Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
High Tariffs and Protectionist Policies
U.S. exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes. Some U.S. goods and services have limited access to the market. India has the highest average applied tariff of any G20 country and among the highest bound tariff rates in the World Trade Organization.
Even before the economic slowdown and the pandemic, Indian companies and consumers were extremely price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians will pay, or are dictated, and may need to amend their sales models accordingly. For example, some consumer companies sell products in smaller sizes or with fewer features to reflect the Indian consumer’s price range.
Insufficiently developed roads, railroads, ports, airports, education, power grids, and telecommunications infrastructure are significant obstacles as the country strives to achieve strong economic growth. 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 has devoted significant portions of its recent annual budgets towards infrastructure development and plans to execute this infrastructure enhancement largely through a Public-Private Partnership (PPP) model.
Data Localization Requirements and e-Commerce Curbs
The Indian government is actively pursuing policies requiring that Indian data be processed and stored only in India, severely impacting the business of many American companies. A proposed data protection bill, currently working its way through the Indian legislature, would impact a wide range of businesses, both Indian and international. Changes to the laws governing what e-commerce companies can sell online and how they can sell, have been an unexpected blow to U.S. online giants. The new law restricts discounts by e-commerce companies and prevents companies from selling products from companies they are affiliated with or own.
Local Content Requirements
2020 Government of India procurement regulations restrict global tenders for purchases under roughly $26.6 million and stipulate Indian value-added content preferences for government tenders falling under that amount. Also, Indian state government tenders have localization requirements that U.S. companies will have to adhere to in order to compete. Given India’s stance to move towards “self-reliance,” we expect that local content requirements will become more stringent.
Power of States
India’s 28 states and 8 union territories generally hold greater power than their U.S. state counterparts. U.S. companies face varying business and economic conditions across India and will need to have a regional strategy to succeed in the country. As a federal system, much 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. U.S. firms should factor these state 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 (DPIIT) maintains an “Ease of Doing Business” state-by-state ranking at http://eodb.dipp.gov.in/