Since the year 2014, the Government of India has launched many effective reforms for setting up of business in India and paved the smooth platform to create the business friendly environment for the global investors who intend to invest in the Indian Market. Such remarkable efforts can be evidently seen from starting up of the business to the trading across borders, protecting the minority investors. As per the World Bank Report of Ease of Doing Business, 2018, India ranked 100th out of the 190 Countries which were surveyed which 30 place jump as compare to the last year’s ranking. The Report says that “India stands out this year as one of 10 economies that improved the most in areas measured by Doing Business”. Several measures have been adopted the Indian Government to boost its ranking such as online system for obtaining the construction permit, implementing the Insolvency and Bankruptcy Code, registering the property, enforcing the contracts etc.
With the introduction of regulatory reforms for operating the Businesses in India, many new sectors have been opened up for Foreign Investment in India. Such reforms have focused on the Ease of Doing Business in India by increasing the sectoral limit for the existing sectors and have simplified the conditions of the FDI policy with a view to make investor friendly.
FACTORS THAT LED TO EASE OF DOING BUSINESS IN INDIA
- Political Stability and Security
Foreign Direct Investment is considered to be the most important factor for economic growth in the country. This is however depends upon the political stability of the country which includes the absence of violence, longevity of the Indian Government, legitimacy and effective decision making which in turn impact the development in the country. Considering these factors, India is now recognized as one of the largest economy in the world because of the stabled economic policy and smooth access to foreign markets which provides the way for ease of doing business in India.
- Unexplored Markets
The investment in India is also dependent upon the large section of markets which were remained unexplored. This could be explained by an example i.e. the setting up of the BPO Call Centre where the foreign investors had the large scope for exploring the domestic markets by which the service was rendered with the help of one call only.
- Labour Force: Talent & Skills
The labour force in the Indian Market has also contributed in the economic development of the country. These labour are available in terms of skilled and unskilled human resources by which the foreign investors take advantage of cheap and skilled labors. Further, The Ministry of Labor & Employment has taken the effective steps not only in developments of the technology but has adopted many changes in the laws and regulation which provides better clarity and alleviation in conducting businesses.
FOREIGN DIRECT INVESTMENT
To start with the Investment in India, the two routes i.e. the Automatic Route and the Government Route are known as Entry Routes. As per the Automatic Route, the nonresident investor who wants to invest in India doesn’t require the approval from the Government and with respect to the Government Route; the prior approval is mandatorily required. The Foreign Investment Facilitation Portal (FIFP) is the online portal introduced by Indian Government which facilitates the single clearance of applications. Once the application is submitted, it shall be directed to the concerned Department for processing in accordance with the Standard Operation Procedure.
Please note that the approval from FIPB (Foreign Investment Promotion Board) has been abolished and the new interface (FIFP) has been launched which makes the process easier and simpler with the single click only.
ENTRY INTO INDIA
There are several structures through which the Foreign Investors can carry out the business in India. These are as mentioned below:
These offices are set up by the foreign corporations to carry out the liaison activity in India. In other words, it can be defined as a channel to facilitate the business promotion by establishing the permanent presence in India. However, all the expenses incurred in the Indian office are remitted from the Head Office.
The branch office is setup by the Foreign Company in India with the approval of RBI and undertakes the permitted commercial activities. It can also carry the additional activities, subject to the permission of the RBI. The expenses incurred in the operations of the branch offices can be incurred by the Indian office as permitted by RBI, in case the Indian office does not receive any revenue from the Indian operations then the amount will be remitted by the Parent Company.
The Project office can be set up in India only after entering into the contract with the Indian Company and thereafter execute the specific project, subject to the approval of RBI and the fulfillment of other conditions. The project office is prohibited to carry out any other activities other than the project.
Local Indian Subsidiary
Foreign Companies which can be set up as Wholly Owned Subsidiaries in the form of Private Companies, subject to the FDI regulations. The shares of these subsidiaries can be held by the foreign companies thus, considered to be the easiest and preferred route for the investment in India.
Limited Liability Partnership
An LLP is regulated by the Limited Liability Partnership Act, 2008 which came into force on 1 April, 2009. FDI is permitted in an LLP subject to the prior approval of the Government however, in case of Automatic Route, 100% FDI is permitted in an LLP. There are various sectors in the LLPs are not allowed to operate such as agricultural activity, plantation, print media or real estate business.
LEGAL AND REGULATORY REFORMS IN EASE OF DOING BUSINESS IN INDIA
- Insolvency Code
With the introduction of Insolvency and Bankruptcy Code 2016, India has recognized the rights of foreign creditors to participate in the proceedings of the Winding up of companies. The Code provides easy exit mechanism with 180 day time bound process which resolves the insolvency dispute as compare to early passage of the Code which took 4-3 years in India to liquidate the business. The Code is considered to be the key reform which facilitates the ease of doing business and ensures the optimum utilization of resources within a firm or releasing the unutilized resources for the closure of the firm.
- Impact of Goods and Services Tax (GST)
With the introduction of Goods and Services Tax (GST), it will attract more FDI because of the transparency in the tax reforms and ease of doing business. This will further reduce the logistics cost, cost in tax and regulatory compliance, efficiency of supply chain which would create the platform for the foreign investors to enter into the Domestic Market and can also lead to the increase the export import trade.
- Transfer Pricing
In a move to boost Ease of Doing Business in the Indian Marker, the Government has introduced the Mutual Agreement Procedures and Advance Pricing Agreements with all the countries. Such change in the regulations have lowered down the compliance for domestic transfer pricing and also increased the international transactions.
CENTRAL GOVERNMENT INITIATIVES
- Starting a Business in India
With respect to the incorporation of Companies, the Ministry of Corporate Affairs have launched a new interface which is known as SPICe i.e. Simplified Proforma for Incorporating a Company electronically) through which the company can be incorporated within 1 day. The concerned ministry has reduced the fee for incorporation of Company and also the requirement for company seal has also been eliminated at the time of incorporating a company. Further, the Government has also abolished FIPB to simplify the FDI proposals and have introduced the new network interface for submitting the single application.
- Construction Permits
Various Municipal Corporations in India have initiated the single window approval system for issuing the building permits with the various features such as Common Application Form, digital signature and online scrutiny of the building plans and maps eliminating the need of the physical submission of the documents. Also, the site inspection for construction permits has been minimized by way of self-certification and introducing third party certification.
- Trading Across Borders
The Central Board of Excise and Customs (CBEC) has formulated the Single Window Project’ Mechanism with a view to facilitate trade. Now, the importers and exporters can submit their declarations through online mode with digital signature. The documents for the filing purposes have been reduced to three which includes Bill of Lading, Invoice cum Packing List and Import Declaration.
- Enforcing Contracts
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015, has been enacted and are already in Delhi and Bombay High Court with a view to render the Speedy and Time Bound disposal of commercial disputes. Further, the Government also proposed to set up the courts for electronic filing of complaints, summons and payments.
The distribution companies have stipulated that the electricity connection will be provided within 15 days and the number of documents which were required to be obtained for such electricity connection shall be reduced to 2. With respect to the industrial electricity connection, the NOC/Consent for setting up the new projects is not mandatorily required.
Thus, all the above discussed reforms would attract the foreign investment and are considered to be the big boost to the India’s business environment across the globe. Through these opportunities which were introduced by the Indian Government, it has paved the way for foreign investors, particularly Micro Small Medium Enterprises (MSME) sector in doing investment in the country.
About the Authors
Gautam Khurana is an India lawyer, registered with Bar Council of India. He is the Founder & Managing Partner at India Law Offices. He specializes in Foreign Inward Investments and Corporate Laws in India, with extensive experience in acquisitions & takeovers, corporate laws, cross border litigation & arbitration, Insolvency and bankruptcy, project & structured financing and direct & indirect taxes both domestic & overseas jurisdictions.
He is currently on the board of the reputed Indian as well as International companies and has advised clients across diverse sectors on all aspects pertaining to joint ventures, inbound investments and acquisitions. He is a frequent speaker in many Domestic & International Conferences & has spoken about business, commercial & legal matters in India & Europe. He regularly contributes to Jordan Publishing-Lexis Nexis on International Corporate Procedures & World Bank Survey on Ease of doing business.
Ritika Sharma is an Advocate, working with India Law Offices, having an experience in corporate and commercial areas. She has assisted several clients on various sectors including the Arbitration, Double Taxation matters, Anti-Dumping matters, Marine Insurance and Corporate Litigation. Apart from the professional work, she has participated and presented research papers at various National and International Conferences in the areas of Corporate Laws, Intellectual Property Rights and Other Economic Legislations.
She has completed her masters in International Trade Laws from National University of Advanced Legal Studies, Kerala and is enrolled with Bar Council of Delhi in the year 2011 and holds the Certificate of Practice issued by the Bar Council of India.