia Briefing’s publications are designed to fill aniche in the provision of information about business laws and taxes in Asia.Produced by the foreign direct investment practice Dezan Shira & Associates, westarted this series of guides several years ago with the knowledge that much of theintelligence regarding Asia was expensive, or contradictory. Much also did notadequately address the real on the ground issues faced by multinationalbusinessmen—the practical knowledge that must be part of the armory of anybusiness operating in emerging markets.

India Briefing is designed to deal with this gap and is aimed at providing boththe regulatory background as well as detailed information concerning Asiabusiness with a firm eye on the practicalities of turning a profit and remaining incompliance on the mainland. Accordingly, we have tried to make this guideinformative, easy to read and inexpensive. We have drawn on the experience andpractical knowledge of Dezan Shira & Associates, Asia’s largest independentbusiness and tax consultancy with offices in China, Hong Kong, India andVietnam.

This book is a window into one of the fastest growing economies in theworld, providing an overview of India, its history, key demographics andoverviews of the states and union territories highlighting business opportunitiesand infrastructure in place in each region. We have also included information onFDI trends, business establishment procedures, labor and tax considerations aswell as commentary on Indian business etiquette and culture. The guide alsodetails procedural, operational and tax differences between India and its economicand geographical neighbor, China. The materials within this guide have beenresearched and written by professionals familiar with the issues that face foreigninvestors in India.

Contributors to the original version of this guide include: Seema Rani Bhendi,Chris Devonshire-Ellis, Mark Hannant, Peter Higgins, Joyce Roque, Linda Tjoaand Vikas Srivastava. The cover was designed by Chris Wei, the book was

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designed and laid out by Becky Jian and Chris Wei and edited by Andy Scott,Mark Hannant, and Chris Devonshire-Ellis. Updates for 2011 were led by JenniferPark, with contributions by Dezan Shira & Associates Shanghai and India offices.

At India Briefing, our motto is ‘‘The practical application of India business’’—wehope that’s the information you find within these pages.

With best regards,Asia Briefing

A note on sourcing: Data for net state domestic product (NSDP) is provided by the2010–2011 Union Budget and Economic Survey from the Government of India,http://indiabudget.nic.in. In certain cases, the most recent figures in this survey arefrom several years ago (as far back as 2006), but were included nonetheless to ensureconsistency of sources.

viii About Asia Briefing’s India Business Guide

Contents

1 An Introduction to India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Why India Now? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Top Reasons to Invest in India Now . . . . . . . . . . . . . . . . . . . . . . . . 4

2 A Brief History of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Indian Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Post Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Present Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Family Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Political System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3 India Business Etiquette and Culture . . . . . . . . . . . . . . . . . . . . . . 15Making Appointments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Greetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Religions and Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Making Conversation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Hierarchy (Names and Titles) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Business Attire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Negotiating a Deal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Entertaining Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Tipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Bridging Cultural Divides and Institutional Voids are Keyto Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22by Mark Hannant

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4 Key Sectors for FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Roads. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Railway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

5 Investment Policy and Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 43FDI Trends in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Government Initiatives to Promote FDI . . . . . . . . . . . . . . . . . . . . . . 43FDI Policy and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Industrial Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Establishing Legal Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Trademark and Patent Applications . . . . . . . . . . . . . . . . . . . . . . . . . 67Special Economic Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Labor Laws and Labor Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

6 Demographic and Geographic Overview of India . . . . . . . . . . . . . 87Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Religions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Andaman and Nicobar Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Andhra Pradesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Arunachal Pradesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Assam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Bihar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Chandigarh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110Chhattisgarh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113Dadra and Nagar Haveli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118Daman and Diu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122Delhi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125Goa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Gujarat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134Haryana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137Himachal Pradesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140Jammu and Kashmir . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145Jharkhand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Karnataka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154Kerala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

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Lakshadweep . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164Madhya Pradesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168Maharashtra . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172Manipur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177Meghalaya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182Mizoram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186Nagaland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191Orissa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196Puducherry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201Punjab . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206Rajasthan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210Sikkim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214Tamil Nadu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218Tripura. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223Uttar Pradesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227Uttarakhand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231West Bengal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

7 India and China Compared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241Looking Ahead: The Next Two Decades . . . . . . . . . . . . . . . . . . . . . 241China Project Offices Versus India Project Offices . . . . . . . . . . . . . . 243China FICE Versus India Branch Offices . . . . . . . . . . . . . . . . . . . . . 245China WFOE Versus India Private Limited Companies . . . . . . . . . . . 246China Versus India Corporate Income Taxes . . . . . . . . . . . . . . . . . . 247Tax Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

Contents xi