India

Originally published: Nov-12-2010

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Official Name: Republic of India

Internet Domain: .in
International Dialing Code: +91

Table of Contents

Location and Size

India is located in Southern Asia, bordering the Arabian Sea and the Bay of Bengal, between Burma and Pakistan. Its total area is 3,287,263 sq km, slightly more than one-third the size of the U.S., making it the 7th largest country in the world.

Government

India is the world’s largest democracy. It is considered a Federal Republic and is made up of 28 states and 7 union territories.

Branches of federal government:

• Executive:

  • chief of state: President Pratibha Devisingh Patil; Vice President Mohammad Hamid Ansari
  • head of government: Prime Minister Manmohan Singh
  • cabinet: Appointed by the president on the recommendation of the prime minister

• Legislative: bicameral Parliament consisting of the Council of States and the People's Assembly

• Judicial: Supreme Court (one chief justice and 25 associate justices are appointed by the president and remain in office until they reach the age of 65 or are removed for "proved misbehavior")

Legal System

India’s legal system is based on English common law. The judiciary reviews legislative acts and there are separate personal law codes that apply to Christians, Hindus and Muslims. The Indian judicial system is divided into District Courts, High Courts and Supreme Court.

India has accepted compulsory International Court of Justice (ICJ) jurisdiction with reservations. (What does this mean?)

Interesting Facts About India

From the U.S. Department of Commerce

• Second fastest growing economy in Asia, after China
• One of only three countries that builds its own supercomputers
• Fourth largest economy in the world (measured in purchasing power parity)
• One of just six countries that launches its own satellites
• 100 of the Fortune 500 have R&D facilities in India
• Second largest group of software developers in the world, after the U.S.
• Lists 6,600 companies on the Bombay Stock Exchange (only the New York Stock Exchange has more companies listed)
• World’s largest producer of milk; second largest producer of food, including fruits and vegetables
• Sends more students to U.S. colleges than any other foreign country in the world; in 2008 more than 94,563 Indian students enrolled in the U.S.
• World’s second largest pharmaceutical industry, after China

Economy

India is developing into an open-market economy. Economic liberalization, including reduced controls on foreign trade and investment, began in the early 1990s and have accelerated the country's growth, which has averaged more than 7% per year since 1997.

India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is engaged in agriculture. Services, however, are the major source of economic growth. They account for more than half of India's output, but just one-third of its labor force.

India has capitalized on its large educated English-speaking population to become a major exporter of information technology services and software workers.

An industrial slowdown early in 2008, followed by the global financial crisis, caused annual GDP growth to slow to 6.5% in 2009. However, India still had the second highest growth in the world among major economies. The country escaped the brunt of the global financial crisis because of cautious banking policies and a relatively low dependence on exports for growth.

India is the second fastest growing market in Asia after China.

Leading Markets (2009): UAE 12.87%, US 12.59%, China 5.59%

Leading Exports-commodities: petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel

Leading Suppliers (2009): China 10.94%, US 7.16%, Saudi Arabia 5.36%, UAE 5.18%, Australia 5.02%, Germany 4.86%, Singapore 4.02%

Leading Imports-commodities: crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals

Top Industries: textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticals

Top Agricultural Products: rice, wheat, oilseed, cotton, jute, tea, sugarcane, lentils, onions, potatoes; dairy products, sheep, goats, poultry; fish

Comparative Economic Indicators - 2009

Data from CIA World Factbook

*July, 2010 estimates
**PPP - Purchasing Power Parity

Credit and Collections

India’s legal system is complex and procedures are time consuming. Corruption is always a factor that creditors have to take into account.

Contractual Interest: The Indian legal system allows for contractual interest up to 14% on a case-by-case basis. In litigation cases, however, the amount of interest awarded is left to the discretion of the court.

Statute of Limitations: Three years for commercial invoices as well as for bills of exchange and promissory notes.

Dispute Resolution

According to the World Bank, India is the 6th slowest country in the world in the number of days it takes to resolve a dispute.

It takes about seven years to liquidate a business in India. Foreign awards are enforceable under multilateral conventions such as the Geneva Convention. The International Center for Alternative Dispute Resolution (ICADR) has been established as an autonomous organization under the Ministry of Law, Justice, and Company Affairs to promote settlement of domestic and international disputes through alternative dispute resolution.

Summary Action: The objective underlying the summary procedure is the prevention of unreasonable obstructions by a defendant who has no defense. A summary action can be initiated, if the creditor has bills of exchange or promissory notes. The debtor is not automatically entitled to defend the suit, but must ask the court permission to defend. Permission to defend is only granted if the affidavit filed by the debtor discloses facts deemed by the court as sufficient for granting such permission. The expected time frame for a Summary Action is one year. Enforcement of judgments is carried out on all movable or immovable assets, provided they have been identified, located previously, and they are free of encumbrances.

Ordinary Suit: An extremely time-consuming procedure in which the creditor faces obstacles like remedies, adjournments, and corruption. It is not advisable to start legal actions if the creditor does not have a strong case with unequivocal documents and evidence. Instead, the creditor should try to obtain an out of Court settlement as ordinary actions often conclude with no concrete results. When documents are submitted, the creditor will be required to be present for cross-examination before the Court determines whether the documents are admissible.

Insolvency Proceedings

There are four main types of insolvency in Indian commercial law:

1. Compulsory Liquidation: Can be filed by the debtor, a creditor, and any person authorized by the central government upon a report of an inspector. The process is extremely lengthy.
2. Voluntary Liquidation: Proceedings are slow and can last several years. The dividend prospects for unsecured creditors is generally very poor.
3. Receivorship: a debenture holder may appoint a receiver. On his appointment, the assets of the company are held in favor of the debenture holder and the company can no longer utilize them in its normal course of business. Creditor claims are logged, but the aim of this procedure is to satisfy the debenture holder, either by continuing the company’s activities or by selling assets to a third party. Any remaining dividend after satisfaction of the debenture holder is distributed to the unsecured creditors, but most often little is left over.
4. Sick Industrial Companies Act (SICA): Enacted in order to prevent sick or potentially sick companies from going under. All legal proceedings against a SICA company are suspended, including winding up proceedings. A body of experts, the Board for Industrial & Financial Reconstruction, adopts measures to restructure capital, sell surplus assets, secure proper management, sell/lease units to other firms. This process is extremely slow, averaging 6-7 years.

Risk Assessment

According to Coface, in 2010/11, the Indian economy is expected to post strong growth underpinned by a large domestic market, high savings and investment rates, diversified high-performance production, favorable demographics, balanced growth driven by investment, exports, and rapid growth of middle-class consumption.

Payment behavior should remain satisfactory, but the lack of transparency regarding the financial performance of medium-size companies and the absence of consolidated balance sheets continues to be a problem in determining creditworthiness.

However, the rapid growth of foreign debt in the private sector in conjunction with a prolonged scarcity of credit in international financial markets could affect Indian companies, especially if there is a crisis of confidence. In that case, late payments could increase. India's shortcomings in education and infrastructure could also undermine growth.

Coface Country Rating: A3 -- Changes in generally good but somewhat volatile political and economic environment can affect corporate payment behavior. A basically secure business environment can nonetheless give rise to occasional difficulties for companies. Corporate default probability is quite acceptable on average.

Coface Business Climate Rating: A4 -- A somewhat shaky political and economic outlook and a relatively volatile business environment can affect corporate payment behavior. Corporate default probability is still acceptable on average.

Ducroire/Delcredere:

• Political Risk: 2 (very low based on a scale of 1-lowest risk to 10-highest risk)
• Commercial Risk: B (moderate risk based on A-low risk to C-high risk.

Business Climate

Thanks to its vast pool of highly skilled labor and the stable political climate, India is one of the most attractive investment places in the world. It has liberalized the economy during the last 20 years and the government has a business-friendly policy.

The Indian market, with its 1.2+ billion population, presents lucrative and diverse opportunities for exporters with the right products, services, and commitment. India requires equipment and services for major sectors such as energy, environmental, healthcare, high-tech, infrastructure, transportation, and defense. This need will exceed tens of billions of dollars in the mid-term as the Indian economy further globalizes and expands.

Performance Requirements and Incentives: Local sourcing is generally not required, but has been mandated for certain sectors in the past. In some consumer goods industries, the Indian government requires the foreign party to ensure that the inflow of foreign exchange and foreign equity covers the foreign exchange requirement for imported goods.

Intellectual Property Rights: India has generally adequate copyright laws, but enforcement is weak and piracy of copyrighted materials is widespread. Trademark protection is good and meets international standards. However, Indian law provides no protection for trade secrets.

Right to Private Ownership (by foreign companies): Subject to certain sector-specific restrictions, foreign and domestic private entities may establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices and liaison offices. The Government of India does not permit investment in real estate by foreign investors, except for company property used to do business and for the development of most types of new commercial and residential properties.

Conversion and Transfer Policies: The Indian rupee is fully convertible for current account transactions, which are regulated under the Foreign Exchange Management Rules, 2000. Prior Reserve Bank of India approval is required for acquiring foreign currency above certain limits for specific purposes (foreign travel, consulting services, and foreign studies). Capital account transactions are open for foreign investors, subject to various clearances. The Indian government has taken additional steps to relax foreign exchange and capital account controls for Indian companies and individuals.

Economic Freedom: India’s economic freedom score is 53.8, making its economy the 124th freest in The Heritage Foundation’s 2010 Index of Economic Freedom. Its score is 0.6 point lower than last year as a result of declines in freedom from corruption, business freedom, and monetary freedom. India is ranked 24th out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.

Corruption: According to the Business Anti-Corruption Portal: “The business climate in India is hampered by a cumbersome bureaucracy and corruption at all levels of government. The political system is characterized by patronage systems and public officials have vested interests in their positions. Corporate integrity is also very low, as scandals regularly highlight Indian companies' payment of kickbacks both when operating domestically and internationally. The federal structure of the Indian government results in huge differences in the levels of corruption in each state."

Transparency International, in its 2010 Corruption Perceptions Index, ranked India 87th out of 178 countries.

For more detailed information on these topics, visit the 2009 Investment Climate Statement – India, of the U.S. Department of State.

Business Protocol in India

In general, Indians prefer to do business with people they know, as relations are built on mutual trust and respect.

There are numerous official (recognized by the central government) and unofficial Indian languages. Hindi is the “official” language and is the most widely spoken (41% of the population). However, English has the status of “subsidiary official” language. Most commercial communication (within India and with other countries) is done in English.

More information on Business Protocol:

• Kwintessential
• Executive Planet

Articles of Interest on India

• Bulk of India's investments in US in metals, IT sectors: USIBC Report
• Joint Statement by President Obama and Prime Minister Singh of India (during President Obama’s 3-day visit to India)
  The White House, Office of the Press Secretary, November 8, 2010
• Remarks by the President to the Joint Session of the Indian Parliament(during President Obama’s 3-day visit to India)
  The White House, Office of the Press Secretary, November 8, 2010
• I support India’s rise as global power: Obama
  LiveMint.com, The Wall Street Journal, November 3, 2010

Sources for further information on doing business in India

American Chamber of Commerce in India

Doing Business in India, Trade Chakra

Doing Business in India, U.S. Commercial Service

Embassy of India, Washington, DC

Embassy of the United States, New Delhi, India

Indo-American Chamber of Commerce

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including India. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources.

Comparative Economic Indicators: CIA World Factbook

Risk Assessment information: Coface Country Rating and Ducroire/Delcredere.

Exchange Rates: OANDA.com The Currency Site.

Other information is provided by sites including FITA.