29 June 2018
A Practical Guide to Doing Business in India
India is the world’s second most populous economy, with more than 1.3 billion people and the average age of its people under 30. With economic growth already surpassing that of China, India is expected to remain the world’s fastest growing major developing economy, with average GDP growth hovering at around 7% over the past few years. Driven by sustained global demand for information technology enabled services (ITES) as well as business processing outsourcing (BPO) services since the early 2000s, India has witnessed the emergence of an expanding middle-class consumers, leading first to a mall or retail boom across the country and then a surge in e-tailing activity since the mid-2010s. Since the elections win in 2014, the Indian government led by Prime Minister Narendra Modi has orchestrated many reform measures while drawing support from the state governments, including the implementation of the Goods and Services Tax (GST) in July 2017. The World Bank projected in April 2018 that the Indian economy will grow by 7.3% in 2018 and 7.5% for both 2019 and 2020, noting that the economy has recovered from the effects of GST, and banknote demonetisation introduced in late 2016.
Under the Modi government, India’s ease of doing business ranking has improved considerably, with the country making a sharp jump of 30 positions to make into the top 100 out of 190 economies for the first time in the World Bank’s Doing Business 2018 report. Following this, the Modi government has set its sight on breaking into the top 50. In the World Economic Forum’s Global Competitiveness Report 2017-18, India was placed at 40th spot among 137 economies.
Both reports highlight many challenges despite making continued improvements, which include:
- Starting a business – India is ranked 156th among 190 economies by the World Bank’s Doing Business 2018 report despite adopting many reform measures, and the process of starting a business is found to be more time consuming in India than many countries in ASEAN and the East Asia and Pacific region.
- Infrastructure – development of Indian infrastructure is primarily geared to the state capitals, Tier-I and Tier-II cities. The World Bank ranks India 181th and 164th, respectively, out of 190 economies in its dealing with construction permits and enforcing contracts. Nonetheless, recent public investments have helped improve most of the pillars of competitiveness, including infrastructure, with the 2017-18 readings showing signs of stabilisation after the big leaps of the previous two years.
- Innovation – India is reckoned to be an aspirant for innovation, but more effort is needed to increase the readiness of the Indian people to adopt new technology and to spread the potential economic and societal benefits of innovation.
- Corruption – while the quality of Indian institutions has increased further, especially in terms of the efficiency of public spending, the private sector still considers corruption a top problem for doing business in India.
After a landslide victory in the 2014 general elections, Narendra Modi became India’s 14th prime minister. The pro-business government that he once led in the west Indian state of Gujarat had achieved the highest GDP growth among Indian states for many years. Therefore, his premiership has instilled stronger business and consumer confidence with growing hopes in India of fiscal consolidation, infrastructure and investment reforms, boding well for India's long-term economic outlook and retail industry growth. While stepping up public investment in infrastructure and rolling out reform initiatives, many policy measures were considered highly controversial, including in particular banknote demonetisation deployed to crack down against corruption and speed up the country’s march towards a cashless economy.