Doing Business in India
:
One
may set-up operations in the form of any of the following:
1.
General Indian Citizen / Company
2.
As an Overseas Company, through:
2.1 Liaison Office/Representative
Office
2.2 Project Office
2.3 Branch Office
3.
As an Indian Company, through:
3.1 Joint Venture
with an Indian partner
3.2 Wholly Owned
subsidiary
An
individual and citizen of India can set up I.T. software and services
operations in India through the following:
§
as
an Individual / Proprietor
§
as
a Partnership / Firm / Trust
§
as
a Company registered under the Companies Act, 1956
No
prior permission of Government of India is required to set up I.T. / Software
units in India. Moreover, to encourage units in this sector, Government
of India has announced many schemes.
Ø
Domestic Tariff Area:
When
the primary focus is to sell in the domestic market in India. This unit
can be set anywhere in India. All normal laws apply. No concession is
available on import duties. Exports are permitted. A special Export Promotion
Capital Goods (EPCG) scheme of Ministry of Commerce can be availed. This
scheme allows zero duty import of capital
Goods
against export obligations.
Ø
Special Economic Zones (SEZs):
SEZ
is a new scheme announced by the Government of India. SEZs are areas where
export production can take place free from plethora of rules, regulations
governing imports and exports. Units operating in these zones have full
flexibility of operations and can import capital goods and raw material
duty free. The movement of goods from and to ports and from SEZ is unrestricted.
The units in SEZ have to export the entire production. The first two SEZs
are being set up at Positra, Gujarat and Nangunery, Tamilnadu. Immediately,
Santacruz Electronic Export Promotion Zone, Kandla Export Promotion Zone,
Vizag Export Promotion Zone and Cochin Export Promotion Zones are proposed
to be converted into SEZs.
Ø
Export Processing Zones (EPZ):
These
zones are located at various places including Cochin, Falta (Near Calcutta),
Kandla, Chennai, Noida, Santacruz (Mumbai), Vishakhapatnam and Surat.
A unit can be set up in these zones subject to availability of space.
No import duty and special 10-year's income tax holiday are some of the
incentives provided. There is no restriction on the quantity of domestic
sales.
Ø
100% Export Oriented Unit (EOU).
This
is similar to EPZ scheme. But in this scheme, there is no need to be physically
located at EPZ. All other incentives are same as provided to EPZ units.
Ø
Software Technology Park (STP).
As
a part of a very special scheme under The Ministry of Information Technology,
STPs are located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad,
Bangalore, Chennai, Bhubaneshwar, Jaipur, Mohali and Thiruvanathapuram.
Some of the incentives available under this scheme are:
§
Zero
import duty on import of all capital goods
§
Special
10 years income tax holiday
§
Availability
of infrastructure facilities like high speed data- communication links
etc.
2.
Overseas Company
Foreign
Company is one that has been incorporated outside India and conducts business
in India. These companies are required to comply with the provisions of
Companies Act, 1956.
A
foreign company or individual planning to set up business operations in
India can do so as under:
As
a foreign company through:
§
A
Liaison Office/Representative Office
§
A
Project Office or
§
A
Branch Office.
2.1 Liaison Office/Representative
Office:
A
liaison office is not allowed to undertake any business activity in India
and can not earn any income in India. The role of such offices is limited
to collecting information about possible market opportunities and providing
information about the company and its products to the prospective Indian
customers.
The
opening and operation of such offices is regulated by the Foreign Exchange
Regulation Act (FERA). Approval of Reserve Bank of India (RBI) is required
for opening of such offices. These offices have to ensure the following:
§
Expenses
of such offices are met entirely through inward remittances of foreign
exchange from Head Office abroad.
§
These
offices do not undertake any trading or commercial activities and commercial
activities should be limited to collecting and transmitting information
between overseas Head Office and potential Indian customers.
§
Liaison
offices should not charge any commission or receive other income from
Indian customers for provisioning of liaison services.
§
Permission
for such offices is initially granted for a period of three years and
may be extended from time to time.
2.2
Project
Office
Foreign
companies planning to execute specific projects in India can set up temporary
project/site offices in India with the approval of RBI. Such approval
is generally accorded in respect of a Government approved projects.
2.3
Branch
Office
Foreign
companies engaged in manufacturing and trading activities abroad may set
up Branch offices in India, with the permission of RBI, for the following
purposes:
§
To
represent the parent company / other foreign companies in various matters
in India e.g. acting as a buying / selling agents in India.
§
To
conduct research work in the area in which the parent company is engaged
provided the results of research work are made available to Indian companies.
§
To
undertake export and import activities.
§
To
promote technical and financial collaborations, between Indian companies
and overseas companies. A branch office is not permitted to carry out
manufacturing activities on its own but is permitted to sub-contract these
to Indian manufacturers.
3.
Indian Company
A
foreign company or individual planning to set up business operations in
India can do so through incorporation of a company under the provisions
of Indian Companies Act 1956. Foreign equity in such Indian companies
can be up to 100% depending upon the business plan of the foreign investor,
existing investment policies of the Government and on receipt of requisite
approvals.
As
an Indian company through:
§
A
Joint Venture or
§
A
Wholly Owned Subsidiary.
3.1
Joint
Venture with an Indian partner
Foreign
companies can set up their operations in India by forging strategic alliances
with Indian partners. Setting up of operations through Joint Venture may
entail the following advantages to a foreign investor:
§
Established
distribution / marketing set up of the Indian partner.
§
Available
financial resources of the Indian partner.
§
Established
contacts of the Indian partner, which help to smoothen the process of
setting up operations.
Foreign
investments are approved through two routes as under:
¨
Automatic Route: Approvals for foreign equity up to 50%,
51% and 74% are given on an automatic basis subject to fulfillment of
prescribed parameters in certain industries as specified by the Government.
RBI accords automatic approval to all such cases.
¨
Government approval: Approval in all other cases where the
proposed foreign equity exceeds 50%, 51% or 74% in the specified industries
or if the industry is not in the specified list require prior specific
approval from Foreign Investment Promotion Board (FIPB).
3.2
Wholly
Owned subsidiary
The
foreign investor has the option of setting up a wholly owned subsidiary,
wherein the foreign company owns 100% share of the Indian Company. All
such cases are subject to prior approval from the FIPB. Some of the criteria
for setting up wholly owned subsidiary include:
§
Only
"holding" operation is involved and all subsequent / downstream
investments to be carried out need prior approval of the Government.
§
Where
proprietary technology is sought to be protected or sophisticated technology
is proposed to be brought in.
§
At
least 50% of the production is to be exported.
§
Proposals
for consultancy
§
Proposals
for infrastructure like roads, industrial model towns, industrial parks
or estates.
The
following are brief guidelines for individuals / companies interested
to set up IT Software and Services operations in India:
*
Consider Market Potential
*
Define Regulatory Issues
*
Define Competition
*
Conduct Market Research
*
Consider Entry Strategy Options
*
As
a Foreign Company
1)
Liaison Office
2)
Project Office
3)
Branch Office
*
As
an Indian Company
1)
Joint Venture
2)
100% Subsidiary
*
Obtain Regulatory Approvals
*
Conduct Partner Search
* Conduct Negotiations
* Carryout Business Valuation
*
Obtain Regulatory Approvals
*
Incorporation of Company Issue of Shares
*
Registration with relevant Government
authorities