Expand Business Abroad – India
In recent years, with the drastic progress of Asian consumer market, you might consider expanding a business abroad. When thinking of Asian countries as targeted markets, many issues should be considered beforehand, such as selecting countries to start operations and clarifying the purpose of investment.
In this News, based on our business trip taken in late June 2016, we will introduce India, an emerging Asian country as one of the BRICs.
2. Political and Economic Situation
● Basic information
● Attraction in India’s market
(a) Market size/ growth potential
Currently, the Indian government discloses various measures such as urbanization of major cities and development of local regions. India keeps the high growth rate of around 7 percent, and the stable economy is one of the attractive points for investment. In addition, India aims to enhance internationalization of cities, which is expected to become a hub to the African continent and other regions. As such, with the growth of middle-class group in the nation, India has a strong potential as a giant consumer market as well as China.
(b) Population composition ‘Nation of young people’
The population in India is currently about 1.2 billion, the second largest in the world. It is expected to surpass the population in China and become the world’s largest in 2022. Also, the range of young people in the workforce is relatively high, compared with other emerging countries, and the demographic characteristics is a key factor for India’s future growth.
(c) Language ‘English’
English is a semi-official language in India, which enables for foreign business persons to communicate in English. Relatively low labor cost and common usage of English could make India a favorable destination for Business Process Outsourcing (BPO) services. Further, highly-educated professionals could be available in the nation.
● Matters of concern
(a) Difficulties of administrative procedures
Not only administrative procedures for approval and permission but tax systems are also complicated and reformed frequently. Thus, it is essential to find out trustworthy business partners in the nation.
Undeveloped infrastructure causes high cost of starting operations in India. Specifically, due to the traffic jams in major cities, it takes much time for transportation. Stable provision of electric power in industrial regions is also one of the issues to be addressed in the future.
3. Consideration of Expanding Business in India
We will introduce below some useful information of both governments’ measures related to expanding operations in India.
● Japanese Exclusive Industrial Districts
To overcome some demerits in setting up a base in India such as undeveloped infrastructure, the number of Japanese exclusive industrial districts supported by the Japanese government is increasing, and the environment for Japanese companies easily to start a business in India is now being created. Currently, JETRO promotes four regions as exclusive industrial districts: Neemrana and Giloth in Rajasthan, Mandal in Gujarat, and Supa in Maharashtra.
● The Agreement between Japan and Republic of India on Social Security
When employees are temporarily dispatched to India by Japanese companies or to Japan by Indian companies (for example, corporate employees assigned abroad), they are obligated to join the pension system of both countries. It causes the problem of duplicated payments of social security contribution. As the agreement between Japan and India on Social Security enters into force on 1 October 2016, it is expected to reduce the burden of paying social security contribution and activate the exchange of human resources between both countries.
● Tax incentives
The campaign called ‘Make in India’ now boosts investment from inside and outside India. In relation to this campaign, there are some tax incentives for companies expanding operations in India. The tax incentives are granted based on three factors: 1) regions to invest, 2) contents of business, and 3) investment amount. Although each factor accompanies some requirements for application, the Indian government grants attractive tax incentives including a corporation tax exemption for ten years (a tax holiday).
● Movement toward enactment of a reform bill for indirect tax
The complex indirect tax system used to be pointed out as an obstacle of investment in India. However, the reform bill for Goods and Services Tax (GST) was passed by the Parliament, and GST will be implemented from April 2017. From now on, the bill still needs to be ratified by the State Legislatures. But when it becomes effective, it will introduce a uniform tax regime in the country and replace the current several taxes levied by the central and state governments. The introduction of GST will also enhance inter-state transactions of goods and services and activate retail business in India.
In this News, we have mentioned ‘Expand Business Abroad - India’.
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually.
If you have any questions, please feel free to contact us.
Ministry of Foreign Affairs
India Introduction of Japanese Exclusive Industrial Districts
Japan Pension Service