Barr Ellison Solicitors – commercial property
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14 April, 2010 - 23:00 By Staff Reporter

A guide to exporting to India

Export_To_India

Recent advance estimates indicate that India’s real GDP growth is expected to increase from 6.7% in 2009 to 7.2% in 2010.

Economy overviewThe higher growth is primarily attributable to a sharp recovery in manufacturing, which is expected to offset declines or deceleration in agriculture and community, social & personal services.

Recovery in GDP growth for 2010 is broad-based, with seven out of eight sectors/sub-sectors showing, a growth rate of 6.5% or higher, compared with three in 2009.

The exception is agriculture and allied sectors where real GDP is expected to decline 0.2%.

India’s economic recovery is also likely to be assisted by the likely developments in the external sectors. As exports have started to grow once again, business investment is projected to rebound. This should eventually feed through to stronger consumption and the economy should return to its earlier growth path by mid-2010.

Automotive and Auto ComponentsUsing the expected growth rates for passenger vehicles, Light, Medium & Heavy Commercial Vehicles, three wheelers and two wheelers and the average prices of these vehicles, it is estimated that the Indian automotive industry which has seen significant growth in the past, is expected to grow at the rate of about 13% per annum over the next decade to reach a size of around US$ 165-175 billion by 2022.

IT and IT-Enabled ServicesThe contribution of the IT/ITeS sector to the national GDP has grown from 1.2% in 1998 to around 5.8% in 2009 and the sector's share of total Indian exports has increased from less than 4% in 1998 to almost 16% in 2008.

The IT industry is expected to perform well and likely to grow by 10% with sales growth picking up in 2010-11 because of an improvement in the global economic scenario and also due to the low base in the previous year. During 2010-11, the profits growth is expected to remain well above 20% on account of tight cost management.

Pharmaceuticals & Biotechnology

The Indian pharmaceutical industry has grown from a turnover of Rs 15 billion in 1980 to about Rs1,006 billion to 3Q2009. Globally, India now ranks third in terms of volume of production with 10% of global share and 14th by value. The Indian pharmaceuticals industry’s growth has been fuelled by exports, which registered a growth of 25% in 2009.

Chemicals and FertilisersIndia manufactures over 70,000 chemicals and is the 12th largest producer of chemicals in the world. The chemicals industry size is estimated to be around US$35 billion. The industry constitutes about 3% of GDP and 18% of manufacturing sector.

Renewable EnergyThe market for renewable energy in India is estimated at US$500 million, with an annual growth rate of 25 per cent. With investment in renewables of about US$3 billion per annum, India is among the countries with the highest levels of annual investment in renewable energy in 2007 along with Germany, China, USA, Spain, and Japan.

Major investments are being planned in the power sector in India in response to the increasing demand for electricity and the Government’s aspirations to provide electricity to all by 2012. The 11th Five Year Plan (2007-2012) aims to increase power capacity by approximately 69,000 MW, of which the majority will be thermal energy dominated by coal-fired plants.  The Working Group on Power for the 11th Plan estimated that an investment of nearly US$200 billion would be required in the power sector.

There are excellent feed-in-tariffs and tax breaks for investors.

RetailThe India Retail Industry is the largest among all the industries, accounting for over 10 per cent of the country’s GDP and around 8 per cent of the employment. Barrier to entry has been the heavy initial investments that are required to break even with other companies and compete with them.

In India the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in turn will help the India Retail Industry to grow faster.  Indian retail is expected to grow 25 per cent annually. Modern retail in India could be worth US$ 175-200 billion by 2016.

What are the potential challenges of operating in India?The challenges of operating in India can be best illustrated by the World Bank’s annual Doing Business Study which measures regulations impacting 10 stages of a business’ life. The 2009 study, which compared 181 countries, saw India being ranked at 122, up two places from 120 from the Doing Business 2008 Report. UK ranked at six for both 2008 and 2009. This gives a comparative perspective of the challenges that companies from the UK need to be prepared for when doing business with India.

‘Registering a Property’ 105 (UK: 22), ‘Starting a Business’ 121 (UK: 8), ‘Dealing with Construction Permits’ 136 (UK: 61), Closing a Business 140 (UK: 9), ‘Getting Credit’ 28 (UK: 2), ‘Protecting Investors’ 38 (UK: 9), ‘Paying Taxes’ 169 (UK: 16) and ‘Enforcing Contracts’ 180 (UK: 24) are some of the areas where Indian rankings trail those of the UK by a wide margin.  While the rankings showcase India’s progress in modernising its financial sector and in dismantling trade barriers, it also highlights continuing problems with relatively complex tax administration and endemic delays in the legal system. The latter two factors are key concern areas for companies from the UK to watch for while doing business in India.

What is the advice to companies from UK wanting to do business in India?Research the market before you invest. Get professional help to understand the size, potential and price dynamics and how and where you want to enter the market. Do not go by the overall size of the Indian market, segmentation is important.Take time to study the market, the demand/supply situation, pricing trends and competition. Do not go by overall Indian market size, segmenting the market for your business is critical.

Make sure that you have top management commitment and adequate resources to manage a business relationship in India, remembering the cultural differences.

Visit the market and take time to build personal relationships. Be prepared to make follow up visits. Choose your partner with care – conduct thorough due diligence and take independent advice.

Allow plenty of time for meetings and travelling around the market. Be patient - it always takes longer than you think!Engage the help of professionals who can guide and help you to avoid the pitfalls.

What are the routes by which UK companies can do business with India?The simplest route for a company from UK wanting to sell its products or services in India is through the appointment of an Indian distributor or agent. These arrangements do not generally need any entity to be established in India and generally no government approvals are needed to be taken by the UK company.

UK companies wanting a first hand, on the ground feel to assess the India market and research the business potential can open a Liaison (or Representative) Office in India, post approval from the Reserve Bank of India.

For companies that are sure about their India plans or those that are willing to take a longer term perspective on their business plans, opening a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV) with an Indian partner are options that can be considered. With progressive economic liberalisation, most sectors in India are open to foreign investment.  Certain sectors like broadcasting, defence, insurance, telecommunications, retail etc have a maximum permissible ceiling up to which foreign investments are allowed. Any proposed investments over the permissible ceilings will need to be cleared by the Foreign Investment Promotion Board (FIPB) which meets every week to clear proposals.

Business growth areasUK businesses can take advantage of India’s growing economy for promoting solutions in clean energy, high end technology, Biosciences, Auto industries, and Telecom/IT. With growing awareness about mutual opportunities for cooperation and growth, trade and investment ties between India and UK are poised to show excellent growth in the next decade.

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