By Arvind Rao / Neelam Rangwala / Drishti Khambhayta
August Consulting (India) Private Limited
Since 2014, the Government of India has launched an ambitious program of regulatory reform aimed at making it easier to do business in India. As a result, the Ease of Doing Business in India (EODB) index, a ranking system established by the World Bank Group, ranks India 130 out of the 189 countries for this index in 2017. While this in itself may not be very impressive, there are many improvements in India’s environment & sentiments. The business environment is definitely showing improvements such as:
- FDI Inflows During Third Quarter of Financial Year 2016-17 (October,2016 to December,2016)*:
| Total FDI Inflows into India | USD 18,196 Million |
| FDI Equity Inflows | USD 14,220 Million |
- Sectors attracting highest FDI Equity Inflows*:
(Amount in USD in Million)
| Sector | 2015-16 (April,15-March,16) | 2016-2017 (April,16-December,16) | %age to total inflows (in terms of US$) |
| Service Sector | 6,889 | 7553 | 18% |
| Construction Development: Townships, Housing, Built-up Infrastructure | 113 | 99 | 8% |
| Automobile Industry | 2,527 | 1,453 | 5% |
| Chemicals (other than Fertilizers) | 1,470 | 783 | 4% |
- Share of Top Investing Countries FDI Equity Inflows*:
(Amount in USD in Million)
| Country | 2015-16 (April,15-March,16) | 2016-2017 (April,16-December,16) | % age to total inflows |
| (in terms of US$) | |||
| Mauritius | 8,355 | 12,819 | 34% |
| Singapore | 13,692 | 7,115 | 16% |
| Japan | 2,614 | 4,249 | 8% |
| U.K | 898 | 1,266 | 8% |
| U.S.A | 4,192 | 1,940 | 6% |
*Source: http://dipp.nic.in/English/Publications/FDI_Statistics/2016/FDI_FactSheet_OctoberNovemberDecember2016.pdf
The ‘Make in India’ and good governance efforts have yielded substantial results with India jumping four places on the World Bank’s Doing Business rankings. Positive changes have led to these advances in India’s ranking on EODB index. For instance,
- Starting a Business: India’s ranking has improved from 164 in 2015 to 155 in 2016.
- Getting Electricity: India’s ranking has improved from 99 in 2015 to 70 in 2016.
Apart from this, India fairs particularly well in terms of Protecting Interests of Minority Investors where it ranks 8 among the 189 countries which are the part of this index. The initiatives taken by the Central Government are in the areas of:
- Starting a business
- Dealing with Construction Permits
- Trading across Borders
- Enforcing contracts
- Obtaining Credit
- Obtaining Electricity
- Registering Property
- Resolving Insolvency
- Paying Taxes
- Environmental Clearances made easier
- Introduction of E Biz Program
‘Ease of Doing Business’ has been a major pillar in the initiative of ‘Make in India’. Highlights of ‘Ease of Doing Business’ are as follows:
- Provision made for applying for Directors Identification Number (DIN), Company name & Incorporation along with availing a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) simultaneously in one form at the time of incorporation.
- Online and real time registration of Employees’ State Insurance Corporation (ESIC) & Employees’ Provident Fund Organization (EPFO) has been introduced for easy process.
- Insolvency & Bankruptcy code with provision of easy & faster exit has been passed by the parliament.
The Delhi Mumbai Industrial Corridor (DMIC) under ‘Make in India’
The Delhi Mumbai Industrial Corridor (DMIC) is among the first of the large scale infrastructure development projects supporting the ‘Make in India’ concept along with its backbone – the Western Corridor. The Western Corridor connects the JNPT port near Mumbai to Dadri in the State of Uttar Pradesh and covers a distance of 1483 Kms. with double line electric tracks. This will allow the Indian railways cater to the demand by creating additional capacity at a reasonable cost. The government will be using design and build contracts to permit new technologies to be adopted on this corridor.
Foreign Direct Investment
The Government has put in place a policy framework on Foreign Direct Investment (FDI), which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes. Most of the sectors are under automatic route therefore do not require any prior approval from FIPB but are subject to only sectoral laws.
FDI is categorized under three heads. They are:
- Sectors under Automatic Route with Conditions
- Sectors where Government Approval is required
- Prohibited sectors
The Ease of Doing Business in India reform will bring changes in corporate & consumer world, overcome financial crisis, clear taxation policy & ease of accessing- land, labor, capital & technology.
Exploring the business opportunities in India
Of the several ways of setting up office in India, one that is really helpful for an exploratory purpose is that of a Liaison Office (LO). This is simply because of the relative ease with which it can be opened and although there are restrictions on its activities, the advantages outweigh the disadvantages. The compliances are not cumbersome. Market research conducted within the limits of its scope is also beneficial.
A Liaison Office can undertake the following activities in India:
i) Representing in India the parent company / group companies.
ii) Promoting export / import from / to India.
iii) Promoting technical/financial collaborations between parent/group companies and companies in India.
iv) Acting as a communication channel between the parent company and Indian companies.
Liaison Office of Foreign Insurance Companies / Banks
Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).
Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulation (DBR), Reserve Bank of India.
Due to the restrictions placed on this kind of a business model, Liaison Office (also known as Representative Office) can therefore:
i) Not undertake any business activity in India and cannot earn any income in India.
ii) Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
iii) The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.
iv) Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.
August Consulting has been advising and working closely with multi-national companies in India since 2002, assisting them in setting up meaningful operations and run these in an economical and beneficial manner. Our portfolio of satisfied customers include prominent names in Insurance, Advisory and Social Media sectors. With offices in Mumbai and a network of associates in other parts of India, we are in a position to handle customers and their diverse requirements promptly.