In this dynamic world of growing businesses and evolving economic landscape, India has emerged as the prime destination for facilitating business expansion. With its robust legal framework, favorable location, advanced infrastructure and varied talent pool, India provides a sustainable environment and a lucrative industry for investors to establish and expand their business. In this article, we explore why India is considered the best destination for international businesses to expand, with primary focus on the growing economy, favorable government policies, forthcoming legislative reforms and the vast market potential.

India: A Growing Economy

India’s economy has proven to be the fastest growing in recent years, throughout the world. The country has become the fifth-largest economy globally and aims at joining the top three global economic powers soon. According to the International Monetary Fund (IMF)[1], India’s economy is expected to grow for the year 2024-2025 at a rate of 6.5% attributable to the vigorous domestic demand and increasing working-age population.

The Indian economy is supported by strong foundational policies laid by the Reserve Bank of India (RBI), which is vital in maintaining stability in the monetary framework. The RBI intends to control inflation, while providing continued and sustainable economic growth, by precisely modifying the interest rates and managing liquidity. Furthermore, the resilience of India’s economy has also boosted the stock market to record all-time highs, reflecting investor confidence in the country’s long-term growth prospects.

Additionally, the economy is pushed forward owing to the country’s dynamic and large population, with 65% of Indians under the age of 35. With an increase in economic growth, businesses tend to expand and attract more investments, which results in a higher demand for a dynamic workforce across various industries. This demographic dividend provides a significant advantage for businesses as they can utilize a pool of young, skilled and cost-effective workforce. The dynamic workforce available in India has attracted various multinational companies to set up base and operate in India, specifically in IT, manufacturing and service sectors.

As per the employment data included in the Periodic Labor Force Survey (PLFS) and the RBI’s KLEMS Data, India generated more than 8 crore employment opportunities from 2017-2018 to 2021-2022[2] which highlights the impact of the effective government initiatives aimed at boosting employment across sectors. While the rise in the economic growth boosts job creation in the nation, it also provides the Indian Government with the incentive and means to enhance the benefits and social security provided to the public which consequently contributes to a more sustainable and successful economy.

Furthermore, with an improved connectivity and a rise in the technological capabilities, India’s digital transformation has been remarkable. The nation’s Information Technology (IT) sector is one of the largest sectors contributing significantly to the Indian economy. The Government’s drive for a digital economy through initiatives like Digital India, has played a key role in the increased digital access and is transforming the country into a digitally empowered society.

Favorable Government Policies

The Government of India has implemented several initiatives and policies to attract foreign investment and create a thriving business environment. The primary objective of the initiatives is to create a strong ecosystem that nurtures and protects businesses and innovation, ultimately generating large-scale employment opportunities and leading to the sustainable economic growth of the country.

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We have listed few of the key government initiatives that contribute to India as an attractive business destination:

Launched in 2015, the Digital India is a flagship initiative which aims at creating a digitally empowered society and knowledge economy. Strengthening the digital revolution, the purpose of this initiative is to ensure that the public services are made accessible to the citizens of India electronically by improving online infrastructure and internet connectivity.

The Digital India initiative ensures continuous governance, transitioning from cumbersome analogue processes to seamless online platforms. This initiative has a significant impact on various sectors including, without limitation, education, healthcare and finance and focuses on providing high-speed internet across India, especially in remote and rural areas. The Digital India initiative has made significant developments in making government services more accessible to the public and promotes digital literacy throughout the country, making it an attractive spot for businesses to set base.

The Make in India initiative, launched in 2014, intends to transform India into a global manufacturing destination and has been identified to give boost to entrepreneurship, across the varied sectors in India. The initiative primarily focuses on sectors including automobiles, defense, biotechnology, aviation, food processing, media and entertainment and railways.

The Government launched the initiative to create a favorable environment for investments, develop an efficient infrastructure and make new sectors available for foreign capital. This initiative encourages both domestic and international business to commence manufacturing in India and provides various incentives such as simplified regulations, tax breaks and subsidies.

Startup India, launched in 2016, is a flagship initiative of the Government of India with the agenda to actively support startups and entrepreneurs. The initiative provides mentorship and incubation support to startups subject to fulfillment of various conditions, encouraging innovation and helping new businesses rise at a quicker pace.

With the intention to attract more businesses, the initiative provides various incentives and benefits to startups including easier compliance, reduction in patent registration fee, tax exemptions and access to fundings by the government. The Startup India initiative has launched several programs with the objective of building a robust start up ecosystem, attracting entrepreneurs and investors from around the globe.

The Self-Reliant India initiative (Atma Nirbhar Bharat Abhigyan) was launched with the vision to boost local manufacturing, reduce dependency on imports and promote indigenous products. The key objective of this initiative is to establish India as a global supply chain hub and to enter global markets to export goods.

By promoting local manufacturing and products, the initiative intends to boost the country’s economy and create employment opportunities. This initiative emphasizes self-reliance and features job creation, education reforms, ease of doing business and agricultural boost. The use of local products and services resultantly creates a favorable environment for entrepreneurs to enter and tap into the growing demand for products made in India.

The Government of India introduced and formulated an investor friendly FDI policy under which FDI up to 100% is permitted under the automatic route in most sectors and activities. The liberalized entry routes under the current FDI policy are aimed to attract potential investors as it has made it easier for foreign companies to invest in India.

This liberalization attracted high levels of FDI specifically in sectors like retail, e-commerce, infrastructure and manufacturing. The resulting inflow of capital and technology has had a transformative impact on the growing economy of India, leading to job creation, infrastructure development, and enhanced global integration.

Forthcoming Legislative Reforms and Proposed Regulations

With the aim to safeguard personal data, the Government of India intends to implement a comprehensive legislation namely Digital Personal Data Protection Act, 2023 (“DPDP Act”) to establish clear guidelines with respect to data collection, storage, processing and usage and further mandates businesses to ensure the privacy and security of personal data in compliance with the provisions thereunder. This assurance of security and privacy is crucial for businesses, specifically for those in sectors like e-commerce and fintech where sensitive personal information is processed frequently. With the implementation of the DPDP Act, international businesses can now innovate and conduct their business activities without the fear of lack of regulatory certainty.

The DPDP Act has received parliamentary approval and is proposed to come into effect in 2024. It aligns with the global protection standards like the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act. With the implementation of the DPDP Act, India shall also offer a regulatory framework at par with the international frameworks, allowing businesses to reduce their compliance costs and complexity. Further, businesses concerned about data security can enter the Indian market with ease and confidence in the security standards laid down by the DPDP Act.

As part of the legislative reforms, the Government of India, through the Jan Vishwas (Amendment of Provisions) Act, 2023 (“Jan Vishwas Act”), aims to amend 183 (one hundred and eighty-three) provisions in 42 central statutes of India which is planned to be implemented in a phased-out manner. The Jan Vishwas Act amends various legislations including, without limitation, the Information Technology Act, 2000, the Payment and Settlement Systems Act, 2007, the Copyright Act, 1957, the Legal Metrology Act, 2009, the Environment Protection Act, 1986 and the Trademarks Act, 1999.

The Jan Vishwas Act contains a slew of amendments that are bound to impact businesses operating in India as well as businesses that intend to operate in India. One of the key features of the Jan Vishwas Act is the decriminalization of minor, technical and procedural violations. Criminal consequences for unintended or minor defaults act as a barrier for international businesses considering to setup business domestically in India. The amendments introduced under the Jan Vishwas Act lower the risks associated with minor defaults that may occur while establishing businesses and offer a favorable business environment. The reduction in the criminal liabilities of businesses aims to and shall bolster foreign investment in India.

Furthermore, the Government has recently introduced 4 (four) labor codes, with the aim of amending the labor landscape. These are the Occupational Safety, Health and Working Conditions Code, Code on Wages, Industrial Relations Code and Code on Social Security. While these labor codes have received parliamentary approval, they are yet to come into force.

The implementation of these labor codes shall bring with it an employer friendly labor market, making it easier for businesses to hire, manage and retain employees. The labor codes simplify compliance requirements and reduce regulatory burdens for employers, particularly for labor exclusive sectors such as the manufacturing sector. The flexibility introduced with these labor codes is likely to drive the economic growth and attract investment at both domestic and international levels.

Vast Market Potential

As India has now cemented its position as among the world’s major economies, India has become an attractive market for countries to tap into and establish their businesses. Considering the large population, India also makes it an attractive consumer market for manufactured goods and services.

With a majority of the Indian population residing in rural areas, the Government introduced initiatives such as Pradhan Mantri Gram Sadak Yojana for rural development. Owing to such schemes and initiatives, the infrastructure and connectivity in the rural areas have significantly improved, offering international businesses opportunities to establish and expand into these specific regions. The nation’s growing middle class, rising incomes, development and urbanization enhances its market appeal for international businesses.

The everchanging consumer market and the shifts in the consumer behavior in India offers new opportunities for international companies to establish their presence in India in sectors including retail, e-commerce and entertainment. Furthermore, establishing e-commerce platforms in India is an approach through which businesses intend to reach the Indian consumer market and has witnessed significant advancements as this platform offers a convenient and efficient way to purchase global products and services. Given that India’s digital landscape has been growing at a rapid speed, the digital transformation of the country has created new opportunities for establishing businesses. The Government’s drive to create a cashless economy through schemes like Aadhar-enabled payments and Unified Payments Interface (UPI) payments has given entrepreneurs a boost to adopt digital payments and transactions.

Additionally, India’s geographic location offers access to vast markets of South Asia, Central Asia and the Middle East, making it an ideal choice to set up businesses. This advantage promotes international trade, access to regional supply chains and provides businesses with an opportunity to expand their reach beyond the borders of India. Furthermore, India has pursued free trade agreements with major global economies which makes it easier for businesses in India to reach international markets under favorable trade terms.

Conclusion

To support business operations and smooth functioning, India has enacted strict and sector-specific legal and regulatory framework to conduct businesses and streamline foreign investments. Furthermore, India provides robust legal framework and governance with respect to commercial contract enforcement, protection of intellectual property and dispute resolution systems. Navigating the central and state specific legislations while while setting up a business in India requires legal expertise, however India’s commitment to protecting investor’s rights makes it a safe and favorable destination for international businesses.

With a supportive legal framework, skilled workforce and a vast consumer market, India aims to continuously emerge as the ideal place to set up a business. Additionally, advancements in technology and infrastructure and a supportive startup ecosystem, enhance India’s appeal for entrepreneurs to establish business. The country’s growing economy, coupled with the government initiatives, offers a dynamic market and conducive environment for both international and domestic businesses.

Authors: Sheena Ogra (Partner) and Shreyika Walia (Associate) of Ahlawat & Associates

Footnotes

[1] Press Information Bureau: Ministry of Finance- India shines as IMF upgrades GDP forecast to 7% in FY24-25

[2] Press Information Bureau: Employment Data