India - Market ChallengesIndia - Market Challenges
Problems with India's roads, railroads, sea ports, airports, power grids, and telecommunications infrastructure are significant obstacles as the country strives to achieve its full economic potential. India’s ongoing urbanization, together with rising incomes, has resulted in a heightened need for improved infrastructure, both to deliver public services and to sustain economic growth. India has devoted significant portions of its recent annual budgets toward infrastructure development and plans to execute this infrastructure enhancement, largely through its homegrown Public-Private Partnership (PPP) model. U.S. companies have been successful in certain areas of India’s infrastructure development, but competition from other countries remains stiff. As a result, U.S. industry’s market share in India in this sector has been declining. The current PPP model has had a mixed record, as seen in the slow development of numerous metro transit, road/highway, airport, mining, and energy projects. Land acquisition issues and litigation often result in construction delays, and government tenders generally attract unrealistically low bids, meaning that cost overruns are prevalent.
High Tariffs and Protectionist Policies
U.S. exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes. Many U.S. services have limited access to the market. India has the highest average applied tariff of any G20 country and among the highest bound tariff rates in the WTO.
Data Localization Requirements and e-Commerce Curbs
The GOI is actively pursuing policies requiring that various kinds of financial data be stored only in India, severely affecting many U.S. companies. A proposed data protection bill is working its way through the Indian legislature, which would affect a wide range of businesses, both Indian and international. The bill’s directive that all critical data be stored and processed only in India is worrisome and needs further clarification. In addition, recent changes to the laws governing what e-commerce companies can sell online and how they can sell has been a blow to U.S. online companies. The new law restricts discounts by e-commerce companies and prevents companies from selling products from entities that they own or with which they are affiliated.
Local Content Requirements
The GOI is pursuing local content requirements in specific areas, including ICT, electronics, and solar energy, to spur an increase in the manufacturing sector’s contribution to India’s Gross Domestic Product (GDP). These policies negatively affect U.S. exporters.
India drafted a policy expressing preference for domestically manufactured telecommunications and ICT products in government procurement, citing security concerns. In addition, all telecom and ICT product purchases by the GOI that have security implications must be notified to the Department of Telecommunications. All imported ICT equipment requires mandatory licensing and certification from accredited labs in India. This regulation has not been fully enforced due to the limited capacity of Indian testing labs.
Food Product Approval
Importers must seek formal product approval for any foods or food products that the Product Approval Division of the Food Safety and Standards Authority of India (FSSAI) has not standardized. These products have been termed by FSSAI as “non-specified food and food ingredients.” The various categories of food products covered under this category are:
•Novel food or foods containing novel ingredients, which do not have a history of human consumption in India;
•Food ingredients that have a history of human consumption in India, but are not specified under pre-existing regulations under the Food Safety Act, 2006;
•New additives and processing aids; and
•Foods manufactured or processed using novel technology.
All procedures and formats are available at the FSSAI website at http://www.fssai.gov.in/ .
Power of States
U.S. companies face varying business and economic conditions across India’s 29 states and seven union territories and will need to have a regional strategy to succeed in India. As a federal system, much power and decision-making are decentralized in India, with differences at the state level in political leadership, quality of governance, regulations, taxation, labor relations, and education levels. U.S. firms should factor these state variations into their national business strategies.
The current GOI has promoted the idea of “cooperative, competitive federalism,” encouraging states to compete against each other to attract investment. The Ministry of Commerce and Industry’s Department for the Promotion of Industry and Internal Trade (DPIIT) maintains an "Ease of Doing Business” state-by-state ranking at http://eodb.dipp.gov.in/ .
Local governments vary in their attitude, ability, and capacity to support business and industry. Local governments’ processes and speed of granting permits and approvals for everything from electrical and water connections to infrastructure, construction, real estate, vehicle purchases and registration, and much more are important to starting up a business and taking it forward. As with states, the level of political leadership, quality of governance, regulations, taxation, labor market and relations, infrastructure, service delivery, and education/skill levels vary from community to community. U.S. firms should factor these local variations into their state and national business strategies.
India Import Regulations Trade Development and Promotion Trade Barriers