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    Sunday 18 August 2019

    Doing business in India gets easier under new government

    A number of important developments over the last year are improving India's business environment.

    India's BJP government led by Prime Minister Narendra Modi completed its first year in office in May 2015. During the year, several policy initiatives have been introduced to make doing business in India easier and to facilitate foreign investment - and they are already having a visible impact.

    A flurry of policy reforms

    The 'Make in India' campaign, which focuses on making India a global manufacturing hub, was launched in September 2014. It is being actively promoted internationally and has been praised by several world leaders and CEOs of multinational corporations. State governments are also taking a keen interest in this campaign, with major 'roadshows' to highlight incentives and attract investment. They are taking the necessary measures to hasten the approval process for setting up in India. The Maharashtra government has reportedly reduced the number of set-up approvals required from a staggering 76 to 25.

    To encourage overseas investment in India, the government has simultaneously focused on tackling corruption and reducing bureaucracy by making more services available online. eBiz is the government's online portal for applications of licenses, clearances and registrations without the need to visit any government office, saving time and reducing paperwork drastically.

    There has been a major push to improve physical and digital infrastructure and remove bottlenecks, with around USD 16 billion allocated in this year's budget. A National Infrastructure Investment Fund has been set up with annual government funding of about USD 3.2 billion. Various agreements have also been signed with foreign countries to help build infrastructure.

    During the year, foreign direct investment (FDI) limits were relaxed in various sectors, including defence, insurance and railway infrastructure. 100% FDI is allowed in business-to-business (B2B) e-commerce, but not yet permitted in the business-to-consumer (retail) segment. FDI norms for the construction development sector have also been eased.

    A number of major changes are proposed in order to simplify taxation procedures, such as the introduction of a single Goods and Services Tax (GST) from April 2016. The GST Bill has already been passed by the lower house of Parliament but not by the upper house as yet.

    Initiatives for economic development

    Besides initiatives to boost economic growth, the government is also looking at overall development. With 400 million Indians still living in poverty, real progress cannot be made without empowering them. The new government's financial inclusion project has taken banking to the poor with over 156 million bank accounts being opened in nine months, compared to an annual average of 42 million in the past. A new, affordable social security scheme including pension, life insurance and accident insurance, witnessed 67.5 million enrolments in the first week of its launch.

    The government is also working on initiatives to provide relevant education and training to increase the employment prospects of the population. This is essential as India will soon have the world's largest and youngest workforce, offering major opportunities for businesses looking to set up in the country.

    Improving investor sentiment

    With political certainty and better policies, there has been a visible and dramatic shift in investor sentiment.  In the 2014/15 financial year, FDI equity inflows rose by 27% to USD 30.9 billion, compared to an 8% increase in the previous year. Investments by foreign portfolio investors into Indian equity and debt markets saw a robust increase to USD 46.2 billion during the year, compared to a meagre USD 8.6 billion in FY 2013/14. The number of foreign subsidiaries entering India went up by 12% to 1,059 during FY 2014/15. With net capital inflows up, India's foreign exchange reserves stood at USD 352 billion as at 29 May 2015, significantly higher than a year ago.

    Overall, the Indian economy has fared well. Real GDP grew by 7.3% in FY 2014/15, led by impressive growth in the services sector. Manufacturing growth also accelerated to 7.1%, compared to 5.3% in the previous year. Inflation, as measured by the consumer price index (CPI), cooled to 4.9% in April 2015, compared to 8.5% in April 2014.

    The changing policy environment and upcoming initiatives have led the International Monetary Fund (IMF) to state that India is one of the bright spots in the global economy and is expected to remain the fastest - growing large economy in the world. While timely implementation of reforms remains crucial, some remarkable improvements have already been made and doing business in India is only going to get easier.

    For more information, contact:
    Manoj Gidwani
    SKP, India
    T: +91 22 6730 9000
    E: manoj.gidwani@skpgroup.com

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