Starting a Business in India

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Starting a Business in India

India is a large and complex market and India has become a leading global startup hub. Rising numbers of new companies in India, venture capitalists, and entrepreneurs are turbocharging the development of the top tech startup scene.

Economy of India

The economy of India is characterised as a developing market economy. It is the world’s sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). According to the IMF, on a per capita income basis, India ranked 142nd by GDP (nominal) and 124th by GDP (PPP) in 2020.

India is one of the world’s fastest-growing economies

Nearly 60% of India’s GDP is driven by domestic private consumption and continues to remain the world’s sixth-largest consumer market. Apart from private consumption, India’s GDP is also fueled by government spending, investment, and exports. In 2018, India was the world’s tenth-largest importer and the nineteenth-largest exporter. India has been a member of World Trade Organization since 1 January 1995. It ranks 63rd on Ease of doing business index and 68th on Global Competitiveness Report. With 520 million workers, the Indian labour force is the world’s second-largest as of 2019. India has one of the world’s highest number of billionaires and extreme income inequality

Major exports include: petroleum products, textile goods, jewellery, software, engineering goods, chemicals, and manufactured leather goods. Major imports include: crude oil, machinery, gems, fertiliser, and chemicals.

The long-term growth perspective of the Indian economy remains positive due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and is increasing integration into the global economy.

GDP India
Indian GDP

India Economic Indicators

Indian GDP Growth Rate

In India, the growth rate in GDP measures the change in the seasonally adjusted value of the goods and services produced by the Indian economy during the quarter. India is the world’s tenth largest economy and the second most populous. The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent.

Indian GDP Growth Rate
Source: OECD
India Interest Rate

In India, interest rate decisions are taken by the Reserve Bank of India’s Central Board of Directors. The official interest rate is the benchmark repurchase rate. In 2014, the primary objective of the RBI monetary policy became price stability, giving less importance to government’s borrowing, the stability of the rupee exchange rate and the need to protect exports. In February 2015, the government and the central bank agreed to set a consumer inflation target of 4 percent, with a band of plus or minus 2 percentage points, from the financial year ending in March 2017.

India Interest Rate
Source: Reserve Bank of India
India Inflation Rate

In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure of inflation. In India, the most important category in the consumer price index is Food and beverages (45.86 percent of total weight), of which Cereals and products (9.67 percent), Milk and products (6.61 percent), Vegetables (6.04 percent), Prepared meals, snacks, sweets, etc. (5.55 percent), Meat and fish (3.61 percent), and Oils and fats (3.56 percent). Miscellaneous accounts for 28.32 percent, of which Transport and communication (8.59 percent), health (5.89 percent), and education (4.46 percent). Housing accounts for 10.07 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.53 percent; and Pan, tobacco and intoxicants for 2.38 percent. Consumer price changes in India can be very volatile due to dependence on energy imports, the uncertain impact of monsoon rains on its large farm sector, difficulties transporting food items to market because of its poor roads and infrastructure and high fiscal deficit.

Inflation Rate India
Source: Ministry of Statistics and Programme Implementation (MOSPI)
India Unemployment Rate

In India, the unemployment rate is estimated by directly interviewing a large sample of randomly selected households. Centre for Monitoring Indian Economy Consumer Pyramids panel of households includes over 174,405 households including over 522,000 members who are over 15 years old.

Unemployment Rate India
Source: Centre for Monitoring Indian Economy
India Government Debt to GDP

India recorded a government debt equivalent to 69.62 percent of the country’s Gross Domestic Product in the 2019-20 fiscal year. Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

India Government Dept to GDP
Source: Reserve Bank of India
India Balance of Trade

India has been recording sustained trade deficits since 1980 mainly due to the strong imports growth, particularly of mineral fuels, oils and waxes and bituminous substances and pearls, precious and semi-precious stones and jewelry. In recent years, the biggest trade deficits were recorded with China, Switzerland, Saudi Arabia, Iraq and Indonesia. India records trade surpluses with the US, United Arab Emirates, Hong Kong, United Kingdom and Vietnam.

India Balance of Trade
Source: Ministry of Commerce and Industry, India
Indian Currency Pound

The USDINR spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the INR.

Currency Indian Rupee

India Stock Market (Sensex)

The SENSEX (BSE30) is a major stock market index which tracks the performance of 30 major companies listed on the Bombay Stock Exchange. The companies are chosen based on the liquidity, trading volume and industry representation. The SENSEX, is a free-float market capitalization-weighted index. The Index has a base value of 100 as of 1978-79.

Stock Market India Sensex

India Ease of Doing Business

India is ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of India improved to 63 in 2019 from 77 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operationstronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Ease of Doing Business in India
Source: World Bank
India Business Confidence

Business Confidence in India decreased to 99.50 points in the second quarter of the 2020/2021 fiscal year.

In India, the Business Expectations Index (BEI) is calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered are: (1) overall business situation; (2) production; (3) order books; (4) inventory of raw material; (5) inventory of finished goods; (6) profit margins; (7) employment; (8) exports; and (9) capacity utilisation. BEI gives a snapshot of the business outlook in every quarter and takes values between 0 and 200, with 100 being the threshold separating expansion from contraction. The number of total responses varies from quarter to quarter and averaged 1,200 over the last two years.

India Business Expectations Index (BEI)
Source: Reserve Bank of India
India Consumer Confidence

Consumer Confidence in India decreased to 63.70 points in the second quarter of 2020 from 85.60 points in the first quarter of 2020.

Consumer confidence in India refers to the Current Situation Index (CSI) which is part of the Consumer Confidence Survey published by the Reserve Bank of India. The survey is conducted in six metropolitan cities – Bengaluru; Chennai; Hyderabad; Kolkata; Mumbai; and New Delhi. It covers around 5,000 responses on households’ perceptions and expectations on the general economic situation; the employment scenario; the overall price situation; and their own income and spending.

India Consumer Confidence
Source: Reserve Bank of India
India Bank Lending Rate

Bank Lending Rate in India remained unchanged at 9 percent in October from 9 percent in September of 2020.

In India, the prime lending rate is the average rate of interest charged on loans by five major banks.

India Prime Lending Rate
Source: Reserve Bank of India
India Credit Rating

Standard & Poor’s credit rating for India stands at BBB- with stable outlook. Moody’s credit rating for India was last set at Baa3 with negative outlook. Fitch’s credit rating for India was last reported at BBB- with negative outlook. DBRS’s credit rating for India is BBB with negative outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of India thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for India as reported by major credit rating agencies.

Bombay Stock Exchange
Bombay Stock Exchange

Taxation in the India

Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.

Corpo-
rate tax
Perso-
nal income tax
VAT or
sales tax
Social Security Rate for Companies Social Security Rate for Employees
25.17% (highest)
17.01% (lowest)
35,88% 28%, 18%, 12%, 5%, 0% (varies by commodity) 12% 12%

How to Start a Business in India

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