Top reasons to invest in India 

India is on track for growth with estimates suggesting a 6.5 percent expansion in the fiscal year 2024-25 and a potential rise to 7 percent by 2026, as per the latest insights from S&P Global. Investing in India has become increasingly attractive given the recent data for the quarter ending in September, which showed a year-on-year growth of 7.6 percent. 

This positive growth outlook positions India as a hub for investments outpacing Chinas projected growth of under 5 percent in 2024. Under cautious estimations by the IMF India is anticipated to become the worlds third largest economy by 2027 surpassing Japan and Germany with a GDP exceeding US$5 trillion. 

The robustness of India’s economy stems from its growth and favorable demographics. As the country globally with a median age of 28.2 years India’s rebound in domestic demand post pandemic—especially, in private consumption and household expenditures—bolsters its business landscape. The sizable consumer market, rising incomes and the aspirations of its population are key drivers of this progress. The World Bank’s publication “Navigating the Storm” underscores India’s resilience amidst challenging conditions with growth rates outperforming many other major emerging economies. 

The efficient banking system is predicted to support the recovery encouraging increased investment, from the sector in the upcoming year. India stands out as a destination in the business and investment landscape of Asia. 

Several factors are contributing to investments pouring into India making it an appealing hub for corporations seeking to:

• Expand their presence in Asia 
• Enter the Indian and South Asian markets 
• Supplement their activities in China 
• Take advantage of beneficial free trade agreements and market opportunities 

India has a welcoming economy, where no quarantine is necessary upon arrival (for the latest travel updates and restrictions please refer to our COVID 19 guide for India). The governments departure from its ‘zero COVID’ strategy in 2021 has allowed businesses and manufacturing facilities to resume operations setting a groundwork, for an economic recovery. 

Improving Business Environment 

India’s efforts to enhance the business environment have primarily focused on simplifying and digitizing processes across all stages of a business’s life from establishment, to closure. The government has placed emphasis on streamlining these regulations undertaking the task of rationalizing and digitalizing 33,000 compliance requirements spanning federal ministries, departments and states in 2022. 

Recent reforms aimed at facilitating trade have led to an improvement in India’s ranking moving up from 146th place in 2018 to 68th place in 2020. Key initiatives such as adopting compliance procedures and boosting clearances through a Risk Management System have reduced processing times and costs, for both exporters and importers. Furthermore the comprehensive reform strategies introduced under the Business Reform Action Plan (BRAP) since 2014, which involve evaluations and rankings have played a role in continually enhancing the business landscape nationwide. 

Economic outlook

Since India opened up its economy in 1991 there have been enhancements, in its investment climate attributed to a favorable regulatory setup and relaxed foreign direct investment (FDI) rules. As per sources India managed to secure a $83.6 billion in foreign investments during the fiscal year 2022. Moving forward it is anticipated that the country will draw in $100 billion, in FDI for the year 2023 fueled by economic reforms and improved business oriented policies. 

India’s International Free Trade and Tax Agreements 

In the couple of years India has been actively working on securing free trade deals with partners both on a one, on one basis and regionally to boost its export focused local manufacturing sector. The Indian government has set a goal of achieving exports US$450 $500 billion by FY 2023 and aims to hit US$2 trillion by 2030 a significant jump from the US$291 billion recorded in FY21. These trade agreements cover areas such as reducing tariffs that impact manufacturing and farming industries rules related to trading services digital issues like data storage requirements, intellectual property rights that could affect the availability of medicines and the support, promotion and safeguarding of investments. 

Over the five years India has inked 13 free trade pacts with its trade partners. Noteworthy agreements include the India Mauritius Comprehensive Economic Corporation and Partnership Agreement (CECPA) the India UAE Comprehensive Partnership Agreement (CEPA) which took effect in May 2022 and the India Australia Economic Cooperation and Trade Agreement (IndAus ECTA) which became operational on December 29 2022. Additionally India is in stages of talks with the UK, for a trade deal. The country is also actively negotiating with Canada, the European Union and Israel to finalize trade agreements. 

Double Tax Avoidance Agreements 

Double Tax Avoidance Agreements (DTAAs) are crafted to alleviate the burden of being taxed by providing exemptions or reducing tax obligations in India. 

India takes pride in its network of tax treaties aimed at preventing taxation and curbing tax evasion. The nation has established than 94 DTAAs and eight limited ones surpassing Chinas 110 and Vietnams 80. These agreements aim to establish an equitable system, for allocating taxation rights on types of income between the countries of ‘source’ and ‘residence.’ 

For investors it is crucial to understand the DTAAs between India and other countries that may be relevant to their situations as well, as how these agreements are put into practice. 

Why do businesses relocate to India? 

When thinking about relocating to India or any other country foreign investors need to assess factors that are important, to their specific requirements. These factors may include infrastructure, location choices, availability of workforce access to materials, incentives partnerships in the supply chain, logistics and more.  

India has been working hard to diversify its economy which has led to a growth in its service sectors. This growth is supported by Information and Communication Technology (ICT) capabilities and widespread use of the language. 

Here are some compelling reasons why companies choose to move their operations to India: 

A list of the reasons for investing in India. 

• India stands out as a key destination for foreign multinational corporations and serves as a significant investment center in South Asia with strong ties to countries across Central, Western, Southeastern and Eastern Asia. 
• The country’s emphasis on diversification has elevated the importance of its service sectors backed by advancements in ICT and a workforce proficient in English. 
• industrial zones, easily accessible labor pool, competitive labor costs and a business friendly environment for foreign direct investments. 
• India’s large workforce and consumer base along with cost effective operations and solid connections, with major international markets. 
• A established legal system that upholds the rule of law. India functions, as an secular republic boasting a political environment and widespread agreement on economic strategies. The country has made investments in infrastructure to enhance connectivity, facilitate transportation of goods and cut down expenses.
• These initiatives include the establishment of freight corridors, in both East and west dedicated rail freight corridors, National Infrastructure Pipeline, the Gatishakti project and the Sagarmala initiative. 

India’s advantage as a China +1 destination 

In times various global and local incidents such, as the COVID 19 outbreak the trade tensions between the US and China and Chinas strict lockdown measures following its ” zero COVID” strategy have greatly disturbed supply chains in China and neighboring areas. These disruptions have put pressure on companies that relied heavily on China for sourcing and manufacturing to consider diversifying or finding locations. 

For than twenty years operating expenses in China in tier 1 and tier 2 cities have been increasing steadily now surpassing those in India by a significant margin. The competition for workers in China is fierce coupled with an aging population which has resulted in labor shortages across sectors like manufacturing, technology related industries and other specialized fields. 

On the hand India boasts a population of 1.4 billion people with a large segment being young individuals. More than half of Indias population is under the age of 25 and about two thirds are below 35 years old. It is forecasted that by 2027 India will have the workforce globally with a billion individuals aged between 15 and 64 years old. This extensive pool of workers is anticipated to play a role, in expanding Indias consumer market. 

In addition India provides labor rates in Asia with wages, in the country amounting to roughly one third of those, in China. 

India’s infrastructure development 

India’s infrastructure sector plays a role, in boosting industries with projections indicating that by 2025 India is set to rank as the worlds third largest construction market. 

To support infrastructure growth the Indian government has implemented strategies to reduce bottlenecks. These strategies involve simplifying land acquisition procedures hastening approvals from bodies leveraging technologies such as the Online Computerized Monitoring System (OCMS) and Pro Active Governance and Timely Implementation (PRAGATI) for project monitoring and instituting cost oversight committees at the national level to manage budget escalations. 

Furthermore the government has initiated the National Infrastructure Pipeline (NIP) for FY 2019 25 outlining projects focused on building, revamping and expanding infrastructure across sectors like roads, housing, urban development, railways, both conventional and renewable energy sources and irrigation. Emphasis will notably be placed on enhancing highways and railway networks. 

Illustrating this effort are the Industrial Corridor Projects under the National Industrial Corridor program. These initiatives aim to develop hubs and enhance connectivity between cities to bolster India’s appeal, as a global investment hub. 

Furthermore a Special Purpose Vehicle has been set up by the government to handle the construction, operation and maintenance of freight corridors as part of the Dedicated Freight Corridor (DFC) program. This initiative aims to reduce congestion, on the rail network by constructing tracks for freight trains. Progress is being made swiftly on both projects. 

Regarding port infrastructure the Sagarmala Program (2015 2035) has identified than 574 projects totaling INR 6.01 trillion since its inception. These initiatives focus on upgrading existing ports establishing ports improving port connectivity promoting industrialization linked to ports and advancing coastal community development. 

As of September 30 2019 121 projects valued at INR 302.28 billion have been completed, with a 201 projects INR 3.09 trillion in various stages of implementation. The states of Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu – investment hubs in India – are home, to a portion of the nations ports and maritime routes. 

Incentives, workforce, and economic zones 

In India there are incentives offered to businesses depending on factors, like the type of activity, industry, location and the size of the company. 

Tax relief is provided at both state levels along with benefits for investors in specific sectors. Special Economic Zones (SEZs) in India also come with tax advantages. It’s worth noting that not all tax benefits can be stacked together. 

For companies there are tax incentives available: 

• Newly established domestic manufacturing companies post April 1 2016 are subject to a 25 percent tax rate if they do not claim certain tax incentives or deductions. 
• Starting from April 1 2020 domestic companies enjoy an income tax rate of 22 percent if they do not utilize specified tax incentives or deductions. 
• New domestic manufacturing firms set up after October 1 2019 but before March 31 2024 face a tax rate of 15 percent. 

The reduced 22 percent tax rate for businesses is applicable only if they waive tax benefits or deductions. The total effective tax rate for these firms with surcharge and cess amounts to, around 25.17 percent. 

Companies selecting the reduced corporate tax rate are relieved from paying tax. 

Indias competitive stance is bolstered by its tax rate aligning it favorably with Asian hubs, for investment and manufacturing, like China, Vietnam, Malaysia, Singapore and South Korea. 

Other Kinds of Incentives:

Apart, from the incentives the Indian government provides additional incentives under specific qualifying criteria. You can find details in our Incentives Guide. 

For foreign companies exploring locations to set up operations in India it’s important to note that each state has its set of policies and incentive schemes. Eligibility for these incentives typically hinges on factors like; 

• The location of the state 
• The nature of products being produced 
• The level of investment 
• The potential for creating jobs 

India’s Workforce:

India is home to a labor force with almost half of its 1.4 billion population falling within the working age bracket. The structure of Indias labor market is diverse and foreign companies need to grasp this complexity in order to fully capitalize on Indias strength. 

A significant portion of the workforce operates in the informal sector often employed by businesses or manufacturing units with fewer than ten workers. For businesses not requiring labor finding employees is relatively uncomplicated. 

Despite an increase in education opportunities leading to a rise in labor availability this segment still makes up only, around ten percent of the overall labor force. Companies seeking workers must be ready to compete within this limited pool of talent. 

Labor Expenses, in India:

When deciding to enter the market many companies consider the labor expenses. India has an advantage due to its wage structure and access to a labor pool. For instance India offers labor expenses in Asia with a minimum wage of about INR 178 (US$2.16) per day equivalent to roughly INR 5,340 (US$65) per month. However this wage is a starting point and actual rates may vary based on location and other factors. 

Employers should keep in mind that the minimum wage in India acts as a reference point for hiring semi skilled workers in the manufacturing industry. 

Labor expenses vary across regions of India. Wages are notably lower in tier two and tier three cities compared to tier one cities due to living costs and more affordable housing. The salary difference can be as high as 25% mainly because compensatory allowances and employee transportation benefits are smaller in tier two and tier three cities than, in tier one cities. In New Delhi a software engineer typically earns US$7,632.53, per month whereas in Mysore the average salary is US$6,621.47. 

Special Economic Zones 

Special Economic Zones (SEZs) in India are areas that provide incentives to businesses operating within them. These zones offer infrastructure, tax breaks, duty free exports and other measures to facilitate business operations. Due to these advantages SEZs have become investment destinations for multinational corporations, especially those with a focus on export activities. 

Although SEZs in India bear similarities to those in regions business leaders looking to establish operations in an SEZ should acquaint themselves with the specific operational aspects of these zones in India. Each SEZ possesses its characteristics. Many business leaders opt to conduct market entry studies to assess sites based on factors such, as resources tax incentives offered and overall operational costs before finalizing their site selection. 

Summary: Top 10 reasons to invest in India