Guide to Doing Business in India

Introduction

As India turned sprightly 76 this year, the country has reached places. The realm of business in India is ablaze with numerous flames of opportunities. From being the first Indian woman as Vice President in one of the most powerful offices in the world to being one of the most influential business diasporas, India is not just over the moon but also over Mars! Thanks to ISRO. By building a tech-savvy workforce, being the go-to chemist and healthcare expert for more than 200 countries, and giving the world a spice kick in its international palate, the country has gained the reputation of Unstoppable India.

About India

Brief Overview of India’s Growth

As per the International Monetary Fund (IMF), India’s economy surpassed that of the UK in 2022. The Indian economy is now the fifth largest in the world with a 7.2% growth forecast for the financial year 2023. Earlier, India seemed like a challenging alternative when pitted against China. However, the number of businesses in China planning their stance in India has been increasing in recent years. This stance was credited to the adoption of the “China plus one” in the Indian business market. This model aims at reducing operational costs, diversifying the workforce and supply chain, and tapping into new markets. By embracing this approach, businesses can navigate and mitigate vulnerabilities to disruptions in supply chains, risks related to tariffs, and even address fluctuations in currency values.

Economic Growth and Development

The resilience of the Indian economy has been documented in the recent World Bank report titled “Navigating the Storm,”. It reveals how India has outpaced many emerging market economies (EMEs) despite current global situations such as the COVID-19 pandemic. India’s economy is predominantly driven by domestic demand, with consumption and investments accounting for 70% of total economic activity. With an improvement in the economic environment and the Indian economy’s recovery from the shock of the COVID-19 epidemic, several investments and advances have been made across several economic sectors. India continues to emphasize reducing inequality while simultaneously implementing growth-oriented measures to stimulate the economy, as per the World Bank report.

The Indian government has launched several programs throughout the years to boost the economy of the country. The Indian government has been successful in creating laws and initiatives that help people enhance their financial security as well as the nation’s general economic expansion.

The demand for exports has significantly increased as a result of India’s recent fast economic expansion. In addition, several of the government’s key initiatives, including Make in India, Start-up India, Digital India, the Smart City Mission, and the Atal Mission for Rejuvenation and Urban Transformation, are designed to open up many opportunities for Indians.

Business Growth in India

India has a strategic business location at the head of the Indian Ocean. Due to this positive positioning, India has access to both Southeast Asia and East Asia from its eastern coast and the Middle East, Europe, and West Africa from its western coast. Thus, India’s transit marine routes link East Asia and Europe. Additionally, India’s internal connection has also increased. The nation boasts seven international airports, the second-largest road network in the world, and the fourth-largest rail network in the world.

Cultural Fascination with India

India is proud of having a hugely diverse cultural past, encompassing many different languages, experiences, historical events, customs, and people. The nation has successfully adapted to global developments as it recognizes its distinctiveness in its variety. Since economic liberalization in the 1990s, though foreign investments are welcomed with open arms, Indians have been cautious and proactive in adopting Western techniques and capabilities. On the one hand, rural have proudly chosen to work in farming, and modern agriculture, and adopt digital banking and investments, while the urban industry and professional services sectors are expanding significantly beyond borders on the other.

India, renowned for its lavish jewels, complex workmanship, and variety of natural resources, has played a pivotal role in the history of international trade. India’s path through the economic world has been nothing short of spectacular, starting with the ancient trade routes that linked it to civilizations far away and ending with the contemporary tech clusters and brilliant companies that decorate its cities. Due to its steadfast entrepreneurial spirit and advantageous geographic position, this subcontinent has entered an era of explosive economic expansion. It offers a special synthesis of heritage and innovation that continues to define the country’s climb in the global business community.

With the presence of a wide variety of sectors, investment opportunities, and a supportive government, the nation is therefore drawing many global majors for strategic investments. A large population mostly made up of youngsters is a powerful driver of demand for talent. This attracts major industries looking for an abundant supply of skilled workforce to build their business in India.

Why Do Business in India?

Human resource availability

India is a tough player in the global labor market thanks to its extensive and diversified human resource base. India’s access to human resources is an important determinant in its economic growth and worldwide impact, which creates a balance between job creation, skill development, and maximizing the potential of its diversified workforce. Let us look at a few factors that highlight why doing business in India is a profitable notion.

India houses a population of more than 1.3 billion and is home to a diverse spectrum of abilities, talents, and knowledge in several different fields and businesses. Out of the total population, 62.5% of its population is in the age group of 15-59 years and is expected to be at its peak around the year 2036 when it will reach approximately 65%.

Recruitment of a skilled and educated workforce

The nation’s education system yearly graduates a sizeable number of students which helps to create a workforce of skilled professionals with a high level of education. India has developed into a top outsourcing location for technology and business services thanks to its solid foundation in industries including engineering, information technology, medical, and business management.

India is a desirable market for companies to enter because of its sizeable population, which not only serves as a diversified talent pool but also a sizable customer base. However, there might be differences in educational standards and skill levels between areas. In addition, despite the size of the workforce, it can be difficult to match job seekers’ skill sets with employers’ needs, particularly in niche sectors and industries sectors that are undergoing fast change. This gap of finding the right talent for your organization, when you are new and navigating the Indian market, a local guide proves to be a blessing in disguise. With a PEO or EOR as your local cheerleader and support, you can hire and recruit the best talent and skilled professionals in India. Any foreign organization can get operational in India in no time by hiring remote employees with the help of PEO or EOR services.

Curious about PEO/EOR? Explore more

Salary and tax structure details of Indian employees

India’s workforce market is distinguished by aggressive pay scales. Multinational firms have set up remote teams in India due to the country’s considerably affordable workforce prices in comparison to other industrialized nations. Additionally, India’s tax system guarantees that both employees and employers gain from advantageous tax laws.

The taxation system in India includes taxes levied by the Central as well as the state government. A few minor taxes from local bodies are also levied. India’s tax system comprises various direct and indirect taxes. The key direct taxes include income tax, corporate tax, and security gains tax. Whereas indirect taxes include goods and services tax (GST), sales tax, service tax, and Value Added Tax (VAT). For Indian employees, the government proposes several tax slabs that apply to those under 60, seniors, and super-senior citizens. These slab rates apply to all types of income, excluding capital gains.

Continuous amendments and updations have led to the simplification of processes and enhanced automation, fairness, and predictability of the tax systems in India. Recently, the Finance Minister announced the new tax regime for the financial year 2023-24. The prominent changes highlighted for the salaried employees include

Income up to Rs 7 lakh in a financial year will be tax-exempt. The rebate limit under Section 87A of the Indian Tax regime is increased to Rs 7 lakh from earlier Rs 5 lakhs.
The tax slabs have been reduced to 5 from the earlier 6.
The tax exemption limit has been enhanced up to Rs 3 lakhs.

To avoid any confusion between the old and new tax regime, refer to the image below

Salary structure of Indian employees

When any overseas company wishes to recruit in India and hire internationally, it is important to understand the competitive salary packages and compensations paid attention to in the Indian marketplace. Any employee, working and providing services in an organization expects a structured salary breakup consisting of components such as CTC, Gross salary, allowance, and so on. Here we bring you the detailed salary structure followed in India.

Basic Salary: It is the core amount of compensation paid to an employee and forms a foundation for other components.
Gross Salary: Gross salary is calculated by adding an employee’s basic salary, house rent allowance, and other allowances if present. It also includes overtime, holidays, and other compensations. Gross salary is calculated before tax deductions.
Net Salary: Take-home salary or Net salary is calculated as the salary after tax deductions at source (TDS) and other tax deductions. The calculation of net salary is

Net salary = Gross Salary – Professional Tax – Employee Provident Fund – Income Tax

4. Allowances: These include remunerations payable to employees during their work tenure. Some of these allowances can allow employees to reduce taxes up to certain levels. A few of these allowances are house rent allowance (HRA), travel allowance, dearness allowance, conveyance allowance, and medical allowance.

5. Bonuses and Incentives: These are perks and performance-based bonuses and incentives that motivate employees and reward their contributions and exceptional services in the company.

To understand additional benefits, you can also go through our blog. It will enlighten you with the best employee benefits that we can provide to your remote team.

6. Employee Provident Fund (PF): EPF is a retirement savings scheme, where both employees and employers contribute a share every month. 12% of the basic salary of an employee is deducted every month.

7. Professional tax: This tax is levied by the state government on income earned by salaried employees.

8. Gratuity: This is a lump-sum retirement benefit paid to employees while leaving an organization. It is given after completing a minimum of 5 years within the company. As per the Payment of Gratuity Act, 1972 gratuity can be calculated as 4.81% of the basic pay.

Still unclear about how to carry out payroll and process salaries for your employees? We can help you… Our expert HR and finance professionals can take care of everything for you. From recruitment and onboarding to salary and payroll processing.

We have your back! Contact for guidance

India’s focus on employee well-being and engagement

India’s diverse and distinct cultural heritage has inspired companies to develop an inclusive and collaborative work environment. India’s working system prioritizes employee satisfaction and emphasizes employee engagement and well-being. As per an ADP study in 2021, India bagged the top spot for workplace resilience in the world, with one in every five employees being fully engaged at work due to the Indian work culture.

Flexible working schedules, remote and hybrid working options, skill development, and other employee-friendly policies and initiatives focus on helping employees have a great work-life balance. This positive working environment fosters employee satisfaction and reduces turnover rates. In the recent World Economic Forum (WEF) Survey, it was reported that more than 88% of employees in India were happy about their work and workplace. This number is observed to be higher when compared to business leaders such as the US, Brazil, and Chile. The number is even higher in European countries such as Germany at third sport with 71%.

As a global business destination, India leverages its population to offer extensive resources and a talent pool. The recruitment of these skilled professionals in numerous industries along with favorable tax policies, and competitive salary structures make India a popular choice for international team expansion. Moreover, India’s commitment to employee well-being and providing opportunities to Indian talent through guiding partners like EOR and PEO contribute to building a thriving resource landscape in the world.

Key Industries and Growing Business Market

Since India’s independence, the country has been focusing on the role of industrialization and economic growth in the long run. The Indian economy witnessed a transformation in the industry as well as the services sector over the years and made a sizable contribution to the GDP of the nation. Due to numerous policies implied by the government since 1969, India is one of the leading industrial players in the world. One such program, the “Make in India” government program, which was introduced in 2014, has been instrumental in encouraging local manufacturing and improving the economic climate. With one of the best physical and digital infrastructures, and increased consumer demand, India has taken remarkable leaps in healthcare, technology, science, space research, agriculture, and much more.

Tech Industry

Tech-enabled industries have emerged as shooting stars in terms of enhancing business options and international deals in India. IT industry in particular received recognition for its skilled workforce and cost-effectiveness in India. It industry crossed US 200 billion dollar revenue mark and reached US 227 billion dollars in revenue in FY 2021-22, witnessing an overall growth rate of 15.5 percent. By 2025, India’s IT and business services market is projected to reach US 19.93 billion dollars.

Healthcare

India’s healthcare industry comprising of hospitals, health insurance, clinical trials, medical devices, and equipment, telemedicine, and medical tourism has been growing at a compound annual growth rate of 22% since the year 2016. It has been one of the leading sectors generating employment as well as revenue for the country. The COVID-19 pandemic has changed the way we perceive healthcare and made a long-lasting impact on personal health, health insurance, fitness and nutrition, and medical check-ups. The pandemic has also fast-tracked the adoption of digital technologies, teleconsultation, and telemedicine. India’s relative cost competitiveness and availability of skilled workforce are additional factors making India the right location for Medical Value Travel.

Sustainable Energy

Speaking of 2022, there were massive investments in green sectors such as green hydrogen, solar power, and electric mobility. India was not far behind and has been able to propel the green transition. India with its strategic business ecosystem has positioned itself as a lucrative market for renewable energy sources. By 2030, India wants to have a renewable energy capacity of 450 GW, comprising hydropower, biofuels, solar power, and wind power. With the current progress and rising investments, India has made huge progress toward reaching this objective.

The Financial Industry

India today has one of the most vibrant and robust banking and insurance sectors. India’s private wealth management industry shows huge potential. It is expected to have 6.11 lakh HNWIs by 2025., making India the fourth-largest private wealth market globally by 2028. Companies like Bajaj Finance Limited, L & T Finance Ltd, Tata Capital Financial Services Ltd, Aditya Birla Finance Ltd, Muthoot Finance Ltd, and Mahindra & Mahindra Financial Services Limited are a few of the large Indian sharks swimming in the financial waters.

In recent times, digital payments have expanded significantly in India with the development of smart applications and the expansion of the Internet. The move to demonetize further sped up India’s embrace of digital payment methods. India’s mobile payment system is among the most sophisticated in the world. The Unified Payments Interface (UPI) recorded around 7.30 billion transactions worth Rs. 12.11 trillion (US$ 148.63 billion) in November 2022. Additionally, the government helps rural communities adopt technology through programs like Common Service Centres (CSCs).

Engineering and Design

Engineering and design sector making it a key engineering and design sector is a key contributor to India’s GDP. The engineering and design sector of India holds a competitive advantage in terms of workforce, technology, manufacturing costs as well research and development. The engineering sector along with the manufacturing and infrastructure sectors are of strategic importance to India’s economy. The engineering goods from India are exported to the US, Europe, and China. In 2022, the value of engineering goods shipped to the US market was estimated to be around USD 1.58 billion. Government initiatives like “Startup India” have encouraged entrepreneurship and led to innovation in design services including pharmaceuticals, energy, healthcare, and more.

Service Sectors

Service sectors such as business process outsourcing (BPO), tourism, and financial services have been key contributors to the country’s economic growth. The Indian BPO industry having proficiency in data analysis, HR, and customer support has attracted numerous global clients. In the last few years, IT and IT-enabled services (ITeS) have attracted the highest number of M&A deals. Following these are healthcare, banking manufacturing, entertainment, media, textile, and financial services.

Marketing Service Sector:

Businesses must keep up with the most recent trends and advances. Similarly, the marketing and advertising sectors have continued to expand by adapting to the latest digital trends. The rise in tech-savvy internet users in India can be boasted due to the proliferation of smartphones, affordable internet access, and the boom of e-commerce. This digital transformation has gained a lot of attraction and provided opportunities for businesses to target a larger consumer base remotely in India.

The country hosts 700+ million internet users and the number is ever-increasing and expected to cross 950 million by 2025. As per Statista, there will be a rise in the digital marketing industry to ₹539 billion by the year 2024. Most Indian businesses are moving towards online banking, digital payments, and social media marketing. Hence, consumers around the world are potential buyers who can access Indian services and products anytime. Digital marketing tools and social media strategies have helped companies establish their presence and reach customers more closely than non-digital marketing. For instance, Google started designing advertising campaigns using generative AI and Learning Language Models (LLM) within Google Ads.

Consulting Services:

India is a thriving hub for consulting services and garnered the attention of international and domestic investors. Countries including the US, Netherlands, UK, and Australia have portrayed interest in India’s consulting services. Currently, there are more than 6000 consultancy firms in metropolitan cities like Mumbai, Chennai, Kolkata, and Delhi. In addition, several research and development institutes supporting consultancy firms directly or indirectly have crossed the 2000 number.

This fast growth is attributed to big business players coming to India, improved investment activities, affordable cost structure, friendly FDI policies, and a strong industry portfolio in areas such as IT, software, HR, and telecommunication.

State-specific Industry Details of India

To build a successful India strategy, foreign companies must be aware of the variations and diversity between the Indian states. For ease of understanding and doing business, it is always better to compare specific regions in India and the industrial ecosystem, infrastructure, system of bureaucracy, and logistics requirements with the company’s business needs. This competitive approach works as the business needs achieved in one state in India might not necessarily be fulfilled in another state or city in India.

In light of this subject, the Indian government released a Business Reform Action Plan (BRAP) 2020 report. The top 7 states to do business in India as per the report are

Andhra Pradesh, Gujarat, Haryana, Karnataka, Punjab, Telangana, and Tamil Nadu. The BRAP 2020 report also groups the Indian states into four categories based on the implementation of ease of doing business reforms. These are as follows:

Top Achievers category: Andhra Pradesh, Gujarat, Haryana, Karnataka, Punjab, Tamil Nadu, and Telangana
Achievers category: Himachal Pradesh, Madhya Pradesh, Maharashtra, Odisha, Uttarakhand, and Uttar Pradesh
Aspirers category: Assam, Chhattisgarh, Goa, Jharkhand, Kerala, Rajasthan, and West Bengal
Emerging Business Ecosystems category: Andaman & Nicobar, Bihar, Chandigarh, Daman & Diu, Dadra & Nagar Haveli, Delhi, Jammu & Kashmir, Manipur, Meghalaya, Nagaland, Puducherry, and Tripura

Business Opportunities for Foreign Investors

Why Foreign Companies Invest in India

You might already have a plan in place for expanding your business teams in India, but if not, you can scroll through the abundant investment and business opportunities that the Indian marketplace offers.

To expand your remote teams in India, it is important to know all the factors regarding the marketplace. Factors such as talent, market availability, tax and government incentives, logistics, and availability of local partners or guides need to be considered. In the heart of expanding its business position, India has doubled its efforts as an International business destination, leading to increasing popularity in terms of services, industries, talent availability, and English as the lingua franca.

For one, India is a prime location well connected to Southeast, west, and Central Asian countries. Having an open and welcoming environment for foreign direct investments, and an established judiciary and law system are additional factors that make India a major investment destination for foreign companies. The numerous growing industrial zones, digital growth, and efficient banking system in place support investments and team expansion in the private industries and services brightening India’s spot in the investment landscape. Additional reasons why India is chosen as a hotbed for investment by numerous MNCs are

To diversify their Asian business presence
Easy access to the Indian and other South Asian markets
To supplement or switch from their China business operations
To take advantage of free trade agreements, and attractive incentives, and to deploy cost-effective production and manufacturing strategies.

Favorable government policies and incentives

Among the large economies of the G20 presidency, the growth rate of India is observed to be 4 percentage points over China and the UK. It is also 5 percentage points over the US, France, and Japan, and a notable 6 percentage points over Germany. Despite the pandemic, FDI is a key economic driver for India. Business reforms restructured their process using electronic platforms to cope in the remote world and enhance business opportunities in top-tier countries.

Foreign companies invest in India as the country provides numerous tax breaks and affordable operating costs. As mentioned above foreign companies can capture tech-savvy talent and provide jobs and other benefits to the large skilled pool. Moreover, the government’s supportive policy framework, vibrant business market, accessibility to numerous industries, increasing global competitiveness, and economic influence are additional factors attracting overseas companies to invest and build their teams in India.

The government has made solid efforts for years to liberalize the market and ease business development in India. For instance, in the Indian Foreign Trade Policy (FTP) 2023, new exports have been added to target high-demand industries such as apparel, e-commerce, dairy, and so on. The new FTP also plans on the internationalization of domestic currency and will soon permit global trade payments in rupees.

To ease doing business in India further, there has been extensive rework, digitalization, and rationalization of compliances concerning start to end business cycle. In 2022, the Indian government worked to rationalize, digitize, and streamline 33,000 compliances across federal ministries, departments, and States. A few of the government initiatives are mentioned below:

The government has reworked the the rules regarding Foreign Exchange Management Act (FEMA), allowing up to 20% FDI in insurance company LIC through the automatic route.
In 2021, the Union Cabinet announced its aim to boost the telecom sector which allows 100%FDI inflows as compared to the previous 49%.

You can refer to Invest India, for additional information on FDI policies and government initiatives.

With India opening its doors to foreign companies and increased government support, major companies have chosen to enhance their business footprint. For instance, in January 2022, Google announced a USD 1 billion investment in the Indian telecom Bharti Airtel. In addition, a potential future investment of around 300 million US dollars in network infrastructure, smartphone access, and cloud services.

Business relations with other countries

India’s capacity to benefit from the dynamics of a multipolar globe was recently cited by Morgan Stanley as a key advantage. It was highlighted that India belongs to the same political alliance as the US, Australia, and Japan, known as the Quad. It is gaining an increase in foreign direct investment (FDI), particularly from US, Taiwanese, and Japanese companies. This increasing interest of the world in India was emphasized due to its sizable domestic market, budding talent, abundant resources, and significantly enhanced infrastructure. While having difficulty with exits in China, private equity companies are simultaneously growing in India (and ASEAN), according to Morgan Stanley.

Remote Working Revolution in India

The world has changed its way of living after the strike of the pandemic. As COVID-19 came as a tragedy it also taught us a lot of new things that changed our life and made things easier. Remote work is one of those things.

Even before 2019, many businesses were practicing working remotely due to the technological growth and growing interest in work-life balance. Eventually, the pandemic became the reason the whole world adopted it. It has been a significant trend globally and in India. It was easier for India to adopt the remote work culture since there were several Indian companies mainly the IT sector were practicing remote work due to offshore projects. With the effect of the pandemic, other companies also started remote work strategies.

Benefits of Remote Work

Remote work has improved work-life balance and provides flexibility by allowing employees to have more control over their tasks.
Due to remote work, employers gained a wide range of talent pool from around the world.
It is a cost-effective option since it doesn’t require office and related expenses. space
The productivity of the employees has increased since there are fewer distractions and a personalized work environment.
Remote work leads to better mental health due to reduced commute stress.

Challenges of Remote Work

It required a cultural shift for Indians since the employees in India value in-person interactions and collaboration.
Isolation is one of the challenges because of less social interaction and a sense of belonging.
Communication and collaboration are one of the biggest concerns when working remotely. It requires various digital tools and better internet connectivity.
Remote work improves work-life balance but due to overworking and flexibility of hours, it may cause a reverse effect.
Data security is one of the concerns that protecting sensitive data and ensuring cybersecurity is imperative to be safe.

As remote work has become a boon globally and in India, it also is a curse in some ways. If a business addresses all the challenges and ensures effectiveness and security in the long term, remote work is the best option to choose.

Growth of Non-IT industries the remote way (How companies adapted to remote working to scale their operations using tools and other software)
Explaining the ease of doing business in India, and how India is a popular destination for outsourcing
How companies are outsourcing and scaling Operations through Remote Teams in India

Embracing the Future: Team Expansion in India

Understanding ways of doing business in India

Embracing the future of business, particularly in a country as diverse and dynamic as India, necessitates a solid understanding of its commercial terrain.
India offers a vibrant marketplace, teeming with opportunities yet accompanied
by unique challenges such as navigating through its diverse culture, regulatory complexities, and competitive landscape.

Business Models for Market Entry

When exploring Indian terrains, businesses often ponder: Which market entry model will pave a smooth path? Whether it’s through a Joint Venture, a Wholly Owned Subsidiary, a Liaison Office, or opting for a more flexible model like using a Professional Employer Organization (PEO) or Employer of Record (EOR), each model has its own set of implications, costs, and benefits. A detailed dive into the various business models to help decide which one aligns best with your business objectives to come soon.

Importance of Partnering with a Local Guide: PEO/EOR

Why does having a local guide in the form of a PEO/EOR matter? The local intricacies of doing business in India are manifold, involving distinct cultural, legal, and market dynamics. A PEO/EOR not only helps you navigate through these nuances but also facilitates quicker market entry, compliant operations, and efficient talent acquisition, all while minimizing risks. Partnering with a local expert can seamlessly steer your business through the Indian market.

Cost-Effectiveness of Business Options

Choosing the right business model impacts not only operational efficiency but also cost-effectiveness. Considering remote working models, PEOs, or EORs can offer a more cost-effective solution, enabling businesses to tap into the Indian talent pool without the hefty investment typically associated with establishing a physical presence.

Overcoming Challenges and Risks of Doing Business in India with PEO/EOR

How PEO/EOR helps overcome challenges

Expanding into India, while lucrative, comes with its set of challenges like regulatory compliance, talent management, and understanding local business etiquette. Here’s where PEO/EOR services shine – they act as your local HR, legal, and business advisors, ensuring that your business operations are not only compliant but also tailored to local norms. Businesses have successfully mitigated complex challenges through strategic PEO/EOR partnerships.

Risk mitigation and complaint services of PEO/EOR

Navigating through the regulatory and compliance maze in India can be daunting. PEO/EOR services act as a shield, safeguarding your business against potential risks by ensuring adherence to local laws, managing contractual obligations with employees, and ensuring that your business practices are in line with Indian norms. They ensure that while your business scales, it is firmly anchored in compliance and risk mitigation strategies tailored for the Indian market.