Investing in Indian Market

India, among the European investors, is believed to be a good investment despite political uncertainty, bureaucratic hassles, shortages of power and infrastructural deficiencies. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignore this country which is expected to become one of the top three emerging economies.

Success in India

Success in India will depend on the correct estimation of the country's potential, underestimation of its complexity or overestimation of its possibilities can lead to failure. While calculating, due consideration should be given to the factor of the inherent difficulties and uncertainties of functioning in the Indian system.Entering India's marketplace requires a well-designed plan backed by serious thought and careful research. For those who take the time and look to India as an opportunity for long-term growth, not short-term profit- the trip will be well worth the effort.

Market potential

India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom, and Russia) and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging nations. (These indicators are based on purchasing power parity.) India is also one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business.Yet, despite the practically unlimited possibilities in India for overseas businesses, the world's most populous democracy has, until fairly recently, failed to get the kind of enthusiastic attention generated by other emerging economies such as China.

Lack of enthusiasm among investors

The reason being, after independence from Britain 50 years ago, India developed a highly protected, semi-socialist autarkic economy. Structural and bureaucratic impediments were vigorously fostered, along with a distrust of foreign business. Even as today the climate in India has seen a seachange, smashing barriers and actively seeking foreign investment, many companies still see it as a difficult market. India is rightfully quoted to be an incomparable country and is both frustrating and challenging at the same time. Foreign investors should be prepared to take India as it is with all of its difficulties, contradictions and challenges.

Developing a basic understanding or potential of the Indian market

envisaging and developing a Market Entry Strategy and implementing these strategies when actually entering the market are three basic steps to make a successful entry into India.Developing a basic understanding or potential of the Indian market
The Indian middle class is large and growing; wages are low; many workers are well educated and speak English; investors are optimistic and local stocks are up; despite political turmoil, the country presses on with economic reforms.But there is still cause for worries-

Infrastructural hassles

The rapid economic growth of the last few years has put heavy stress on India's infrastructural facilities. The projections of further expansion in key areas could snap the already strained lines of transportation unless massive programs of expansion and modernization are put in place. Problems include power demand shortfall, port traffic capacity mismatch, poor road conditions (only half of the country's roads are surfaced), low telephone penetration (1.4% of population).

Indian Bureaucracy
Although the Indian government is well aware of the need for reform and is pushing ahead in this area, business still has to deal with an inefficient and sometimes still slow-moving bureaucracy.

Diverse Market

The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among sections of consumers.

Therefore, it is advisable to develop a good understanding of the Indian market and overall economy before taking the plunge. Research firms in India can provide the information to determine how, when and where to enter the market. There are also companies which can guide the foreign firm through the entry process from beginning to end --performing the requisite research, assisting with configuration of the project, helping develop Indian partners and financing, finding the land or ready premises, and pushing through the paperwork required.

Developing up-front takes: Market Study

Is there a need for the products/services/technology? What is the probable market for the product/service? Where is the market located? Which mix of products and services will find the most acceptability and be the most likely to generate sales? What distribution and sales channels are available? What costs will be involved? Who is the competi

Check on Economic Policies

The general economic direction in India is toward liberalization and globalization. But the process is slow. Before jumping into the market, it is necessary to discover whether government policies exist relating to the particular area of business and if there are political concerns which should be taken into account.

Envisaging and Developing a Market Entry Strategy

After deciding to plunge in the Indian Market it is required to plan carefully for succeeding in the long run. Some areas need special attention:

Configuring the project includes:

Determining the exact costs involved and side by side analysing future options.
Choosing the best location for the project in terms of infrastructure, incentives, nearness to resources etc.


Deciding whether to take on an Indian joint venture partner or to establish a mainly-owned or wholly-owned subsidiary.

Indian market

Developing an understanding of the peculiarities of the Indian market is necessary, so that issues which come up can be effectively and timely tackled with few surprises.

Labor laws

Understanding legal compliance requirements which must be met once entry is effected, viz. corporate laws, labor laws, direct and indirect tax issues, etc.

Safty valve

However, the government has softened its stand on the need for each investment to create jobs directly. Many companies — foreign and domestic — are bypassing the tough regulations by either subcontracting labor or through early retirement schemes.

Planning exit options in case the project does not proceed as desired. A ship should essentially carry lifeboats!

Investment Mode -- Financial Participation

India's economic policies are designed to attract capital inflows into India on a sustained basis. Policy initiatives adopted in recent years include:
Automatic approval for majority foreign equity participation up to 74% in certain key areas, and up to 51% or 50% in several others.
Up to100% foreign equity permitted in many industries.
Free repatriation of profits and capital investment.
It is not necessary for foreign investors to have a local partner.

Deciding the Target Market

Will the products be sold strictly in the Indian market, or primarily exported from India to other countries? If most of the product is to be exported, then there are various methods of availing of tax advantages.

Incentives to investors

Investors setting up units to manufacture goods for export can set them up as EPZs, or 100% EOUs outside EPZs. 100% foreign equity is welcome in both. Export earnings are exempt from income tax.

Export Promotion Zones

The EPZs are designed to provide an internationally competitive duty-free environment at low cost for export production. Each zone provides basic infrastructure and facilities like developed land, standard-design factory buildings, roads, power, water supply and drainage, and customs clearance facilities.

Export Oriented Units

EOUs offer a wider option in project location with reference to sourcing of raw materials, port of export, availability of technological skills, presence of an industrial base and the need for a larger area of land.

EHTP's and STP's
Additional incentives are offered for electronics and software units set up in Electronic Hardware Technology Parks (EHTPs) and Software Technology Parks (STPs).

Type of Office

Overseas companies which do not opt to set up a subsidiary or form a joint venture with an Indian partner can establish the following types of offices:
Branch office for the purpose of:
representing the parent company or other foreign companies, like acting as buying/selling agents;
conducting research, provided the results of the research are made available to Indian companies;
undertaking export/import activities;
providing technical and financial collaborations between Indian and foreign companies.
Representative/liaison office which would not be directly engaged in commercial activities in India.
Foreign companies usually open representative/ liaison offices but they are not allowed to carry on any business or earn any income in India and all expenses are to be borne by remittances from abroad.
Project office to undertake projects in India awarded to the parent company.
A project office is the ideal method to establish a business presence for a limited period of time.

Distribution Arrangements

For companies who do not want to set up a subsidiary, joint venture or branch, it will be necessary to carefully choose and appoint an agent. It makes sense to select several regional agents.

Entering the Indian market finally

After studying the potential of the Indian market and determining an entry strategy, the final stages of actually setting up a base in India will include:

Partner Search

If setting up a joint venture or developing an agency/franchise relationship, it will be necessary to:
Find a partner who meets your objectives
Find a partner with the requisite skills
Perform a credit check of the proposed partner
Negotiate the details of the contract
Arrive at a Memorandum of Understanding (MOU)
Finalize the joint venture/agency/franchise agreement

Government Sanctions

Before actually setting up operations, various central and state governmental approvals must be obtained. The approval granting authorities in the Central Government are:
The Reserve Bank of India (RBI).
Foreign Investment Promotion Board (FIPB).

Registration Once the project has been approved, it has to be registered with the Registrar of Companies (ROC). If forming a joint venture or subsidiary, the company must be incorporated and obtain a certificate to commence business. If setting up an office, registration is required with the appropriate regional ROC.

Other Approvals

Once the entry plan has been cleared by the Central Government and registered appropriately, actually setting up will require various State clearances, viz. building planning, land use, environmental clearance, power clearance, etc.


Many overseas companies -- large and small -- have made successful entries into the market since India began its liberalization process in 1991. Yet, some have also attempted and failed. There is no doubt that the potential is vast. India's total market is 950 million and the middle class is huge and growing. Both the central and state governments are aggressively seeking foreign investment -- adding incentive on incentive to encourage overseas companies to set up shop. On the surface in fact, India looks like an investment dream come true. But, in reality, the challenges are equally vast. Those that will succeed in tapping this great nation's potential will do so through careful research and a well-designed plan.