International Trade Barriers in India

Date: June 2, 2016

International Trade Barriers in India

What You Need to Know When Trading with India

Although India's economy is growing a lot at the moment, this tremendous boom has collided head-on with different international trade challenges when it comes to international trade. The following are the top 5 challenges faced by India in the international trade. Corporations looking to do business in the subcontinent may need to be aware of these challenges.

Bureaucracy/Red Tape

Setting up a business or subsidiary in India can be daunting to a foreign company. Following the myriad procedures for paperwork filing can take 27 days on average (12 days is the OECD Organisation for Economic Co-operation and Development, a trade organization] average). Construction permits can require 34 separate steps and 6.5 months to obtain. Property registration can cost a tidy sum for stamp duties, market value charges, lawyer fees and Land and Survey Department fees and all these can be huge barriers to trade in India.

Even if your firm manages to handle all necessary paperwork correctly, it is important to note that enforcement of contracts is difficult. Contract complaints and lawsuits can take an average of 3.8 years to be resolved. If a business is insolvent, it can take as long as 4.3 years to be wound down, which is far longer than standard OECD or South Asian timeframes.

Importing and exporting goods can involve traversing several layers of bureaucracy, which can affect the efficiency of transport. There are numerous documents to be filled and there might be potential delays. Experts say that investment in India should be looked at as a medium- or long-term venture. Businesses need to be prepared to face these India trade barriers and initial success may not be achievable.

Corruption in India

With such storied bureaucracy, there will always be the temptation on both sides to accelerate or bypass processes to ensure favorable outcomes. This has often led to equally storied levels of corruption.

When the customer or recipient of profit has been the Indian government or a state-owned enterprise, there's been particular concern on the part of the U.S. Department of Justice via the Foreign Corrupt Practices Act (FCPA), which forbids any U.S. persons or businesses to bribe foreign officials, companies or employees for the purposes of obtaining, retaining or advancing business, either with monetary or non-monetary compensation.

Although there are many anti-corruption laws on the books in India, they are not always enforced. These could be big India trade barriers for international businesses. There are specific concerns about the application of intellectual property law, particularly as it pertains to data protection and pharmaceuticals. The court system in India is more developed than some of the countries and this gives foreign firms that they will be treated more fairly than some countries.

Taxation System in India

Another international trade challenge in India is tax. Taxes for businesses in India are due in 33 separate payments per year, which can take as many as 243 man-hours to disburse. In addition to corporate taxes of 30 percent, there are central sales taxes, dividend taxes, property taxes, fuel taxes, vehicle taxes, value-added taxes and excise duties. The recent anti-dumping duty on PTA imposed by the Revenue Department may further complicate this issue. On the whole, India's tax structure is complex, and multiple obligations can compound problems.

Inadequate Infrastructure

Despite (and because of) the country's enormous population, the infrastructure of India is not always adequate to support rapid distribution of goods and services. Extensive traffic congestion snarls highways and roads, especially in urban centers, and road maintenance is often not performed to American or European standards. Apart from transportation as barriers to trade in India, basic resources such as electricity and fresh water are not always immediately or constantly available. Spare parts and energy needs should be considered carefully.

Regulatory and Foreign Investment Controls

For foreign companies hoping to move technology and products to India, there are significant export controls maintained by foreign governments that, along with Indian quotas, tariffs and the bureaucracy mentioned above, pose serious hurdles for companies wanting to import goods into the country.

One matter that should concern foreign companies in India is liabilities for past infractions of any acquired Indian firms. This is an important India challenge. Due diligence should be done to check for thorough compliance of such firms to local and state regulations to avoid stiff fines.

Product and environmental standards can vary widely between regional and central authorities. The regulatory conditions for foreign trading partners are still evolving due to the relatively closed markets India had in the past. There have been charges of protectionist measures on the part of the government to safeguard various domestic industries. Even today, some rural regions oppose investment or partnerships with foreign companies. Overall, experienced veterans advise foreign companies to rely less on local partners and take a broader, more holistic approach to regulatory controls.

International trade barriers in India are not easy to overcome, yet there are numerous opportunities and benefits of making business deals with this country. Whether to trade with India would require meticulous research and carefully weighing the pros and cons. 

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