High Tariffs and Protectionist Policies
When doing business in India, U.S. exporters and investors often encounter non-transparent or unpredictable regulatory and tariff policies. Likewise, U.S. goods and services in some sectors have limited access to the market. India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among WTO members.
Indian companies and consumers are extremely price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians are willing to pay and may need to adjust their sales models accordingly. For example, some companies sell products in smaller sizes or with fewer features to reflect price sensitivities of Indian consumers.
India has significant infrastructure development needs, and improvements in this sector are vital to the country’s economic growth. India’s congested road transportation infrastructure; inordinate delays in railway freight movement; inefficient and long turnaround time at ports; and a fast-growing but highly concentrated airport sector all contribute to significant capacity constraints that, if not addressed, may stymie economic growth. Infrastructure projects in India often suffer from delays in completion, mainly due to an inadequate regulatory framework and inefficiency in the project approval process. India has ambitious infrastructure development plans, notably in airports and inland waterways as alternative means of transport to traditional road and rail, as well as in intermodal logistics to focus on improving first and last mile connectivity. India has devoted significant portions of its recent annual budgets to infrastructure development and plans to execute these initiatives largely through a public-private partnership model. However, timely execution of projects within allocated budgets remains a challenge, even when funding is available.
Power of States
As a federal system, power and decision-making are decentralized in India, with differences at the state level in political leadership, quality of governance, regulations, taxation, and labor relations. Indian states generally hold greater power than their U.S. counterparts. U.S. companies face varying business and economic conditions across India’s 28 states and eight union territories and should factor these variations into their national business strategies.
The current government 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 Promotion of Industry and Internal Trade maintains an “Ease of Doing Business” state-by-state ranking on its website.