From one of the oldest civilisations in the world to one of the most adaptive and modern societies, the journey of Indian economics has been fascinating. The economic studies in the form of Arthashatra were born right here. The principles of governance, administration and taxation of a state, explained in the manuscripts of Arthashashtra, still are relevant for modern economics.
India is the seventh largest country in the world and is the second most populous, accounting for one-sixth of the world’s population. Most of the population is of working age, contributing to the world economy in some form or the other. India is the largest democracy in the world, with a division of power between the Centre and the State. Over the last decade, India has undergone a significant transformation with an improvised business environment, the development of a mature and wide digital infrastructure and a record number of start-ups in the world. India has emerged as the 3rd largest ecosystem for startups globally, with over 77,000 DPIIT-recognized startups across 656 districts of the country as of 29th August 2022. Indian start-ups get a 100% tax deduction on profits earned in 3 consecutive years out of 10 years block.
Foreign investors and corporations are looking at India as an active investment destination owing to the prospects of high returns and a consumer base. Let us look at the 10 top reasons why India is seen as one of the most attractive investment destinations in the world.
- The power of the consumer: India offers a potential consumer base of over one billion people. The larger the population, the larger would be the market. This is supplemented by the expansion of the purchasing power of the Indian household. So, if you are a foreign company with a consumer-oriented product or service, this could be the land of sales paradise for you. India ranks 3rd in the global purchasing power parity, showcasing the strength of Indian consumers to the world.
- Skilled workforce and Competitive Wages: India has focused on education and improving the technical and skilled education systems. The focus on skill India mission has resulted in able technical expertise in various fields. India provides expertise in projects and project management ranging from cement plants to infrastructure projects like roadways, railways and airports. All of this has ensured that there are abundant resources available to the world at a reasonable investment.
- Cost-Effective Manufacturing: India has emerged as a manufacturing capital of the world for quality products. Manufacturing has been the backbone of the Indian industrial economy. India offers opportunities for manufacturing for industries like automobiles, textiles, metals, steel, cement, cotton, defence equipment, jewellery, handlooms, furniture and furnishing. The make in India has given a major push to the slowing down manufacturing economy. India also has world-class research & development facilities with a commitment from the government to increase investment in innovation. The license raj in the manufacturing sector has been brought down. The corporation tax on New manufacturing units is 15%.
- Information technology: Globally, countries have recognised information technology as an effective tool in administration and governance. India is the IT service provider to the world; with new technology and innovation, India has the largest network of communications and technology in the world. India has IT and digitalisation on its national agenda, with various IT-based projects by State Governments revolving around employment generation and infrastructure development.
- Strong, trusted Banking and financial transactions: The financial infrastructure is governed and managed by Reserve Bank of India (RBI), which acts as a regulating authority for exchange control and banking. India has large public and private sector banks which are nationalised. In addition to banks, India offers a wide network of nbfcs and venture capital funds. All the banking need are digitalized, and with the advent of the UPI payment gateway, the digitalisation of payments have been a game changer.
- Liberalisation of foreign investment: Most of the investments in India from foreign investments are permitted in industrial sectors, barring a few. In many sectors, 100% FDI is allowed, thereby providing entire control-based management to the foreign company in India. The amount of profits earned in India is repatriatable (post-payment of applicable taxes). The corporations can invest in India through the following routes- A subsidiary or a joint venture or a Limited Liability Partnership, or a branch/ project office. India has a well-established scheme of Corporate laws in the form of the Companies Act 2013 and related regulations. Most of the filings and declarations are online, which brings transparency to the operations and minimisation of government interference.
- International Agreements: India offer a wide network of Free Trade Agreements, Bilateral Investment Promotion and Protection Agreements and Double Tax Avoidance Agreements with various economies. Such a network of arrangements with the countries promotes trade, protects foreign investments and also avoids any potential double taxation between the Residence and the Source state.
- Judiciary Framework: Unbiased judiciary is an important pillar of Democracy. India offers various forms of dispute resolution platforms, starting from Small or lower courts, then District courts, High Courts and Apex court ie. Supreme Court. Alternative dispute resolution platforms like arbitration are also well established. For special topics like taxes, telecom, and company law, special tribunals are set up for faster dispute addressal.
- Goods and Service Taxes: India offers an electronic means of charging, taxing and assessing indirect taxes as gst. GST is a tax on goods and services, which is on the value addition from one level to the other in a supply chain. Effective credit mechanism avoids cascading effects of taxes, thereby bringing down the effective tax cost in a consumption-based supply chain. GST is also divided between the Centre and the State through an effective methodology, which is governed electronically.
- Ease of doing business and Income – tax: India’s rank in ease of doing business, according to the World Bank report, has improved from 142 in 2014 to 63 in 2022. Reducing compliance and automisation is now a major focus. Such an approach is also witnessed around incometax and transfer pricing. The tax aggressiveness has drastically come down, with fewer cases now being selected for scrutiny. Due to technology, the risk parameters are now well set, and hence any tax avoidance is highly scrutinised and questioned. India has an independent GAAR regime, which acts as a deterrent to tax avoidance. India is an active participant in OECD Tax beps project and is a member of the inclusive framework against tax avoidance and the development of 2 pillar solution against tax challenges by Digitalised Economy. India offers a globally competitive rate of corporation tax at 22%.
Currently, with the global economic situation and inflationary trend, with the controlled policies and the right governance, India is in the sweet spot of being the next investment destination for foreign investors and corporations.