Guide to Doing Business in India

Overview India is the worlds largest democracy, with a young and fast-growing population of well over one billion people. It is a diverse country with a vibrant, multi-cultural society and its own distinctive business culture. Rather than being a single market, India is a series of interconnected regional markets with differing regulations and investment climates, and varying approaches to business and its associated social behaviour. Indians prefer to work with people they know. It takes time to build the trust and respect that underpin business relationships and hospitality plays an important role. Make sure you know where people you are dealing with stand in the hierarchy and acknowledge seniority. The most important decision maker will be the person at the top. Doing business in India is not easy. Most people grapple with culture shock and many things take longer and cost more than first thought. You need to make a long term commitment backed up by enough resources to stay the course. Go slowly, visit often, and build a network of locals who can help you find the right partner and business model. Dont take communication and understanding for granted. Although English is widely spoken it is usually a second or third language so things can be lost in translation. In addition, Indians are reluctant to say no. Confirm everything once you get home and not just by email its essential to talk by mobile phone or face to face. India is an exciting market that offers huge opportunities but its also fiercely competitive. You need to be highly organised, have good marketing material and a strong Internet presence, and take plenty of advice from others experienced in doing business in India. Indias Strengths India has one of the fastest growing economies in the world and provides a vast market for consumer and industrial products. Key strengths include: Rapid economic growth Domestically driven economy Low labour costs Large pool of skilled and well educated workers Strong knowledge base with a large English speaking population Young country with a median age of 30 years by 2025 Significant market potential with around 20 million new consumers born each year

Robust banks and financial institutions A favoured investment destination

Indias economy The largest segment of the economy is the service sector, led by software services and business process outsourcing (BPO) operations. India also has a sophisticated financial sector, a large agricultural sector and diversified industry. Follow the links below to the India in Business website of the Ministry of External Affairs for detailed information about Indias industrial, service and infrastructure sectors. Industrial Sector Indias varied industrial sector contributes around 20 per cent of GDP. Textiles manufacturing plays a predominant role along with the chemicals, steel and energy industries. Food processing is a fast growing segment and India is one of the worlds major car manufacturing hubs with Hyundai, Renault and Ford all having Indian manufacturing plants. India is also a favoured investment location for biotechnology companies. Strengths of the industrial sectors include a strong network of science and technology institutions, trained manpower, low cost base, and an innovative knowledge base.

Auto Industry Biotechnology Cement Chemicals Food Processing Gems and Jewellery Heavy Industry Mines Oil and Gas Pharmaceuticals Steel Textiles

Service Sector The service sector accounts for around 63 per cent of GDP with BPO operations the most important segment and one that attracts significant foreign investment. India has capitalised on the large number of well educated, English-speaking people to become a major exporter of software services and software workers. India is an increasingly attractive market for global retailers and also for tourists, with growth of more than 8 percent in the number of foreign tourists visiting the country in 2010.

Information Technology Insurance

Media and Entertainment Retailing Tourism

Infrastructure Sector The Indian government is investing heavily in infrastructure development to relieve congestion on its overburdened transport networks and support rapid and sustainable growth in its economy. There are major telecommunication, road, aviation, energy, rail and port expansion projects underway in many cities, many of which are supported by foreign investment. Education is highly valued in India and it has the worlds third largest higher education system. Health services and health education is another major focus as India strives to extend the provision of quality health services across both urban and rural communities.

Civil Aviation Defence Education Ports Power Roads and Highways Special Economic Zones Telecommunications Health

Market Entry Market entry models vary widely. In IT, for example, partnering with an Indian software company may result in your product being sold nationwide. A supplier of food or beverage to the hotel sector, however, may start out with one warehouse in one location. A good strategy is to focus on one geographic region and one niche. Beyond the sprawling mega-cities of New Delhi and Mumbai is a network of smaller cities or metros with significant populations. Do your homework on your target market segment and tailor your value proposition and offering to suit Indian customers and market requirements. India is so different it is risky to make assumptions based on experiences in other markets. Tips for doing Business in India There are a multitude of things to consider when setting out to do business in India. Some issues are flagged below along with links to further information. An Ernst & Young report produced in 2010 for the Indian Government is a valuable resource: http://www.investindia.gov.in/e&y_doing_business_india.pdf. Relevant page numbers for further information contained in the Ernst & Young report are included below.

Modes of Entry New Zealand companies face the fundamental question of whether to go it alone or work with partners in India. History suggests those with strong, trusted partners tend to do better, and move faster, than those without. However there are always exceptions to that rule and some businesses successfully go it alone. Ultimately, the choice comes down to each companys individual DNA, their product, and their connections in the market.

Company Structures Structures typically used by foreign investors in India include opening a liaison or representative office, a branch office, a temporary office for the duration of a specific project, or a wholly or partly owned foreign subsidiary company. For those setting up a company, there are a variety of options including limited and unlimited liability companies and those established for a charitable purpose. Private companies are popular with small and medium sized businesses while public companies may suit bigger enterprises. For further information on types of structures, see pages 92 97 of the Ernst & Young report and to find out more about types of companies, view pages 116 129 of the report. Other information can be found at: http://ndlolegal.com/8Mar06.pdf http://efs-consultants.com/Branch-office.html

Forms of Enterprise There are many forms of enterprise available to businesses establishing in India with sole proprietorship, where a single individual owns, manages and controls the business, being the oldest and most common. Other options include partnerships, which are relatively straight forward to establish, and limited liability partnerships, which blend unlimited personal liability with the statue-based governance structure of a limited liability company. See pages 110 113 of the Ernst & Young report for further information.

Funding Indian Businesses Local Indian subsidiaries typically issue equity shares to fund their business. Other options include issuing preference share capital or raising funds by issuing debentures, bonds and other debt securities. Funds can also be raised by accepting deposits from the public. In addition, qualifying Indian companies are able to raise funds through Global Depository Receipts (GDRs), American Deposit Receipts

(ADRs) and Foreign Currency Convertible Bonds (FCCBs) although approval may be needed from the Foreign Investment Promotion Board (FIPB). See pages 100 103 of the Ernst & Young report for further information. Getting Funds in and out of India In general, foreign capital invested in India can be repatriated after tax has been paid on it. That includes payments for know-how, royalties and technical service fees. The same applies to profits and dividends earned in India. There is also provision for paying for consultancy services procured from outside India. See pages 106 107 of the Ernst & Young report for further information on the above and page 127 for information on dividends. The New Zealand Export Credit Office provides financial guarantee products for New Zealand exporters. Find out more about these products, including contract bond guarantees and letters of credit, at www.nzeco.govt.nz Regulatory Environment Indias legal system is based on English common law. There are a number of business challenges in India, including an extensive bureaucracy, labour market rigidities and regulatory controls. Exporters will need to become familiar with key legislation governing economic and commercial activity. Indias IP laws are still being brought into line with international best practise. India has comprehensive legislation governing employment. It is a member of the International Labour Organisation and complies with the conventions the ILO has ratified. Find out more about the regulatory environment on pages 132 151 of the Ernst & Young report. Some food products imported in to India require certification and all food and beverage products exported to India need to conform to domestic laws. The primary reference document for requirements is the Food Safety and Standards Regulations, 2010. For more information, visit the Food Safety and Standards Authority of India website: www.fssai.gov.in

Tax Indias tax systems are complex. Tax structures vary from state to state and have a direct impact on the price of a product. Some states levy a tax (known as Octroi) on cross-state border transportation. The government intends to simplify the situation and introduce a uniform, national goods and services tax.

Taxes are levied by both central and state government. The Central Board of Direct Taxes (CBDT) is responsible for direct taxes including corporate and personal income tax, fringe benefit tax and wealth tax. Indirect taxes include excise duty, value added tax, property and entertainment taxes. There is detailed information on direct taxes at pages 172 203 of the Ernst & Young report and on indirect taxes at pages 212 223. The Indian government offers attractive incentives in certain industries including direct tax incentives and special economic zones. Find out more at pages 226 237 of the Ernst & Young report. The number of mergers and acquisitions in India has been steadily rising in recent years and India is now one of the top countries with respect to merger and acquisition deals. Find out more at pages 154 - 157 of the Ernst & Young report. Note: Regulations change regularly. Always take the advice of a certified professional, ideally with a firm that has dual shore presence or an alliance with firms in India. Transfer Pricing Indian has comprehensive transfer pricing regulations that are in line with OECD guidelines. There is further information on pages 206 208 of the Ernst & Young report. Visas, permits and personnel matters New Zealanders require a visa to visit India. There is no Visa on Arrival system and a visa must be obtained before departure. Multiple entry business visas and employment visas are available for varying periods and longer term visitors also need a residential permit. India now offers a tourist visa on arrival. Business people are strongly advised not to try to enter on this visa as if the authorities suspect that you are not a genuine tourist they can and do send people back on the next plane. Business people should apply for a visa in new Zealand before they travel. If you are a frequent traveller you can request a multiple entry visa. To find out more about the rules governing living, visiting and working in India for individuals and their families see pages 160 169 of the Ernst & Young report. Language, Business Culture & Etiquette India has 15 official languages. English and Hindi are the most common and business is usually conducted in English. Business etiquette is important. Key things to remember are: Business is hierarchical and the most senior people should be acknowledged first. When leaving, farewell each person individually

When arranging meetings, it is important to give notice of your intention to visit in a reasonable time frame and confirm closer to the time When addressing someone you dont know, use their formal title (Mr/Mrs/Dr) or Sir/Madame Hand shaking is common between people of the same gender but seldom happens between men and women. If in doubt, wait for them to extend their hand Exchange business cards at the first meeting The concept of losing face is important dont do anything that will cause loss of face for a person Decision making is generally slow and drawn out be flexible and patient Indians do not like saying no directly and will hide it in niceties, body language and gestures Talking by phone or face-to-face is better than the written word Gift giving is common Keep clothing modest and conservative While many Indians are vegetarian, there are also many Indians who choose to eat meat. Those who drink alcohol in India prefer spirits such as whiskey, though an appreciation of wine and beer is growing.

Holidays & Festivals There are many national and regional public holidays in India - check dates before visiting the market. Schools and colleges are closed for annual holidays during the hot spell and the Monsoon of May and June and this is also when many business people and government officials go on leave. The major Indian festival season falls in the cooler months of October and November. Phones & Internet India has the second largest mobile telecommunications system in the world, with well over 800 million subscribers. The country is divided into zones or circles, roughly along state boundaries. There are also a range of local and long distance telephone services which offer some of the cheapest calling rates in the world. News Media India has a lively press and a flourishing broadcasting industry with news programmes often outperforming entertainment shows. FM radio stations are common in the cities and Internet use is soaring with more than 100 million Indians estimated to be online.

For more information The rate of socio-economic and regulatory change in India can be fairly rapid in some areas when it does change. For the latest updates on economic and regulatory change in India, or more detailed information contained in this guide, contact NZTE in India. NZTEs Mumbai office NZTEs New Delhi office

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