The UK already has a good trade deal with India and the Indian Government wants UK firms to help with India’s Smart Cities initiative. This will see 100 Indian cities developed and/or rejuvenated so could this bilateral business relationship grow further?
Here, Annapoorna R.S, head of business development and corporate communications at Link Legal in India explores what sort of businesses have the best chance of succeeding in the country and what they should watch out for before expanding to the country.
Why should UK businesses expand into India now?
India, the largest democracy on earth, is also one of the most dynamic and fastest growing economies in the world. India has undergone substantial transformation by initiating reforms across multiple sectors, with the primary aim of making the market more inviting to foreign investors. Some of the significant changes undertaken recently by India include the simplification of entry options and the liberalisation of policy on foreign investment, the introduction of new measures such as the overhauling of the complicated tax regime to be replaced by a unified tax structure (introduction of Goods and Service Tax).
Additional changes include the amendments to the Indian Arbitration Act, incorporating the best international practices in arbitration, the introduction of a comprehensive Code for Insolvency and restructuring ensuring ease of exit, the introduction of significant labour reforms, the substantive legislative changes altering regulation of business activities, and the introduction of various initiatives such as Make in India, Start-Up India, and Digital India. Smart Cities serve as invitation calls to potential international partners and investors around the world to enter India as business partners and share their expertise and knowledge.
All the above changes and initiatives demonstrate the government’s faith in private enterprises as well as foreign investments as key drivers of economic growth and development. Consequently, India has moved up 30 notches from its previous ranking of 130 to reach 100 in the World Bank ‘Ease of Doing Business’ ranking.
Indeed, India is a goldmine of opportunities across sectors. On the other hand, the UK has strong ties with India, and is already the largest G20 FDI investor in India. UK companies are well positioned to take advantage of the growing Indian market. Brexit has pushed closer ties between the UK and commonwealth countries like India, and India’s economic reforms and programmes such as Make in India, Start Up India, and Digital India will assist in strengthening of UK’s economic partnerships with India.
Opportunities in sectors such as fintech, artificial intelligence, energy, smart cities, life sciences and defence are favourable for the UK to explore in India. These are areas that can redefine UK-India bilateral relations.
What is the Indian governments approach to UK businesses currently?
The UK and India are at an exciting phase in their economic relationship. Bilateral economic ties are vibrant and wide-ranging, and, commercially, there is untapped potential between the two economies. There is a Bilateral Investment Treaty (BIT) in place between the two countries, reinforced by the strong commitment to keep the relationship flourishing.
Certain recent developments demonstrate that the Indian government’s approach to UK businesses is very encouraging. For example, both the Union Government and the State Governments are playing a proactive role in attracting UK investors to India and have held various investor summits over the past few months to highlight the opportunities available. The Indian Government and the UK India Business Council (UKIBC) are working ever more closely to encourage UK investment across a range of sectors in India. Access India is a newly launched market entry support programme and the first of its kind for supporting UK businesses in accessing the Make in India initiative of the Indian government. The programme will solely focus on providing support to small and medium UK enterprises.
There are also various industry-industry partnerships established between India and the UK, including the innovative Rolls Royce-TCS partnership which explores the application of Internet of Things (IoT) in expanding Rolls Royce’s manufacturing.
Finally, the UK and India have very recently agreed on an ambitious new tech partnership which will pair businesses, venture capital, universities and others from different regions in the UK with states in India. The partnership will encourage innovation and productivity by helping businesses in the UK and India collaborate on emerging technologies, develop mentoring relationships and exchange staff. Initially the pilot will connect the UK with Pune in Maharashtra, focussing on the Future of Mobility, including low emission and autonomous vehicles, battery storage and vehicle light-weighting. Additional connections will be linked to Bangalore with a focus on augmented and virtual reality, advanced materials and artificial intelligence.
What types of businesses do the Indian government tend to prefer?
The recent Make in India programme launched to project India as a preferred investment destination and a global manufacturing hub promotes investment in twenty five focus sectors including automotive, aviation, biotechnology, technology, pharmaceuticals, transport, renewable energy and more.
Artificial intelligence has also caught the Indian government’s attention and the government think tank Niti Aayog is spearheading a programme on research and development of Artificial Intelligence.
As part of the Make in India initiative several steps have been taken collectively by all the government departments and states to promote investments from Indian and foreign investors in the focus sectors. FDI norms have been revised including opening various sectors for foreign investments. Sectors such as mining, exploration of petroleum, civil aviation (existing & greenfield), construction development, industrial parks, cash and carry wholesale trading, single brand retail trading, e-commerce, duty free shops, railway infrastructure and more are allowed 100 per cent FDI without any approval. Other than the prohibited sectors, various other sectors are allowed up to 100 per cent FDI through a mix of automatic and/or approval routes.
Various other sectors such as education, retail, consumer goods, life sciences, floriculture, pharmaceuticals and healthcare have gained traction as attractive sectors for investors and have witnessed strong growth in that regard.
Are there any business rates that UK firms should be aware of?
Property Tax in India is akin to the business rates in the UK.
Property Tax is the tax that is charged by the local government on real estate, which consists of buildings or land attached to the buildings irrespective of whether such building is used for commercial purposes, office building, factory building or used for residential purposes. The value of the property forms the basis of this tax. Many local governments calculate the property tax not only on the basis of the size of the property but its location, occupancy status, covered area and quality of construction. The money that is generated through the property tax is used by the government to maintain the infrastructure and for civic purposes.
Different States in India have different methods and rates to calculate the property tax. However, property tax is payable only by the owner of the property.
If the property is leased for use as an office building, the leasing of the property is treated as a service which garners an integrated Goods and Service Tax of around 18% on the lease rentals.
What should UK businesses expanding into India be aware of in terms of exporting costs, staff and culture?
UK companies expanding into India need to be aware that exporting goods and services into India attracts costs in the form of taxes. Exporting goods from UK to India will require customs duties at such rates as provided under the Customs Act read with the Custom Tariff Act. In addition to that, it will also require an integrated tax at such rate as is leviable under the Goods and Services Tax Act, 2017 on a similar article on its supply in India. Exporting services from the UK to India will also attract a levy of integrated tax under Goods and Service Tax Act, 2017.
India, one of the oldest civilisations in the world with a cultural heritage dating back at least 5,000 years, is a country of diversity with a unique blend of religions, races, languages and cultures. With 29 different states and seven union territories, the market varies widely across its many different regions and states. Business success will require a good understanding of the underlying values, beliefs and assumptions of Indian culture.
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