India is one of the fastest growing economies in the world. India is an attractive market for foreign investors because of its regulatory reforms and positive outlook. In the past few years many hurdles related to foreign investment have been removed. Still, there remain difficult challenges for a foreign investor to do business in India. It’s rather noticeable that starting a new business in India is more difficult than engaging in an existing one. The key to success in India is to identify and prepare for these challenges.

Issues in doing business in India

India has strong, stable, and transparent financial market which has gradually transformed from being ahighly controlled system to a relaxed one.

A few key challenges in doing business in India are:

• Real Estate
• Delay in courts
• Inadequate Infrastructure
• Foreign investment
• Labour & employment
• Corruption
• Intellectual property

Real Estate: The following are the restrictions in the field of real estate.

• The invested money cannot be sent back for a period of 3 years without having the approval of the Indian government.
• The investor has to develop at least 50% of the project in a period of 5 years from the date of approval.
• Investors have to abide by minimum land development requirements.
• It is illegal to sell undeveloped land.

Delay in courts: Another biggest challenge for the investors is the problem of delay with cases. Arbitrating a dispute within India also has the risk of delay at the first level of dispute resolution.

Inadequate Infrastructure: This includes unpaved roads, poor energy supply, ineffective ports and airports, inadequate power generation, etc.

Foreign investment: Direct investment by foreign investors is not possible without the the approval of the Indian government. Another challenge is convincing the government about the possibility and usefulness of a project.

Labour & employment: Negative agreement in employment contracts in the form of non-compete clauses are not enforceable beyond the term of the contract. The investor must be careful to abide by important laws like Shops and Establishments Act, Industrial Disputes Act, State Specific Employment Orders, etc.

Corruption: Corruption is a big difficulty while doing business in India. Political and regulatory risks can also cause a major challenge. There is also challenge in dealing with uncontrolled administration at different levels of state, federal, and local governments.

Intellectual property: India is lagging behind several developed nations in its execution and enforcement of intellectual property laws. The investor must be careful when drafting contracts that involve the assignment of copyrights. Indian patent law needs the owner of a patent to obtain the consent of the joint owner of the patent before such person allocates or sells the invention covered under the patent.

Now, the organizations are relatively better-equipped as the hurdles are less. Still, one cannot neglect the key policy and challenges that investor’s face in India. This gets even bigger for new projects.

Governance Structure

The unique architecture of the Indian governance framework is one of the biggest challenges faced by most of the multinational companies. This is badly knotted between State and Central structures. The reason is that the state laws and incentives are dependent on electoral constituencies of ruling parties. It is very common for neighbouring State Governments to have infinitely differing legislations on land acquisition, priority sector categorisation for incentives, labour, commercial tax, and intrastate movement of goods. These come into play in a significant way while planning investments in India. Companies get attracted with incentives or locality market access very often.  Much later, they get realized that it doesn’t translate to enhanced returns on capital employed.

Policy Environment

Not all MNCs are able to survive with the vagueness and want of precision around the policy environment. Recently, many MNCs entered in the telecom sector when it was opened up for FDI. But the survived ones were mostly Indian.  The risk of an unsure regulatory environment eventually guarantees that the survived ones usually do so with good returns.  A recent study showed that India enjoyed a Return on Capital Employed (ROCE) of 48% and the remaining enjoyed a ROCE of 36% altogether.  Important companies in the list are automobile giant Hyundai, Korean white-goods-maker LG, and Japanese automotive giant Suzuki. The common thing in these companies is their eagerness to remain engaged with the rigid environment and manage the associated uncertainties. Only a very few markets continue to offer the opportunity of level to drive interest from policymakers at a Government-to-Government level. This will force the Government to make sure of moderation in policy level involvement and limits the possibility of any potentially-destabilizing policy exemption.  At the same time, it leaves enough to help enhance returns by carefully interpreting the policy regimen. While emerging from their present crises, all countries face increased regulation. To deliver better returns for their project, business leaders have to build a deep understanding of the governance frameworks and regulatory environment.

Joint Projects

Now, India incorporates better with global economy focusing on motivating greater competitiveness.  India also draws up a policy structure to allow more transparent governance framework. So, the coming decade will be a decade of momentous change. Compared to the ones that rely on local Indian partners, the companies that participate in this process are able to place themselves more strongly to succeed. The reason is that Indian partners will be mainly state PSUs or family-owned. Hence, they may sometimes have competing priorities in controlling their relationship with the Government and thereby rescheduling to them for imminent gain and they get burdened with inherent risks.

Actually, these conflicting interests make the task of setting up a new business in India more difficult.  A key driver of success is the aptitude to understand the regulatory environment and reason in the risk-reward from policy changes when developing the business forecasts. Selection of a good partner is the key to the success of any joint venture.

Requirement of Audits

An important procedure required in a business is auditing. Accounts of all banks, companies, and financial institutions must be get audited by an auditor. The auditor must be a practicing member of ICAI. Auditing should be done in all the company branches also.

Challenges are plenty as you can see, but at the same time the attractiveness of Indian market is pushing for more foreign investments to come to the market. Once Indian Inc can take care of these challenges, we can see much more stronger inflow of investment to start business in India.