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Overseas business risk for India

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Overseas business risk for India

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Information on how UK companies can control risks when doing business in India.

1.Political

Prime Minister Narendra Modi assumed office on 26 May 2014. He is India’s first Prime Minister to be born after independence.

India is a federal republic, with 28 states which have their own governments and elected chief ministers and eight union territories which are directly ruled by the union or central government. The President of the republic is the head of state, and the Prime Minister is the head of government.

India is a parliamentary democracy, guided by its written Constitution. India has a bicameral Parliament with an upper house (Rajya Sabha) and a directly elected lower house (Lok Sabha).

Political power is distributed between the union (centre) and the states, on legislative and executive matters, giving states much policy autonomy on key subjects.

In the 2019 national parliamentary election, the Bharatiya Janata Party, led by Prime Minister Narendra Modi, won 303 of 543 seats in the Lower House. Congress party won 52 seats. The BJP does not enjoy a majority in the Upper House currently but remains the single largest party and with the help of neutral parties is able to pass legislations.

The next parliamentary election is due in spring 2024.

2.International relations

India has diplomatic relations with countries around the world, supported by a large diplomatic network. Its diaspora population is the largest internationally. India holds the Presidency of the G20 in 2023.

India shares a long and contested border with China. The two countries fought a border war in 1962, and there are heightened tensions following clashes in the Ladakh region in June 2020.

The relationship with India’s neighbour Pakistan continues to be strained. The two countries have fought four wars since Independence in 1947. The ‘Composite Dialogue’ aimed at settling all bilateral issues, including Kashmir remains stalled.

3.Economic

India’s economy has grown more than 10-fold since economic liberalization in the early 1990s to $3.4 trillion in 2021-22, making it the world’s 5th largest economy. A significant portion of India’s growth in the last two decades has been driven by the services sector, which now accounts for about 60% of GDP. India also consists of a large informal sector, where more than 80% of the workers are employed. GDP per capita remains relatively low at $2379.

Economic liberalisation and various reform measures have helped India lift more than 270 million people out of poverty between 2005 and 2015. Reforms under the PM Modi-led government include the introduction of a nationwide Goods & Services Tax, Insolvency and Bankruptcy Code, and rationalising personal and corporate tax systems. India’s ambitious $1.4 trillion National Infrastructure Pipeline and its commitment to add 450GW of renewable energy installed capacity by 2030 are also important steps to boost the economy. However, structural challenges remain in the economy – particularly in the state dominated financial sector, which has seen a build-up of bad loans and non-performing assets over the last decade.

COVID-19 has had an adverse impact on India’s economy. It suffered one of its biggest economic contractions on record in 2020. Multiple COVID-19 waves have upset India’s economic growth trajectory, with pre-coronavirus economic growth path unlikely to return until 2026. Vulnerabilities in India’s financial sector and stagnating domestic private investments are causes of concern.

To support a post-pandemic recovery, the government has initiated ‘Mission Self-Reliant India’. A series of reforms have been attempted in the last one decade in agriculture, labour markets, and privatization that are aimed at better integrating India into global value chains. Despite high levels of government debt, India’s external debt is low. India’s large foreign exchange reserves offset the risk of a sovereign default.

India’s inflation targeting framework mandates the Central Bank (RBI) to keep the medium-term inflation (Consumer Price Index) in a range of 4% +/- 2%. Average inflation has witnessed a steady decline since 2013. Since COVID-19, inflation levels have been higher touching the RBI’s upper cap mainly due to supply chain disruptions.

State level policies also play a vital role in determining India’s economic performance. Public health, agriculture, law & order, labour & land laws are areas where states continue to play a crucial role.

4.Human rights

India has a democratic framework, which guarantees human rights within its constitution. India also has a parliamentary tradition, an independent judiciary, professional and apolitical armed forces, a vibrant civil society, and a free media.

However, India also faces numerous challenges relating to its size, social and economic development. The British Government is working with the Indian government to build capacity and share expertise to tackle those challenges, including the promotion and protection of human rights.

Land acquisition by companies and state governments for mining and infrastructure projects has been a contentious issue in several states, sparking frequent protests by indigenous groups and civil society actors. In September 2013, the UK launched its action plan on business and human rights, becoming the first country to set out guidance to companies on integrating human rights into their operations. The British High Commission has historically collaborated with British businesses in India on human rights-focused projects.

4.1Child labour

India is a member of the International Labour Organization. An important development for child rights was the adoption of the 2009 Right to Education Act guaranteeing free, compulsory and quality education for children aged 6-14 years which came into effect on 1 April 2010. But implementation of legislation varies from state to state and awareness of human rights issues is inconsistent. There continue to be reports of the use of child labour, particularly in the textile industry.

We note that the Indian government continues to take steps to promote the rights of children and hope they will continue their efforts in this regard.

4.2Gender equality

India is ranked 135 in the 2022 World Economic Forum’s Global Gender Gap Report. While progress has been made against some indicators, issues such as lack of access to education and gender-based violence are still pervasive, particularly in India’s poorest states. The British High Commission works closely with state governments, law enforcement agencies, education authorities and British businesses to empower women and promote gender equality in India.

4.3LGBT+ persons

Following the repeal of Section 377 of the Indian Penal Code in September 2018, homosexuality is now decriminalized in India. Parliament also passed the Transgender Persons (Protection of Rights) Act, 2019 which aimed to improve the rights of the transgender community, although it was criticised by many transgender activists, who felt they were not consulted, and that the act was regressive and limited their right to self-identity. Indian Labour Law also specifically protects Indian workers against discrimination on the basis of ethnicity, gender or religion. There have also been some positive shifts at state-level in legislation and policy. However, LGBT+ people in India, as elsewhere around the world still face discrimination. The British High Commission works closely with the community and other partners in support of LGBT+ rights.

4.4Rights of association (trade unions)

There are more than 14,000 registered trade unions in India. The steady growth of trade unions in India is due to political consciousness among the labourers as well as governmental measures to facilitate collective bargaining through appropriate legislation.

5.Bribery and corruption

5.1The UK Bribery Act

Bribery undermines democracy and the rule of law and poses very serious threats to sustained economic progress in developing and emerging economies and to the proper operation of free markets more generally. The United Kingdom Bribery Act 2010 was intended to respond to these threats and to the extremely broad range of ways that bribery can be committed. The Bribery Act applies to non-UK companies operating in the United Kingdom and to UK companies working overseas. It created four prime offences:

  • two general offences covering the offering, promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage
  • an offence of bribery of a foreign public official and
  • a new offence of failure by a commercial organisation to prevent a bribe being paid to obtain or retain business or a business advantage (should an offence be committed, it will be a defence that the organisation has adequate procedures in place to prevent bribery)

The Act recognises that no bribery prevention regime will be capable of preventing bribery at all times. A company will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing. Companies must therefore make sure that they have strong, up-to-date and effective anti-bribery policies and systems in place to prevent bribery by persons associated with them.

5.2Bribery and corruption in India

India was ranked 86 out of 180 countries in Transparency International’s (TI) Corruption Perceptions Index 2021. TI’s Global Corruption Barometer (GCB) Asia found that India has the highest bribery rate in Asia (39%) and the highest number of people who had to use personal connections to access public services (46%). Although reporting corruption is essential to curb the spread, a majority of those surveyed (63%) feared retaliation if they reported corruption. A large number of people (89%) felt government corruption was a big problem.

In the last few years, India has taken several steps to tackle corruption that include more use of digital technologies and change in laws to deal with both public and private sector corruption. Several high-profile cases are pursued, and convictions have been obtained. The justice system is slow and therefore conviction takes a long time.

India has a number of laws to deal with corruption – the Prevention of Corruption Act (PCA), which has been used to convict senior public functionaries and also the more publicised one being the Right to Information Act (RTI), which enables citizens the right to seek information from any government agency. Although the RTI has over the years ensured some degree of public probity, other anti-corruption laws have remained strong in theory but weak in implementation and practice.

Corruption is often cited as a barrier to the effective development of the private sector and poses business risks that require pro-active management in the form of regular due diligence exercises and up-to-date risk strategies. Procurement practices and public-private partnership often lack transparency and are usually coupled with a significant bureaucratic burden. These risks require careful management.

India is a signatory to the UN convention against corruption and though not a signatory to the OECD convention on bribery, works closely with international actors.

The Indian Government regularly blacklists companies known to offer bribes from bidding for defence contracts. Many established companies in India aim to have robust checks and balances in their systems to ensure transparent dealings. A number of government departments and procurement teams of public sector companies are now migrating to online platforms to reduce the scope of corruption.

6.Terrorism threat

India ranked 13th on the Global Terrorism Index in 2023, as per the Institute for Economics and Peace.

Terrorist attacks are carried out by a number of terrorist and insurgent groups including Lashkar-e-Tayyiba (LET) and Jaish-e-Mohammed (JEM). Media reports suggest Daesh (formerly referred to as ISIL) is looking to attack targets in India, either directly or through inspiring ‘lone wolf’ attacks. Al Qaeda in the Indian Subcontinent (AQIS) has also targeted India. There may be an increased threat to places visited by British nationals such as religious sites, markets, festival venues, beaches and any places involving large gatherings of people. Terrorist attacks have mainly focused on Indian government interests but terrorists have also targeted places visited by westerners including restaurants, hotels, railway stations, markets, places of worship, festivals and sporting venues.

A number of insurgent groups are active in Assam. There have been random incidents of violence and killings primarily directed at the Indian government. Violent extremist groups are also active in the rural areas of Jharkand, Chhattisgarh, Odisha, and in parts of Bihar and West Bengal. These loosely united groups are engaged in what is described as the Naxalite-Maoist insurgency.

6.1 Situation in India-Administered Kashmir

Although no major terrorist attack has been reported since the Pulwama attack of February 2019, there is a continued risk of violence in the region.

The Indian government reported increased cease-fire violations across the Line of Control with Pakistan following the abrogation of Article 370 in August 2019. There has also been increased levels of recruitment by militant groups such as Lashkar-e-Tayyiba (LET) and Jaish-e-Mohammed (JEM), as well as the emergence of new groups

Al Qaeda and Islamic State’s offshoots in IaK have largely failed to recover after their heads were killed by Indian forces. These groups may have ceased to function as active terror groups in IaK.

7.Protective security advice

British companies, whatever their size, may be subject to cyber attacks. This can impact on the bottom line thefts of money, customer data or IP - and associated damage to your reputation. As a deterrent we advise companies to get their cyber security right. This is a board-level issue that all businesses need to deal with, and the 10 Steps to Cyber Security guidance provides Government advice on how to protect your business.

8.Intellectual Property

If you plan to do business in India, or if you are already trading there, it is essential to know how to use, guard and enforce the rights you have over the intellectual property (IP) that you or your business own.

Intellectual property (IP) is a term referring to a brand, invention, design or other kind of creation, which a person or business has legal rights over. Almost all businesses own some form of IP, which could be a business asset.

The World Trade Organisation (WTO) requires all member nations to include certain minimum standards of IP protection in their national laws, including India. However, there are some differences with IP legislation in other countries. An advantage for UK businesses operating in India is that the legal system is based on common law, as in the UK, so the fundamental processes are familiar.

It is important to be aware that IP rights are territorial in nature, which means that protection is granted within a country under its national laws and an IP right can be enforced only in the territory where it is protected. For example, a patent or trade mark granted in the UK will not automatically be protected against its unauthorised use by a third party (referred to as infringement) in India.

It is advisable to ensure that your IP rights are protected by engaging a local IP lawyer, and to contact the UK Intellectual Property Office’s IP attaché based in the British High Commission in Delhi, for advice at the earliest possibility. It is far easier and cheaper to prevent problems by preparing correctly as opposed to dealing with legal issues that arise from a dispute.

9.Organised crime

A number of British companies have been attracted by potentially lucrative business offers in India but there have been examples of fraud carried out using private data subsequently shared between the British and Indian companies. Fraud takes place on a major scale in India, from banking and investment fraud to impersonation and call centre scams.

We therefore always recommend you research the market as best you can to understand any differences to the business environment in the UK and conduct basic due diligence before making any financial commitments (eg. checking that your Indian counterpart is a properly registered business and has a good reputation).When considering doing business with Indian firms unfamiliar to you, it is worth bearing in mind the following:

  • an offer ‘too good to be true’ may, in fact, be just that
  • verify the data of your business partner, make appropriate due diligence checks
  • increase your vigilance when using e-commerce
  • when making purchases, use secure payment instruments. When selling, secure the payment before delivery of the products

10.Disputed territory

British companies considering projects in disputed territory in the former princely state of Jammu and Kashmir are advised to contact the nearest British High Commission in India or Pakistan or the Department for Business and Trade (DBT) in London before proceeding. The UK government can offer advice on regional sensitivities and the potential commercial and reputational risks of operating there.

The decision as to whether or not to engage in commercial projects overseas ultimately lies with the companies concerned, following their own risk assessments and the advice of their lawyers, should they seek it. The UK government does not provide legal advice to private companies and individuals in relation to their commercial activities. Companies considering operating in either Pakistan or India should also consider the advice in FCDO Travel Advice.

11.Commercial guidance

As the number of foreign enterprises investing in India and doing business with Indian partners has increased, there are has been an increase in commercial disputes.

There are various options available to settle a commercial dispute, principally litigation, arbitration and mediation. The most appropriate option will depend on the circumstances of the case, and companies should seek the advice of a lawyer who specialises India’s legal environment.

In the event of a dispute, the most appropriate option will always depend on the circumstances of the case. In general, settling a dispute in a way that avoids litigation or an arbitration procedure can be the best way to avoid potentially unnecessary high costs and risks. Settling disputes through legal and administrative processes in India should be carried out with advice from a lawyer who specialises in the laws of India.

Before entering into a contract in India you should take appropriate legal advice. Your lawyer should advise you on including dispute resolution clauses and governing law clauses in the contract, including covering in advance how, where and under what law you want any disputes to be resolved.

Many foreign companies seek to resolve disputes by arbitration rather than litigation. Although it is possible for parties to reach agreement on arbitration after a dispute arises, in most cases an arbitration clause is better included from the outset.

11.2What the British High Commission/ DBT in India can do

Should companies experience difficulties with partners in India, the British High Commission can offer information on doing business in India, including on navigating the local legal and regulatory system. The British High Commission cannot become directly engaged in civil commercial disputes between companies, and cannot intervene directly with the courts or the authorities. Business disputes are primarily a matter for the relevant seat of arbitration or the courts.

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