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22 April 2018
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US companies doing business in India

India presents itself as a land of growing business opportunity for US investment – but there are continuing challenges, and in-depth knowledge of local legal, financial, employment and taxation requirements is essential.

Many of the top IT companies in India are American, and other growth areas include manufacturing, agriculture, and retail. Walmart, Amazon, and the US-based footwear company Skechers have all recently announced significant expansion plans in India.

Why US companies are doing business in India

India’s leap on The World Bank’s ‘Ease of Doing Business Index’, from 130 out of 189 economies in the world in 2016 to 100th position in 2017, is helping to build confidence and attracting more investors to the country.

The economy and size of the domestic market are both key magnets for American businesses. Plus, the availability of cheap but increasingly skilled labour is a key attraction. American companies investing in India form a major part of foreign countries operating in the Indian market.

For US companies doing business with India, the potential is growing, fuelled by Indian government moves to stimulate the economy by easing the hurdles to foreign direct investment (FDI). But there are also rumbling concerns.

The United States recently launched a challenge to Indian export subsidies at the World Trade Organisation, saying they hurt US companies by letting Indian exporters sell goods more cheaply.

Conversely, the Indian Government’s Ministry of Commerce and Industry has eased the approval mechanism for FDI proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks from the receipt of application.

So, the opportunity for US business in India is enticing – with caveats.

New opportunities for US businesses

In January 2018, India announced sweeping relaxations in foreign direct investment (FDI) rules in single-brand retail and other areas, besides allowing overseas carriers to acquire as much as 49% of Air India to help speed up its divestment. The aim was to remove barriers to foreign investment and help the economy to develop faster.

Overseas retailers can now delay having to meet the 30% local sourcing norm by five years, remov-ing a significant obstacle. Approvals for such investments have also been made automatic. 

The cabinet committee on economic affairs (CCEA) approved 100% FDI in real estate broking ser-vices and allowed foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) to in-vest in power exchanges through the primary market.

There is a lot of focus on infrastructure development. The government has allocated a massive Rs 5.97 lakh crore in its 2018 budget to infrastructural development, aiming to pave more than 80,000 km of road by March 2022. It has also taken steps to collaborate with international partners to speed up the process of construction, creating opportunities for US investment.

India's new economic initiatives and tax reforms are designed to attract more investment, and a shift towards a digital economy is well under way.

According to the Department of Industrial Policy and Promotion (DIPP), total FDI investments in India during April-December 2017 stood at US$ 35.94 billion, indicating that the government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for April-December 2017 shows that telecommunications attracted the highest FDI equity in-flow of US$ 6.14 billion, followed by computer software and hardware at US$ 5.16 billion, and ser-vices with US$ 4.62 billion.

During April-December 2017, the US contributed US$ 1.74 billion in FDI to India.

Trading and investment

For US businesses looking to take advantage of the growth in domestic consumption and boost their exports to India, gaining a competitive price advantage remains elusive. India provides exemptions from certain duties, taxes and fees that benefit numerous Indian exporters, including producers of textiles, steel products, pharmaceuticals, chemicals, and Information Technology. But increasing dialogue between the two countries is helping to shape policy and actions.

The first US-India Commercial Dialogue meeting was held in Washington DC in October 2017, with discussions on a range of market access issues to expand trade and investment opportunities.

The dialogue continues this year and the American Chamber of Commerce in India now has 500 members, with companies of US-original making up 95% of its membership.

TMF in India

TMF Group is a world-class provider of essential corporate services in India. In addition to Indian company formation, we offer registered office and registered agent services and related post-incorporation services, including incorporations and shelf documentation, core post-incorporation work (COPI) and value added post-incorporation work (VAPI).

We enable multinational businesses to establish a presence in India confidently and quickly via our international incorporations, corporate secretarial services, accounting and tax services and HR and payroll services.

TMF Group launched its first office in Delhi in 2006, and over the years has expanded to Mumbai, Bangalore, and Noida.

Our well-established presence in India enables us to provide standard and tailor-made solutions, focused on HR and payroll, accounting and tax services, corporate secretarial services, and international incorporations. Whether you want to set up in India or just want to streamline your Indian operations, talk to us.

Learn more about TMF Group in India.

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