About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Print this page

India: Market Profile

Picture: India factsheet
Picture: India factsheet

1. Overview

With a population of more than 1.2 billion people, India is the world’s second largest country. Over the past decade, the country’s integration into the global economy has been accompanied by economic growth. Poverty has declined since 2004/05 although short-term disruptions from demonetization and depressed food prices may have moderated the pace. India has now emerged as a global player. Public finances remain stable, though there has been an increase in sub-national debt levels. The key medium-term risk is the need for recovery in private investment. Other issues confronting the Indian government include ensuring high growth levels, fostering faster job creation, addressing distress in the agricultural sector, and strengthening implementation of flagship government programs. Private sector investments continue to face several domestic impediments including the corporate debt overhang and regulatory and policy challenges, along with the risk of an imminent increase in US interest rates.

Source: World Bank

2. Major Economic/Political Events and Upcoming Elections

October 2008
Following approval by the US Congress, President George W Bush signs into law a nuclear deal with India, which ends a three-decade ban on US nuclear trade with Delhi.

November 2008
Nearly 200 people are killed and hundreds injured in a series of co-ordinated attacks by gunmen on the main tourist and business area of India's financial capital Mumbai. India blames militants from Pakistan for the attacks and demands that Islamabad act against those responsible.

February 2009
India and Russia sign deals worth USD700 million, according to which Moscow will supply uranium to Delhi.

May 2014
The Hindu nationalist Bharatiya Janata Party and its candidate for prime minister, Narendra Modi, win parliamentary elections by a landslide.

September 2014
Visiting Chinese President Xi Jinping and Prime Minister Modi unveil landmark economic deals. China says it plans to build two industrial parks in India, as part of overall investment of twenty billion dollars in the next five years.

June 2015
India and Bangladesh sign a historic deal allowing more than 50,000 people living in border enclaves to choose which of the countries they live in.

September 2015
India launches its first space laboratory Astrosat in its biggest project since its Mars orbiter mission in 2014.

September 2016
India signs a billion-dollar defence deal with France to buy 36 Rafale fighter jets.

November 2016
In a surprise announcement, the government withdraws high denomination notes from circulation causing chaotic scenes at banks across the country as customers try to exchange old notes.

January 2017
The government reaches a wide-ranging cooperation agreement with the United Arab Emirates, with a series of deals on energy, defence, trade and maritime affairs.

March 2017
Prime Minister Narendra Modi’s BJP demonstrated sustained strength in state elections in February-March 2017, building on the national electoral victory scored by the BJP-led National Democratic Alliance in May 2014. After recent elections in the largest state, Uttar Pradesh, home to one in six Indians, BJP took 75 % of the seats in the state legislature. With other results and changes in state-level coalitions, the BJP is in power in 11 states on its own and in three others in an alliance with a regional party and governs about 68 % of India’s population.

June 2017
Along with Pakistan, India becomes a full member of the Shanghai Cooperation Organisation, an inter-governmental security grouping. India's membership sees the grouping's membership expand into South Asia.

National elections are scheduled for 2019. India is governed by the Bharatiya Janata Party (BJP)-led National Democratic Alliance following its victory in May 2014 national elections. The BJP, either outright or in coalition with other parties, now holds power in 14 states comprising 68% of India’s population.

Sources: BBC, BMI

3. Major Economic Indicators

Graph: India real GDP and inflation
Graph: India real GDP and inflation
Graph: India GDP by sector (2016)
Graph: India GDP by sector (2016)
Graph: India unemployment rate
Graph: India unemployment rate
Graph: India current account balance
Graph: India current account balance

Note: f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: India merchandise trade
Graph: India merchandise trade
Graph: India major export commodities (2016)
Graph: India major export commodities (2016)
Graph: India major export markets (2016)
Graph: India major export markets (2016)
Graph: India major import commodities (2016)
Graph: India major import commodities (2016)
Graph: India major import markets (2016)
Graph: India major import markets (2016)

Sources: WTO, World Bank WITS database

4.2 Trade in Services

Graph: India trade in services
Graph: India trade in services

5. Trade Policies

  • India’s government has embarked on economic liberalisation since 1991 and continued to work towards a more open trade regime. There has been elimination of quantitative restrictions, simplification of import licence application and reduction of import tariffs. Since 1992, the government has loosened the licensing requirement for imports of capital goods. In March 2001, the government abolished the system of special import licences and the restricted list of imports, leaving only a short negative import list.
  • While customs duties have fallen in recent years, an average tariff rate of 6.2% on imports remains high on a global comparison, and some domestic industries still enjoy protection which raises the costs of imported goods and partially undermines competitiveness. For instance, the Indian government has approved scores of new solar plants, rooftop projects and lighting systems, while also offering financial incentives to companies that build them, which will bolster energy security in the long run. However, at the same time, India's plan to impose a 70% tariff on imported solar panels raises costs for the country's industries and end-users. This move comes as a boon for local panel makers that have seen significant competition from Chinese imports.
  • The application of customs duties is complicated and inconsistent which makes it difficult for businesses to accurately assess the cost impact of trade tariffs and opens up the process to manipulation at the discretion of customs officials. Trade barriers are likely to continue falling over the medium term, however, as the government continues to sign trade agreements and bring tariffs into line with the standards of other Asian states. In addition, the planned implementation of standardised nationwide duties will improve clarity and reduce costs for businesses importing into India.
  • India's average tariff rate is the second lowest out of eight states in South Asia (ranking behind Sri Lanka with 5.3%).
  • There are a wide range of import duties in place to protect domestic production from cheaper regional imports.India imposed a 10% tariff on man-made fibres vis-a-vis 6% on cotton fibres. On the other hand, domestic taxes also favour cotton-based production rather than production based on man-made fibres, and leather footwear rather than non-leather footwear.
  • There are also various local content requirements in the area of infrastructure and solar power provision.
  • In June 2016, the Indian Ministry of Finance imposed an export duty of 25% on raw, white and refined sugar. There are also restrictions on the export of certain types of rice, while many other EU and Asian states also impose anti-dumping restrictions on Indian goods.
  • US Generalised System of Preferences (GSP) allows India to export apparel at reduced rates.
  • There are also various import and anti-dumping duties on manufactured goods, second-hand goods, jewellery and metals such as aluminium, steel, rubber, plastics, zinc alloys; as well as some batteries, solar panels media products and various other machine parts. On the other end of the spectrum, India's mobile tech merchants will be challenged with the boosted tariff amount on imported smart-phones, beginning April 1 2018. In Q118, the Indian Minstry of Finance increased the import duty from 0 to 5% on "Scientific and technical instruments, apparatus, equipment, accessories, parts, components, spares, tools, mockups and modules, raw material and consumables required for launch vehicles and satellites and payloads".

6. Trade Agreement

6.1 Trade Updates

The Indian government has become increasingly proactive in pursuing free trade agreements (FTAs) with major trade blocs and global trade hubs - including the Common Market of the South (Mercosur), the Association of Southeast Asian Nations (ASEAN), Singapore and India - while negotiations with China and the EU are underway. This improves the ease of trading with large markets and key trade hubs, by lowering tariffs and other barriers to trade. Indian products also receive easier access to the US market through the implementation of the Generalised System of Preferences (GSP). Nevertheless, FTAs have not yet been signed with some major trade partners, including China and Gulf Cooperation Council (GCC) states, and tariffs and other barriers remain significant for trade with these countries.

6.2 Multinational Trade Agreements


  1. India has been a WTO member since 1 January 1995 and a member of GATT since 8 July 1948.

  2. South Asian Free Trade Area (SAFTA), comprising Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka - The Asian Development Bank (ADB) has estimated that inter-regional trade possessed potential of ramping up agriculture exports by USD14 billion per annum from existing level of USD8 billion to USD22 billion. The untapped potential for intra-regional trade is, therefore, USD14 billion per annum. Intra-regional trade in the bloc has the potential to increase the existing trade by over 300%. India provides maximum scope for realising its potential trade given the very low actual trade levels with Bangladesh, Pakistan, Bhutan and Nepal. Its actual trade levels with Sri Lanka are much higher than the estimated trade based on the gravity model (largely due to the Indo-Sri Lanka Free Trade Agreement.

  3. India has concluded several free trade agreements (FTAs) with countries and regions including Afghanistan, Bhutan, Ecuador, Singapore, India, Sri Lanka, Nepal, Korea, Chile, Japan, Africa, the ASEAN and the MERCOSUR (Brazil, Argentina, Uruguay and Paraguay). India also engages in the Agreement of South Asia Free Trade Area (SAFTA), and the Asia Pacific Trade Agreement (APTA).

Under Negotiation

  1. Currently, India is negotiating FTAs with Australia, Canada, Egypt, Indonesia, Israel, New Zealand, Thailand, the Gulf Cooperation Council (GCC) and the EU. India also participates in the negotiation of Regional Comprehensive Economic Partnership (RCEP).

  2. The Regional Comprehensive Economic Partnership (RCEP) is a mega-regional economic agreement being negotiated between the 10 ASEAN (Association of South-East Asian Nations) governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea. India is negotiating for the liberalisation of services, a sector that contributes over 60% to its gross domestic product, while resisting broad tariff cuts. It has agreed to provide similar tariff reductions to all RCEP members but wants a built-in safeguard regarding China that will involve a different structure for duty cuts. The free movement of people, something India wants for highly-skilled information technology workers, remains a major sticking point for the 16-party deal, even as China pushes for an accelerated timeline to finalise the agreement. India is also seeking multiple entry visas and a single-visa card to facilitate entry to member economies and it wants an easing of restrictions on services such as call centres and the establishment of foreign company subsidiaries providing services in other countries.

Sources: WTO Regional Trade Agreements database, BMI

7. Investment Policy

7.1 Foreign Direct Investment

Graph: India FDI stock
Graph: India FDI stock
Graph: India FDI flow
Graph: India FDI flow

7.2 Foreign Direct Investment Policy

  1. The Modi government undertook further reforms since 2016 to formalise the large informal economy and digitise the economy. In addition to the GST overhaul, which targets greater tax registration and digital tax reporting, the government demonetised its high-value notes. Through demonetisation, the government aimed to better track undeclared earnings for tax purposes, and increase the usage of digital payments which lags other major emerging economies.

    The Indian economy has broadly benefited from the reforms undertaken by the government since 2014, and we expect the administration led by Prime Minister Narendra Modi to continue to enact incremental reforms over the coming years, which should be positive for the economy. After slow running for much of 2017, India’s economy is now accelerating promisingly.

  2. Preferential Market Access (for government procurement) has created substantial challenges for foreign firms operating in India, as Public Sector Companies and the government accord a 20% price preference to vendors utilising more than 50% local content.

  3. India plans to build a new city in Gujarat, called the Gujarat International Finance-Tech City (GIFT City), in order to give global investors greater access to its growing economy. Two stock exchanges were established in the city in 2017, and government exemptions recently made trading virtually tax-free. The city will also have its own financial regulator as part of an effort to reduce red tape and bureaucracy faced by foreign investors. The new exchanges based in the city, including one called India INX launched by the Bombay Stock Exchange, are the only ones in India to allow trading in US dollars. Government official statements suggest that the tax breaks, low property prices and other incentives mean that moving operations to GIFT City have helped some companies reduce costs by up to 80%. While in Q118, the city still consisted of just a handful of structures – its first residences will be ready by H218, and a four-tower World Trade Center complex is expected to be completed by 2020. India is hoping that this zone will emulate the growth seen in Hong Kong and Singapore.

  4. Reforms introduced by Prime Minister Modi, include FDI cap relaxation and the launch of the “Make in India” Initiative. Modi launched the “Make in India” (MII) initiative in September 2014, with the aim of transforming India into the world’s manufacturing hub through actively courting foreign direct investment (FDI) in the manufacturing sector.India's economic policies are designed to attract significant capital inflows on a sustained basis and encourage technology collaboration. Almost all sectors are open to FDI, except for atomic energy, lottery business, gambling and betting, and some forms of retail trading.

  5. The Department of Industrial Policy and Promotion (DIPP) has set up a joint venture with the Federation of Indian Chambers of Commerce and Industry (FICCI) and various state governments to promote inward FDI. Invest India is responsible for promoting and facilitating investments to India, acting as the first reference point for overseas investors to offer handholding services.

  6. Under India's foreign investment policy, two routes are available for foreign investors, depending upon the industry and the levels of investment contemplated. First method: Automatic Route – Foreign investment proposals under the automatic route do not need a prior approval by the government, provided the requisite documents are filed with the Reserve Bank of India within 30 days of receipt of funds. Qualified sectoral investment includes hotels & tourism, and courier services and similar sectors. Second Method: Government Route – All other proposals for foreign investment, which are not covered under the automatic approval route, are subject to government approval. For investment proposal below USD750 million, the proposal will be approved by the Foreign Investment Facilitation Portal (FIFP), while proposals above this amount will be approved by Cabinet Committee on Economic Affairs. More information can be found at the official website of FIFP.

  7. The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). The newest category is the National Industrial and Manufacturing Zones (NIMZs), of which 14 are being established across India.

  8. One of Modi's key policy programmes has been to improve India's business environment and lift restrictions on FDI in order to boost the country's appeal to foreign investors, and the government has made significant progress on this. Foreign investors are now allowed up to 100% ownership of shopping centres, townships and business centres, and the restrictions on the permitted floor area of construction projects have been removed. Foreign equity limits have been raised from 74% to 100% in telecommunications, credit information firms, and chartered air transport and ground handling services. FDI is permitted up to 100% in the construction, operation and maintenance of some rail transport, such as high-speed trains, mass rapid transit, and passenger and freight terminals. Full foreign ownership is now permitted for certain agricultural enterprises producing coffee, rubber, cardamom, palm oil and olive oil, in addition to tea plantations. Foreign participation in the defence industry has been raised to 49% and may be permitted above this threshold after consideration by the Foreign Investment Promotion Board (FIPB). FDI is now permitted up to 74% in private banks and up to 49% in insurance and pension companies.

Source: WTO – Trade Policy Review

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Location-based incentives (vary according to the industrial policies of individual states but may include the following)– Exemption from stamp duty
– Exemption from electricity duty
– Rebates on utilities costs
– Industrial promotion subsidies
– Subsidised interest payments on loans for the acquisition of fixed assets
Special Economic Zones (numerous; located in major cities)
– Exemption from minimum alternative tax (MAT) for 10 years
– Tax exemption on 100% of export profits for first five years; 50% of export profits for the next five years; and 50% of export profits for a further five years if profits are reinvested. Exemption from customs duty on imported inputs and capital goods.
– VAT exemption
– Exemption from excise duty on procurement of domestic goods
– Exemption from sales tax on interstate purchases of goods
Tax benefits for north-eastern states (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura)
– Deduction of 100% of profits for 10 years
– Refund on excise duty for 10 years

8. Taxation – 2017

  • Value Added Tax: Multiple rates
  • Corporate Income Tax: 30%

8.1 Important Updates to Taxation Information

The Goods and Services Tax (GST) is the largest reform in India’s indirect tax structure since the market started opening up about 25 years ago. The GST is a consumption-based tax, as it is applicable where consumption takes place. The GST is levied on value-added goods and services at each stage of consumption in the supply chain. The advent of GST has subsumed all the indirect taxes in India, including value-added tax (VAT), service tax and excise duty. These indirect taxes or VAT were levied on each step of value addition of the product, thus creating a cascading effect. Therefore, GST was introduced to bring down unwanted inflation in the economy. Both VAT and GST are levied on the value of sale or supply of goods. The GST rates for goods are 0.25%, 3%, 5%, 12%, 18% and 28%. For services, the GST rates are 5%, 12%, 18% and 28%. Some goods and services are exempt from tax. GST compensation cess at varying rates is levied on supplies of certain specified goods and services.

The GST payable on the procurement of goods and services can be set off against the GST payable on the supply of goods and services, the business will pay the applicable GST rate but can claim it back through the tax credit mechanism. There are three schedules and each schedule has its own VAT percentage. For schedule three the VAT is 1%; for schedule two the VAT is 5%; and goods that have not been classified into any category have a VAT of 15%. The tax overhaul, which knits India into a single market for the first time, will be growth-positive in the medium term.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax– 30% on profits for resident companies. The rates are subject to additional levies (surchage and cess). The tax rate is 25% if turnover or gross receipts of the domestic company in the previous year are less than INR250 million.

– 40% on profits for non-resident companies (additional rates may apply).
Minimum Alternative Tax18.5% on profits – however, companies involved in infrastructure and power sectors are exempt from paying MAT.
Goods and Services Tax (GST)There are multiple tax rates of 0%, 5%, 12%, 18%, and 28% while several items are exempted and exports are zero-rated (exporters can claim refunds for taxes paid on inputs that go into production process).

Source: PwC

9. Foreign Worker Requirements

9.1 Localisation Requirements

Private sector industrial enterprises desiring to employ foreign nationals are required to apply for permission in advance.

Employment of foreign nationals is normally only considered for jobs for which local personnel are unable to fulfil.

9.2 Visa/Travel Restrictions

Work permits are required. The employment visa is required for employment purposes, including execution of a project in India. Eligibility conditions include a minimum annual salary of USD25,000 in a highly skilled role. The business visa for establishing industrial/ business ventures, or for exploring business possibilities/activities are comparatively easier to obtain. Foreign nationals entering India on a long-term visa (more than 180 days) must register with the Foreign Registration Office within 14 days of their arrival in India.

However, in India, work permits are commonly a long-term immigration solution. Therefore, immediate family members will be permitted to join the main applicant in India, although if family members wish to work they will have to apply for their own visa.

10. Risks

10.1 Sovereign Credit Ratings

Rating (Outlook)Rating Date
Standard & Poor's BBB- 30/01/2007
Fitch BBB-27/04/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators

World Ranking
Ease of Doing Business Index
Ease of Paying Taxes Index
Logistics Performance Index
Corruption Perception Index
IMD World Competitiveness41/6345/63N/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices

World ranking
Economic Risk Index Rank56/202
Short-Term Economic Risk Score 67.5 69.668.3
Long-Term Economic Risk Score 65.3 62.5 63.6
Political Risk Index Rank51/202
Short-Term Political Risk Score 77.7 77.775
Long-Term Political Risk Score 71.9 73.4 73.4
Operational Risk Index Rank101/201
Operational Risk Score 46.1 49.349.4

Source: BMI Research

10.4 BMI Risk Summary

Fiscal deficits remain at elevated levels, even though inflation has retreated from double-digit levels, and corporate India has seen some reprieve from improving external demand in the West. Still, we note that relatively high foreign currency reserves and a low foreign debt stock provide some measure of support. India also fares poorly, due to its chronic fiscal deficits, historically persistently high inflation and low quality of government expenditure.

India's main appeal lies in its large market and high-growth potential, with the country benefiting from significant natural resources, diverse service sectors and an expanding industrial base. Since 2014, the Indian economy has broadly benefitted from the reforms undertaken by the government and we expect the administration led by Prime Minister Narendra Modi to continue to enact incremental reforms over the coming years, which should be positive for the economy. Long-term economic growth will be supported by the large and rapidly growing working age population as well as robust infrastructure development that will boost the country's logistics profile. However, over the short-to-medium term the country will remain encumbered by some significant structural risks, including pervasive crime and security risks, corruption, excessive bureaucracy underpinned by the stuttering pace of reform and weak utilities infrastructure compared to regional giant-China, all of which increase the comparative costs of operating in India.

Graph: India short term political risk index
Graph: India short term political risk index
Graph: India long term political risk index
Graph: India long term political risk index
Graph: India short term economic risk index
Graph: India short term economic risk index
Graph: India long term economic risk index
Graph: India long term economic risk index

10.5 BMI Operational Risk Index

Operational RiskLabour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
India Score49.4
51.0 40.0
South Asia Average 41.6 43.744.038.9 39.7
South Asia Position (out of 8) 3.0 4 1 1 4
Asia Average 48.9 50.6 47.1 47.7 50.0
Asia Position (out of 35) 16 23813 23
Global Average 49.8 49.849.350.0 49.9
Global Position (out of 201) 101 1314994128

Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: India vs global and regional averages
Graph: India vs global and regional averages
Operational Risk Index
Labour Market Risk Index
Logistics Risk IndexTrade and Investment Risk IndexCrime and Secruity Risk Index
Sri Lanka
Regional Averages41.6
Emerging Markets Averages46.8
Global Markets Averages49.8

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with India

Growth rate (%)
Number of Indian residents visiting Hong Kong392,853
Number of Indian residents in Hong Kong18,285

Sources: Hong Kong Tourism Board, Hong Kong Immigration Department

Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54.4 million
Number of South Asia residents in Hong Kong36,680

11.2 Commercial Presence in Hong Kong

Growth rate (%)
Number of Indian companies in Hong Kong 67N/A
- Regional headquarters 11
- Regional offices 15
- Local offices 41

11.3 Treaties and agreements between Hong Kong and India

Hong Kong and India concluded an air services agreement in 1996. Hong Kong also signed a comprehensive double tax avoidance agreement with India in March 2018.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

The Indian Chamber of Commerce Hong Kong
Address: 2/F, Hoseinee House, 69 Wyndham St., Hong Kong
Email: indcham@icchk.org.hk
Tel: (852) 2523 3877, 2845 4612, 2525 0138, 2525 0139

Source: www.icchk.org.hk

Indian Consulate General in Hong Kong
Address: Unit A, 16th Floor, United Centre, 95 Queensway, Admiralty, Hong Kong
Email: consular.hongkong@mea.gov.in
Hours of Business: Monday to Friday, 9:00 a.m. - 5:30 p.m.
Consul General: Mr. Puneet Agrawal
Tel: (852) 3970 9900
Fax: (852) 2866 4124

Source: www.cgihk.gov.in

Content provided by Picture: Fitch Solutions – BMI Research