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    Why India is considered as the most preferred destination for Business?

    Published Mon, 12 Sep 2022 | Updated Mon, 12 Sep 2022

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    The Indian Economy is buzzing and witnessing growth rapidly. As a developing nation the Indian market provides a very sustainable environment MNC'S and other Business. The economy is also favourable to business as it remains stable and continues to grow.

    Some of the prominent reasons why people prefer doing business in India include:

    • Stable political environment and responsive administrative set up;

    • Well established judiciary to enforce rule of law;

    • Land of abundant natural resources and diverse climatic conditions;

    • Progressive simplification and rationalisation of direct and indirect tax structures;

    • Cost competitiveness

    • Low labour costs;

    • Huge untapped market potential;

    • Robust banking and financial institutions

    All these factors makes India a lucrative market for making investment by the foreign entities.

    Post Covid Scenario - 

    Especially after the COVID-19 outbreak, where India has proved its place globally despite bearing all the hardships. COVID-19 (also known as CoronaVirus) resulted in the negative image of China among many countries, which has always been the world leader in exporting goods mainly due to its cost advantage. But the companies slowly and gradually started disinvesting from China and were looking for other countries to start their business relationship.

    As per an Article posted on Bloomberg, Japanese companies manufacturing goods in China for export were considering moving out and their first preference for production of goods was South-East Asian countries including India. As per another Article posted on Livemint, about 200 US companies seeking to move manufacturing bases from China to India. 

    Further, as per the survey document presented in the Parliament by the Finance Minister Nirmala Sitharaman the number of new recognised startups increased to over 14,000 in 2021-22 from 733 in 2016-17. India now has 83 unicorns, most of which are in the services sector and 44 startups achieved the unicorn status (values more than $1 billion) in 2021-22.

    Even after watching all the hardships and turmoil, people still have hope and the potential to look at the positive side, there seems to be a silver lining in the stormy dark clouds of COVID-19 for India and making it a dream destination for international brands and start-ups. 

    FDI Inflows in India

    India has always been seen as one of the biggest contributors to the world economy. Indian Government is taking various active steps in improving business sector efficiency be it through trade liberalisation, tax rates refinement or open approach towards foreign investments. 

    India’s FDI policy is liberal and transparent, as most of the sectors are open to FDI under the automatic route. The government, on a real time basis, reviews the FDI policy and makes significant changes from time to time, to ensure that India remains an attractive and investor-friendly destination. Keeping the same in mind and to further liberalize and simplify FDI policy for providing ease of doing business and attracting investments, reforms have been undertaken recently across various sectors.

    As per the information given by the Government, the FDI inflow in India was at its highest ever at USD 81.97 billion in 2020-21, despite the COVID pandemic.

    The FDI inflow was reported to have increased by 23 per cent (March 2020 to March 2022: USD 171.84 billion) in comparison to FDI inflow reported before (February 2018 to February 2020: USD 141.10 billion) in India. Under the sector `Computer Software & Hardware’, the major recipient states of FDI Equity inflow were Karnataka (53 per cent), Delhi (17 per cent) and Maharashtra (17 percent) during FY 2021-22.

    Major Business Reforms and developments in India

    A number of reforms and developments have been undertaken in India in the recent time to improve the business climate for small and medium enterprises which include:

    a) Ease of doing business in India:

    No person would like to establish its business operations in a country which has complex law(s). Ease of doing business is one of the primary factors that motivates a country to do business with other countries. Ease of doing business index is a tool established by the World Bank Group. The lower the ranking, the better is the environment to start and operate a business. At present, 190 countries are a part of this ease of doing business index. 

    Out of these 190 countries, India ranks 63rd in ease of doing business index in 2019. India has achieved significant improvement in these rankings with jumping 65 places from 2014 onwards. The recent regulatory reforms are showing their impact. India ranks No. 1 among all the South Asian countries. 

    Recently, India has also made it more convenient to start business by fully integrating application for multiple services into a general incorporation form which can be filed for incorporation, GST registration, Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) registration, bank account opening and professional tax registration (in the state of Maharashtra).

    b) Make in India

    The Make in India program was launched by Prime Minister Mr. Narendra Modi in September 2014, with a view to encourage manufacturing in India to create an aura of self-dependency and self-reliance in the Indian markets. It aims to transform India as a global design and manufacturing hub. The motive to launch such an initiative is job creation and skill enhancement in various sectors of the economy. Under this initiative, country desks are open for investment from various countries like China, France, Germany, Israel, Japan, Korea, Russia, Taiwan, United Kingdom and United States of America. 

    c) Digital India

    With a view to make the government services available to citizens of India electronically, Government of India (GOI) launched digital India scheme on 2nd July 2015, the initiative aims to improve the electronic base for government services.

    d) Startup Policy

    With a view to promote budding entrepreneurs, Government of India launched the start-up scheme which provides for relaxations in regulatory norms, tax benefit & funding to start-up firms. The Start-up India initiative is also aimed at promoting entrepreneurship.

    e) Tax incentives

    These benefits, subject to specified conditions, include incentives for units situated in special economic zones (SEZs) or less-developed regions (like the north eastern regions of India), or International Financial Service Centres; incentives for specific industries, such as power, ports, highways, electronics, and software; incentives for newly set-up Indian companies, start-ups recognized under the National Startup Policy, etc. Incentives to non-resident companies operating in areas such as shipping, oil and gas services, aircraft, and power industries, among others are also available in the form of presumptive taxation.

    f) Introduction of GST regime

    In the year 2017, India has also brought in the Goods and Services Tax (GST) replacing multiple indirect taxes levied by central and state governments.

    g) Insolvency Law

    Insolvency and Bankruptcy Code (IBC), 2016 have made it easier for Indian business entities to obtain Credit. IBC Law gives secured creditors absolute priority over other claims under insolvency proceedings.

    h) Liberalized FDI norms

    FDI Policy has been liberalized and most of the sectors are now under automatic route of investment (except for countries which share land border with India). This has resulted in larger foreign capital inflow, growth of business and employment generation. 

    i) Eased Labour Code

    Recently the present Government has repealed some labour laws as with changing times, many of them were ineffective. Now 29 Labour Laws have been amalgamated into 4 labour codes namely:

    • Labour Code (Wage Code) – 2019

    • Social Security Code, 2020

    • OSH Code (Occupational, Safety, Health and Working Conditions Code) – 2020

    • Industrial Relations (IR) Code, 2020

    The benefits of these four Labour Codes will be available to workers of both organised and unorganised sector. Now, Employees’ Provident Fund (EPF), Employees’ Pension Scheme (EPS) and coverage of all types of medical benefit under Employees’ Insurance will be available to all workers.

    Promotion of Micro, Small & Medium Enterprises (MSMEs)

    MSMEs are considered as complementary ancillary units to large industries contributing enormously to the socio-economic development of the country. Focused attention is given on promoting growth and development of the MSME Sector. The benefit of seeking Micro, Small and Medium Enterprises (MSME) registration is that it allows small business.

    Road Ahead

    Since 2014, when Bhartiya Janta Party (BJP) came into power and Mr. Narendra Modi started leading the country as its Prime Minister, the Indian government has taken several strong measures to revive the growth cycle in India by launching various initiatives and schemes.

    The Indian Government has a vision of creating a vibrant, innovative entrepreneurship ecosystem in India. As part of the initiative, a flurry of reforms have been announced with the objective of ease of doing business in India by various ministries, which shall pave the path for a new India. 

    Post coronavirus we expect that many companies worldwide would shift their manufacturing centres from China to India, which shall fuel the growth of the Indian economy. The Indian economy is constantly evolving, with growth opportunities being present across multiple sectors. Global investors have started considering India as the most preferred destination for Business owing to growing digitalization, urbanisation, technological advancements, globalisation, favourable demographics and major law reforms.