This publication is a joint project with Doing business in India Contents Disclaimer Executive summary 4 This document is issued by Hongkong and Shanghai Banking Foreword 6 Corporation Limited, India Incorporated in Hong Kong SAR Introduction – Doing business in India 8 with Limited Liability in partnership with PricewaterhouseCoopers Conducting business in India 18 (PwC). It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not Taxation in India 20 intended for distribution to anyone located in or resident in jurisdictions Audit and accountancy 28 which restrict the distribution of this document. It shall not be Human Resources and Employment Law 29 copied, reproduced, transmitted or further distributed by any recipient. Trade 30 The information contained in Banking in India 31 this document is of a general nature only. It is not meant to HSBC in India 32 be comprehensive and does not constitute financial, legal, tax or Country overview 36 other professional advice. You should not act upon the information Contacts 38 contained in this publication without obtaining specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/or PwC only and are subject to change without notice. This document is not a ‘Financial Promotion’. The materials contained in this publication were assembled in July 2012 and were based on the law enforceable and information available at that time. Executive summary Liberalisation of the Indian Extensive trade links Skilled workforce regulatory framework has enhanced its attractiveness Investors can leverage on India offers a highly-rated human as a destination for foreign India’s trade network with capital base recognised for its investors. This guide sets its regional and bilateral skills, knowledge and talent. out some of the key issues free trade agreements that foreign investors should with many trading partners. Well-developed consider when establishing financial system their operations in India. Increasing infrastructure and good living standards Its financial system is well Key aspects of doing regulated and offers a broad business in India: A significant investment in range of services. Businesses infrastructure is taking place can also tap into its developed Growth in India, particularly in the capital markets as an alternative metropolitan areas. Coupled source of financing. India is the world’s largest with this, India offers good democracy and the second- living standards with a robust Robust legal system fastest growing major economy. transport system, superior healthcare facilities and first- The legal and judicial system Pro-business and class entertainment centres. here is robust and efficient, stable government thus, businesses can count Competitive tax system on India’s rigorous enforcement India offers political stability of laws. that is vital to foreign India offers a very competitive investments. Government tax regime and comprehensive Great work ethics agencies, which have network of Tax Treaties. Indian a pro-business attitude, taxes would be further modified India has great work ethics work closely with the by the introduction of Direct and a very professional way business sector to promote Taxes Code (which was expected of operating. Employees are economic growth. to be introduced in April 2012 hard working and willing to but has been delayed) and work on holidays/weekends the Goods and Service Tax. if necessary. 4 Foreword In today’s world, business must year’s expertise, offers the Stuart Milne compete on a much wider full range of banking and CEO playing field, no longer confined financial services to customers HSBC India within national borders. across 29 major Indian cities Post liberalisation in 1991, India and backed by our global has undergone a paradigm presence in 84 countries and shift owing to its competitive territories with around 6,900 stand in the world. The Indian offices worldwide***. We economy has been on a growth are well positioned to assist trajectory over the last decade entrepreneurs, multinationals with rapid strides across new and conglomerates eager age industries like Information to tap into this exciting Technology, IT enabled and booming market. services, and Pharma to name a few. Today, India is the third Created in collaboration with largest economy in the world PricewaterhouseCoopers, this by GDP PPP (purchasing power guidebook, Doing business parity)*, seventh largest country in India, provides a thorough in the world by area and second analysis of various options in largest by population** and establishing a business in India. there is ample reason for India’s It also provides an insight into viability as a destination for key opportunities available foreign investment. In addition in India, as well as taxation to the above-mentioned systems and laws applicable macroeconomic indicators, to businesses operating here. higher disposable incomes, emerging middle class, low As your trusted partner, HSBC cost but competitive and is always looking for ways skilled workforce, all contribute to facilitate your business towards India being an growth. With this guide, I appropriate choice for investors. hope you find the impetus In India, the antecedents for building a successful of the HSBC Group can be venture in India and I wish traced back to setting up you a very prosperous future of the Mercantile Bank in in this land of opportunities. 1853. HSBC, with over 150 * Economic Times report quoting IMF data (http://articles.economictimes. indiatimes.com/2012-04-19/ news/31367838_1_ppp-terms-india-s- gdp-power-parity) **http://www.indembassy.co.il/ ***http://www.hsbc.com/1/2/about 6 Introduction Doing business in India Economic Growth The Index of Industrial middle-class population in the • India is ranked as the second Production (IIP) registered country will reach 1 billion. most favoured destination for FDI The growth of the Indian a robust growth of 6.8 per Since 2001, the Indian middle- over 2010-12 (World Investment economy is based upon cent in January 2012. Output class has seen increases in Prospects Survey 2010-2012, rapid urbanisation, poverty of the manufacturing sector its disposable income, and UNCTAD). alleviation and building (which constitutes over 75 consequently, consumption much-needed infrastructure. per cent of the index) grew by and savings have also risen. • India is the world’s top location for This creates significant 8.5 per cent while the mining With the current rate of non-financial services investment opportunities for foreign sector and electricity sector growth, analysts predict that and among the top three most investment. In addition to this, increased by 2.7 per cent and by 2025, India will become attractive international investment India is now Asia’s biggest 3.2 per cent respectively. the fifth largest consumer destinations (AT Kearney 2010 FDI buying economy, and has the Industrial production expanded goods market in the world Confidence Index). world’s largest growing middle by 4 per cent between and the Indian middle-class is class. The 2011 PwC report, April 2011-January 2012. set to assume the traditional • India ranked among the top three Profitable growth strategies role of the American and countries where British companies for the Global Emerging In light of the economic European middle-classes. can do better business during Middle (GEM) estimated uncertainties in Europe, This view has also been 2012-14 (Report by Leeds University that by 2021, India will have although the Indian economy acknowledged by the Global Business School – commissioned by about 600 million people has slowed down recently, industry in particular. UK Trade & Investment (UKTI). constituting its emerging opportunities still exist for middle class segment. significant growth. The With an enhanced consumer • Offers great promise as a biggest problem in India has segment in terms of increased vital and high-potential market, According to the Economic been inflation which was consumption in consumer securing the top ranking in Survey 2011-12, the Indian averaging at 9.4% in 2011. durables furthering growth, both the AT Kearney’s 2009 Global economy is estimated to grow With monetary tightening and and a positive outlook on Retail Development Index and the at 6.9 per cent in 2011-12 and slowing growth, inflation is employment and rising 2009 Global Services Location Index. 7.6 per cent in 2012-2013. expected to plateau to 8% incomes, this has facilitated The growth forecast has this year and 7.3% in 2013. growth in consumption. broadly been based on the India’s performance has rebound in the agriculture The Asian Development been widely acknowledged sector which is expected to Bank has estimated that over by global agencies: grow around 2.5 per cent. the next two decades, the 8 Demographic advantage decades, India’s position is 1. Gross Domestic (GDP) Diagram 1, illustrates the Leading multinationals today 2. Major Trading Partners strengthening: this is a product and Major Sectors GDP contribution made by are setting up their R&D centres India is today one of the three of its high birth rate, which each sector in 2011-12. in India, thereby acknowledging India’s top-ten trading partners largest Asian economies in terms will last until around 2050. India is the fourth largest India’s true potential. (for exports and imports) in of purchasing power parity. The A young, eager and well- economy in the world in PPP The agriculture and allied 2010-2011, and their respective median age of India’s population educated workforce is the terms with a per capita GDP sectors contribute towards While the prospects of sectors share in India’s total trade are is 25, which in comparison to key to India’s future prosperity.