India - Market ChallengesIndia - Market Challenges
Problems with the country's roads, railroads, ports, airports, education, power grid, and telecommunications are significant obstacles as the nation 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 will invest approximately $38 billion in creating and upgrading infrastructure by the next fiscal year as per the Government of India’s 2017 budget announcement and is looking for private sector participation to fund half of this massive expansion largely through its home-grown 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. Unfortunately, the current PPP model has had a mixed record, slowing the development of numerous metro transit, road/highways, airport, mining and energy projects. One of the main shortcomings of the PPP model is that it assigns too much risk to the private sector. As a result, a government-sponsored committee has made recommendations on ways to improve the model with a view to establishing a more equitable risk sharing arrangement. Some of the recommendations of the committee such as kick-starting delayed projects have been implemented. At the same time, the government has yet to act on other key recommendations, including: setting up a dedicated institute for PPPs, establishing proper risk-sharing measures, proposing independent regulations for key sectors, and enhancing private investment protection for infrastructure projects.
High Tariffs and Protectionist Policies
Exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes. Many U.S. services have limited access to the market. According to the World Bank survey on the ease of doing business for 2016, India is ranked 130 out of 189 countries due to its difficult business climate.
Local Content Requirements
The Indian government is pursuing local content requirements in specific areas including information and communications technologies (ICT), electronics, and solar energy to spur an increase in the manufacturing sector’s contribution to GDP. These policies negatively affect U.S. exporters.
With regard to ICT, 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 government that have security implications have to 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 have not been standardized from the Product Approval Division of the Food Safety and Standards Authority of India (FSSAI). 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 foods 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 and preexisting regulations under the Food Safety Act, 2006;
- New additives and processing aids; and
- Foods manufactured or processed using novel technology
All procedures and formats can be found in detail on the website of FSSAI.
Powers of States
On June 2, 2014, Andhra Pradesh was officially split creating two states: Telangana and Andhra Pradesh. Companies should be prepared to face varying business and economic conditions across India’s now 29 states and 7 union territories. 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.
Gujarat is an example of a state with a positive business climate that has succeeded in attracting significant foreign investment. West Bengal, on the other side of the spectrum, has a much lower level of foreign owned-business activity, but in response to competitive pressure from other states, is implementing state-level reforms to attract more investment. West Bengal’s continued efforts to make land more easily available through the government’s “Land Bank” could spark interest in small greenfield projects. However, not enough land is available in tracts for heavy industrial projects. To do business in India successfully, an investor firm should factor differences in approach by different states into its national business strategy. An "Ease of Doing Business” state-by-state ranking is maintained by the Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion (DIPP) and can be found online.
India Import Regulations Trade Development and Promotion Trade Barriers