India has become the 5th largest economy in the world ranking by enabling local manufacturing, relaxed foreign direct investments policies, attractive government initiatives and incentives to business owners, and much more. With India’s vast consumer base and accelerating economy, India presents an opportunity for foreign companies/investors to expand their global presence in India. 

Moreover, Reserve Bank of India in its March 2024 bulletin, issued that India had an inflow of US$59.5 billion in foreign direct investments from April 2023 to January 2024[1]. In this article, we will deep dive into the important aspects of doing business in India, along with a legal perspective of Indian laws. 

To start with, one should be aware of the advantages of doing business in India, some of which are as follows: 

• Large Market Potential: India boasts a massive population, providing a vast consumer base for various products and services. This presents lucrative opportunities for foreign businesses to tap into a growing market. 

• Growth Potential: India's economy has been consistently growing, offering attractive investment prospects across various sectors such as technology, healthcare, renewable energy, and infrastructure.

• Diverse Economy: India's economy is diverse, with opportunities spanning from traditional sectors like agriculture to modern industries like information technology, fintech and biotechnology. 

• Strategic Location: India's geographical location offers strategic advantages for businesses looking to expand their presence in the South Asian and Southeast Asian markets. Moreover, India has built business cities such as GIFT City aka. Gujarat International Finance Tec-City which is India's first operational smart city and international financial services center providing various benefits to businesses wanting to have their presence in India.

• Liberalized Foreign Investment Policies: India has progressively liberalized its foreign investment policies, allowing for greater foreign ownership in various sectors. This provides foreign investors with more flexibility and control over their investments.

Legal perspective of doing business in India

From a legal perspective, doing business in India entails navigating a complex regulatory landscape influenced by diverse laws and regulations. Understanding and complying with Indian laws, including those governing company formation, taxation, labor, intellectual property, and contract enforcement, is crucial for local business owners and foreign investors. 

India's legal system, based on English law principles, offers a robust framework for resolving commercial disputes, although judicial backlog remains a challenge. Additionally, recent reforms aimed at enhancing the ease of doing business, such as the introduction of commercial courts and online dispute resolution mechanisms, signify a commitment to improving the business environment. Engaging competent legal counsel, maintaining compliance with regulations, and staying abreast of legal developments are essential strategies for mitigating risks and ensuring successful business operations in India. 

Let us break down some factors for you: 

Presence in India: The Indian Companies Act, 2013 and the Reserve Bank of India provides flexible options to incorporate corporate bodies, including but not limited to (i) a private company, (ii) a limited liability partnership, or (iii) purpose or project driven offices such as branch office, liaisoning office or project office. 

• Incorporating a company (which can either be a joint venture company or a wholly owned subsidiary) has its benefits such as (i) limited liability, (ii) perpetual succession, (iii) tax incentives, (iv) hold land/properties, and (v) invest in other companies.

• Incorporating a limited liability partnership does give you an upper edge in terms of ease of compliance apart from other benefits such as limited liability, flexibility in management, no minimum capital requirements, etc. 

• Another interesting option is to incorporate either a branch office, liaison office, or a project office for entities who want to have a temporary interest in India or want to have a trial run of their business in India before actually having a permanent establishment in India.

• Lastly, the avenue of a joint venture with an Indian counterparty always remains the best course to commence a new venture in India. Joint ventures offer a strategic and collaborative approach to entering and expanding in the Indian market, leveraging the complementary strengths of partners to drive growth, mitigate risks, and capitalize on opportunities. Collaboration brings in local market knowledge, shared risks and resources, access to infrastructure and networks already established, Technology Transfer and Innovations, etc

Foreign Direct Investment (FDI): India has transitioned from a restrictive FDI regime to a much more flexible and investor-friendly policy. The FDIs are majorly governed by Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and the FDI Consolidated Policy 2020. These legislations and policies elaborate on: 

• Investment Routes: The route through which the investments will be allowed – i.e. the automatic route, where no government approvals are required, and the approval route, where a prior approval from the government is required. 

• Sectoral Caps and Conditions: While many sectors are open to 100% foreign investment under the automatic route, such as, Automobiles, Auto-components, Chemicals, Credit Information, E-Commerce Activities, there are some sectors which are capped below 100% percent under the automatic route such as insurance, petroleum refining, etc. Similar breakups of allowed investment percentages are put in place for approval routes.

• Bilateral Investment Treaties and Free Trade Agreements: India has approximately 90+ Bilateral Investment Treaties/Agreements[2] and approximately 13 Free Trade Agreements[3] with various countries. This gives an upper edge to the entities belonging to the countries which already have an agreed arrangement for business transactions/investments with India. 

• Reporting Requirements: The Foreign Exchange Management Act, 1999, and all the associated rules and regulations, more specifically, a Master Direction on Reporting under the Foreign Exchange Management Act, 1999, which lays down reporting compliances re. foreign exchange transactions, such as, reporting new investments in India, reporting disinvestments from India, details of investments held in India, etc. Competent Indian lawyers, company secretaries and/or auditors assist the companies with such reporting requirements. 

• Repatriation: Sale proceeds of the shares, dividends, interest (in case of loans/debentures), can be repatriable through an authorized bank in India to a foreign bank account. 

Incentive Schemes: The Indian government has implemented various initiatives to promote business in India, such as Make in India, Digital India, and Startup India. Apart from ease of doing business, these initiatives aim to promote a supportive environment for startups and provide a safe space to turn ideas into reality. The “Startup India” Initiative, for instance,  assists startups with various branches of business such as tax exemptions for 3 years, seed funding, handholding in compliances of environmental and labour laws, and fast-tracking in patent registrations. Government of India has also commenced “Make in India” scheme which aims at reviving the manufacturing sector to spur the growth of the Indian economy. 

Dispute Resolution: Businesses are always susceptible to lengthy disputes, and to mitigate it, India has taken the following steps to address this, i.e. (i) established Commercial Courts in 2015, and (ii) introduced online dispute resolution mechanisms.  These measures have helped with timely resolutions of  commercial disputes through specialized courts, and have the potential to be cost-effective. These reforms demonstrate India's commitment to improving the business environment by strengthening the legal infrastructure, enhancing judicial efficiency, and promoting alternative dispute resolution mechanisms. By providing faster, more efficient, and technology-driven avenues for resolving commercial disputes, these initiatives contribute to fostering a conducive environment for businesses and investors, encouraging economic growth, and boosting investor confidence in India's legal system. 

We hope that this information is helpful to anyone seeking introductory information on commencing and conducting business in India and on gaining a legal perspective about doing business in India. 

The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. As such, it should not be used as a substitute for consultation with a competent adviser. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting.

[1] https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/0RBIBULLETINMARCH202458712F02817A4E559390725E98067348.PDF - Page 61

[2] https://dea.gov.in/bipa 

[3] https://pib.gov.in/PressReleasePage.aspx?PRID=1814151