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India’s business environment is expected to show improvement over the next decade, primarily due to factors such as a stable political environment, increased foreign investment, better tax coverage, and reduced trade controls. The huge potential presented by India’s large population and growing economy also contribute to an increase in market attractiveness and opportunities in the coming decades.
Over the next decade, we are expecting a substantial Improvement in its labor market, foreign trade, and exchange control, given the current administration working towards becoming a manufacturing hub. The return of the Bharatiya Janata Party (BJP) government, which is expected to win the 2024 national elections, is expected to support India’s growth as an export manufacturing hub through the BJP’s Production Linked Incentives program. Although India does not rely on regional trade blocs, it will work to strengthen bilateral trade relationships with countries such as Australia, the UK, and the US. The labor environment will also improve as the BJP government is expected to adopt new labor reforms, which were delayed due to the pandemic, to simplify and liberalize some of India’s rigid labor regulations.
As one of the most populous countries in the world, India has presented a unique situation in terms of economic development and demographic changes in recent years. Despite a declining fertility rate, a growing population means that India will continue to have an ample labor supply for decades to come. This trend is closely associated with higher economic growth in India, improved women’s well-being, and higher educational attainment.
However, the development of the Indian labor market has not been all smooth sailing. The unemployment rate continues to rise, and the labor force participation rate has been below 50% in recent years. In addition, the gender gap in the Indian labor market is also worthy of attention. Women’s labor force participation in India is relatively low due to cultural and social factors, with only one in five women employed. Especially during the epidemic, more women choose to withdraw from the labor market. The female participation rate in Indonesia, which is also a major Asian country, is 40%. If India can also achieve the same female participation rate, the total employment participation rate of the two countries will fall at the same level.
In the context of the labor force participation rate, the Indian government has actively promoted a series of policies and programs to improve labor market conditions. Among them, the promotion of the Production Linkage Incentive Program (PLI) in the manufacturing sector will help increase India’s attractiveness in the eyes of global investors. In addition, with the further advancement of education popularization and skills training, the shortage of professional talents in India may be expected to be alleviated in the future.
However, it is worth noting that in the development of the Indian labor market, the government and all sectors of society also have some potential risks. First, while India’s pension system puts relatively little pressure on public finances, the lack of jobs will put pressure on government entitlement spending. This means that in the next few years, the Indian government may need to continue to invest a lot of resources to protect people’s livelihood and well-being. For example, lack of employment opportunities and low labor force participation mean that the population (especially outside the cities) has a relatively high poverty rate, requiring large welfare spending. One notable program is the National Rural Employment Guarantee Act (MGNREGS), which requires the government to create jobs for those who seek paid work from the government.
Since India’s independence in 1947 and the split of East and West Pakistan, which led to the formation of predominantly Muslim Bangladesh and Hindu-majority India, tensions have continued to simmer between the two nations. This conflict resulted in three wars until a ceasefire was finally reached in 2003. However, the India-Pakistan Line of Control remains a source of constant conflict and occasional exchanges of fire.
Over the past 75 years, India has transformed from a poor economy with a per capita GDP of less than $50 a year to a low-and-middle-income economy with a per capita GDP of approximately $2,500 (2022). India now boasts the world’s largest population, and its economy, measured by GDP, has surpassed that of the UK, making it the fifth largest in the world.
India’s political system is built on the British Westminster model, featuring an upper house, the Rajya Sabha, and a more powerful lower house, the Lok Sabha. The Indian presidency is a five-year term elected position, while the royal family remains hereditary. As of 2022, the ruling Bharatiya Janata Party (BJP) and its coalition, the NDA, hold the majority in the Lok Sabha, with the opposition maintaining a majority in the Rajya Sabha.
Since Prime Minister Modi took office in 2014, the Indian government has implemented numerous policy reforms, such as the reassessment of 150 labor laws and the official passing of relevant bills in 2020. These reforms aim to improve the ease of doing business and stimulate growth in industry and manufacturing.
Currently, there are three main policy developments in India. First, the government aims to upgrade business and trade infrastructure, including ports, railways, roads, and logistics centers. Second, it seeks to reform land policies, an effort ongoing since the adoption of the New Economic Policy in 1991. However, this reform faces resistance from citizens and is not expected to make significant progress after losing the legislative majority in the Rajya Sabha. Lastly, the government is focusing on increasing market power and stimulating business through various mechanisms.
India’s political stability is expected to remain steady as the ruling Bharatiya Janata Party (BJP) is likely to complete its full term in office, ending in 2024. The BJP-led coalition, however, lacks a simple majority in the Rajya Sabha (the upper house of parliament), which may impede its ability to pass legislation unilaterally. The decline in the vote share of the Indian National Congress (INC) at state and national elections has diminished its effectiveness as the principal national opposition party, with the absence of a credible long-term vision for nation-building hurting its public appeal. A trend of regional parties becoming strong competitors to the BJP at the state level will continue, and the expected victory of the BJP in the 2024 general election will return controversial reforms, such as land acquisition plans, to the government’s agenda.
While the risk of political instability remains very low, there are concerns regarding the erosion of India’s democratic institutions. The governing BJP has been increasingly willing to weaken checks and balances, leading to substantial democratic backsliding. The government has repeatedly sidelined the legislative and weakened judicial independence. Freedoms of civil society associations, interest groups critical of the government, and the media have been limited. The secular credentials of the state, enshrined in the constitution, have been called into question.
Existing frictions between democratic institutions have been exacerbated by the BJP-led government. While the government has tried to improve coordination between the center and the states under the label of “cooperative federalism,” among other things, these efforts seem to be mostly slogans, as frictions persist and have even worsened due to the reduction in financial transfers from the center to the states during the COVID-19 pandemic. The government’s promotion of “competitive federalism” has not addressed these issues adequately. Despite these challenges, the army has been effectively kept under civilian control, with only small armed groups challenging the Indian state.
The political and institutional outlook for India between 2022 and 2026 is mixed. The BJP dominates the national political landscape and most state assemblies, with full control of the lower house and a large majority gained in 2019, bolstering policy effectiveness. Despite the ruling NDA being unlikely to attain a simple majority in the upper house, it will facilitate the passage of bills with the support of independent parties. Support for the BJP and Prime Minister Modi will remain strong, particularly at the rural level, enabling the party to secure re-election in 2024 with a significant majority. The administration will actively pursue its Hindu nationalist agenda, and the election of Droupadi Murmu as India’s president in July 2022 will help the BJP secure votes among the tribal population.
The BJP’s advocacy of competitive federalism encourages competition between India’s states. This approach is expected to lead to improved political and institutional effectiveness in reform-oriented states, particularly in the south and west of the country. However, it may also deepen economic disparities between more economically successful states and their less prosperous counterparts, increasing social friction, competition for fiscal resources, and pressure for migration between regions. The BJP’s commitment to promoting unpopular structural reforms, such as relaxing labor laws, will reduce its vote share in state elections.
The BJP’s dominance in national politics has weakened checks and balances within India’s political system, a trend that is expected to continue over 2022-2026. Although critical content of the government is published and broadcast, the government has subtly pressured media groups and social media service providers to censor content, as seen during the severe COVID-19 wave in 2021. While the judiciary is independent, members appear polarized, with some criticizing the government’s overreach. There is a risk of a major confrontation between the government and the judiciary over a significant policy decision related to religious matters in the next five years. Judicial challenges to the government’s policies towards minority religions could also become a point of friction.
In the 2019 Indian election, Narendra Modi and the BJP achieved a landslide victory, securing 303 seats in the Lok Sabha, the lower house of the Indian parliament. This surpassed their 2014 win of 282 seats. While the opposition party, the Indian National Congress, and its allies mounted a stronger challenge, they only managed to obtain 54 seats. The 2019 election saw a record number of female voters and candidates, with female voter turnout equalling male voter turnout for the first time in Indian history. Despite this progress, men continue to dominate national politics, as only 723 of the 8,000 candidates were female, accounting for less than one in ten. The seven national parties fielded the same number of candidates in 2019 as they did in 2014.
Looking ahead to the next general election in India, scheduled for May 2024, the BJP is projected to maintain its stronghold due to the incumbency advantage, successful implementation of reforms, and a fragmented opposition. Prime Minister Narendra Modi is expected to be the BJP’s candidate once again, although he may pass the leadership mantle to a party ally because of his advancing age. Rahul Gandhi, the de facto leader of the Congress party, is likely to be his main electoral rival, but he remains unpopular among voters.
Regional parties are not anticipated to pose a significant challenge to the BJP at the national level. Furthermore, the BJP is expected to consolidate its power in the Rajya Sabha before the 2024 election by winning seats in the 2023 biennial elections in West Bengal and Tripura. However, this is unlikely to result in an absolute majority for the party in the upper house. Recent opinion polls also suggested a rougher path for the leading party.
As the country is changing its economic focus, the infrastructure is becoming more and more important to the India’s policy agenda. Reduction of logistics cost, consistent supply of electricity, increasing self-reliance, and renewable agenda all lead to a hyper focus on the infrastructure.
India’s infrastructure environment is expected to see a significant improvement. This improvement will primarily be driven by faster broadband speeds, more extensive transport infrastructure, and a more reliable power supply. The NDA government considers infrastructure improvements and expansion as key priorities, with public investment primarily directed toward transport, energy, and urban development projects. However, the progress of ongoing projects may be slowed by land acquisition challenges and delays in regulatory clearances, particularly environmental approvals.
The 2022/23 budget allocates a substantial capital expenditure of INR 7.5 trillion, targeting crucial sectors such as defense equipment, atomic energy, telecoms, metro rail projects, railway infrastructure, affordable healthcare, and the National Investment and Infrastructure Fund. Infrastructure will remain a priority in the government’s spending mix throughout the next decade, with the establishment of the National Bank for Financing Infrastructure and Development to spur construction activity. While delays may persist, completed initiatives will ultimately strengthen domestic goods and labor flows.
India is set to enhance internet speed and connectivity, with the percentage of the population using the internet rising from 8% to 43% between 2010 and 2020. Despite this progress, there remains a significant disparity between rural and urban India in terms of internet penetration. The government will continue to lead infrastructure development, with urban civic infrastructure projects hampered by inadequate private sector involvement due to limited returns on investment.
Two publicly funded connectivity projects, Bharatmala (road construction) and Sagarmala (port construction), will remain prioritized. The first phase of Bharatmala aims to connect 550 of the country’s districts through the highways network, up from 300 in 2017. The government has plans to build highways totaling 18,000 km over 2022/23. While a lack of capital investment hinders railway capacity expansion, a mild pick-up is expected during the next five years. As India continues to invest in infrastructure, the country’s future economic growth and competitiveness will be influenced by its ability to overcome existing challenges and successfully implement these ambitious projects.
The logistics infrastructure development of India will see the most substantial growth in the coming decades. Aggregating estimates from the Fitch, EY, and the World Bank, an estimated 380 billion opportunity will be open for companies to compete in 2025. In the long term, as India is on pace to becoming a country with 26 trillion dollar GDP in 2048, the transportation and logistics sector are tremendous.
The growth is primarily driven by the shifting of India’s economic agenda, which aims to become a regional manufacturing hub. The policy such as Made in India and National Manufacturing Policy (NMP), are all relevant to it.
As of FY22, India’s exports and imports have grown considerably, boosting the transportation and logistics sector. India’s transportation landscape is heavily reliant on road transportation, with a 66% of cargo moving this way. It is followed by rail (31%), shipping (3%), and air (1%). To support this cargo movement, the country has developed an extensive network of support infrastructure.
The Government of India (GOI) is aware of the challenges posed by this heavy reliance on road transportation and is taking steps to improve efficiency and reduce logistics costs. Multiple logistics-specific initiatives, such as GatiShakti and the National Logistics Policy, aim to make India’s logistics sector greener, more agile, transparent, and integrated. However, the sector faces several structural challenges, such as complex regulations, fragmented industry, and lack of end-to-end supply chain visibility.
To address these challenges, there has been a focus on infrastructure development, digitalization, and sustainable logistics. Start-ups and GOI’s digital initiatives, such as “Make in India” and the Unified Logistics Platform (ULIP), are enhancing transparency in the logistics sector. Infrastructure development, including road network expansion and Dedicated Freight Corridor (DFC) projects, is playing a significant role in increasing the pace of goods movement.
The Government of India has implemented several initiatives to improve the Railways sector. In the Union Budget 2022-23, the Ministry of Railways received an allocation of INR 140,367.13 crore (US$ 18.40 billion). The Indian Railways plans to develop new products and efficient logistics services for small farmers and SMEs, integrate postal and railway networks for seamless parcel movement, develop 100 PM-GatiShakti Cargo Terminals for multimodal logistics facilities over the next three years, facilitate multimodal connectivity between mass urban transport and railway stations, cover 2,000 km of the network under Kavach, and popularize the ‘One Station-One Product’ concept. Additionally, the government launched Mission Raftaar in August 2022 to enhance speed and double the average speed of freight trains and increase the average speed of superfast/mail/express trains by 25 kmph.
In recent years, there have been several major developments in the Indian Railways sector. In October 2021, India and Nepal signed a MoU for a proposed US$ 3.15 billion railway line project connecting Kathmandu and the Indian border town Raxaul. Indian Railways achieved its highest ever electrification of sections, covering 6,015 Route Kilometer (RKM) in 2020-21. The under-construction Chenab Bridge, the world’s highest railway bridge, completed its arch closure in April 2021, with a design life of 120 years. To boost rail infrastructure, Indian Railways identified 56 projects across the country to be completed by Feb-Mar 2021 and FY22.
The Ministry of Railways has invited private participation for operating passenger train services across 109 Origin Destination (OD) routes, aiming to introduce 151 trains by FY27 with private sector investments of about INR 30,000 crore (US$ 4.09 billion). A ‘National Rail Plan’ is being developed to integrate the rail network with other modes of transport and establish a multi-modal transportation network. Research Designs & Standards Organization (RDSO) launched a ‘New Online Vendor Registration System’ for digital and transparent systems and procedures. Furthermore, the Ministry plans to monetize assets such as Eastern and Western Dedicated Freight Corridors, 150 modern rakes through PPP, station redevelopment through PPP, railway land parcels, multifunctional complexes (MFC), railway colonies, hill railways, and stadiums.
The Indian government has recently introduced several initiatives to enhance the country’s road infrastructure. In 2022-23, the National Highways Authority of India (NHAI) plans to construct 25,000 kilometers of national highways at a pace of 50 km per day. Under the Gati Shakti program, 81 high-impact projects have been consolidated, with road infrastructure projects as the top priority. This includes major highway projects such as the Delhi-Mumbai expressway, Amritsar-Jamnagar expressway, and Saharanpur-Dehradun expressway. The Union Budget 2022-23 has increased the allocation for the central road fund by 19%, totaling INR 2,95,150 crores (US$ 38.86 million).
Numerous road infrastructure projects have been launched or planned. The government plans to spend INR 10,565 crore (US$ 1.38 billion) on the Trans-Arunachal Highway, Kaladan Multi-Model Transport Project, and other development projects. Additionally, the Gati Shakti-National Master Plan was launched to facilitate holistic and integrated infrastructure development. In October 2021, the government introduced the Vehicle Scrapping Policy and a conversion project for 15 major roads in the Agartala smart city. Plans to install charging stations every 40 to 60 kilometers on national highways have also been announced, with an expected installation of 700 e-vehicle charging stations by 2023.
Several new projects and relief measures have been approved and implemented. The Bharatmala Pariyojana, a comprehensive road and highways project, includes the construction of 34,800 km of national highways in 5 years with an outlay of INR 5,35,000 crore (US$ 76.55 billion). The government aims to construct 23 new national highways by 2025. In August 2021, relief measures provided during the second COVID-19 wave were extended, such as relaxation in Schedule H/G and arrangements for direct payment to approved sub-contractors. The central government also sanctioned over INR 600 crore (US$ 81 million) from the Central Road and Infrastructure Fund (CRIF) for constructing 42 roads and bridges in Uttarakhand.
The IEA estimates that India’s energy consumption, the world’s third-largest, increased by 7%-8% year on year to 1,018m tonnes of oil equivalent (toe) in 2022, amid an easing of coronavirus-related restrictions. With its large population, exceeding 1.4 billion, and robust economic growth, India will remain one of the world’s largest energy consumers during the next ten years. Indian demand for oil, natural gas, coal, and electricity is expected to increase in 2023-32 by annual averages of 4%, 4%, 2%, and 5% respectively. India’s overall energy consumption will rise by an annual average rate of 3% during this period.
Political tensions with China could threaten India’s development of solar power, which is dependent on the import of cells and modules from China. Despite new investment in generating capacity, electricity supply will struggle to meet demand, largely owing to inefficient transmission and distribution, and rolling blackouts will persist. In the wake of Russia’s invasion of Ukraine in February 2022, India is striving to balance its strategic ties with both Russia and the US while pursuing arrangements to continue importing Russian crude oil. India, a net energy importer, benefits from steep discounts on Russian oil.
The share of Russian fossil fuels in India’s imports is relatively small, but has increased significantly since early 2022. The G7 price cap of US$60/barrel on Russian crude oil exports, agreed in early December 2022, is not expected to have a major impact on India’s imports of Russian oil. The price cap would not imply a significant discount from the current price of traded Russian crude. Moreover, India and China, currently the largest importers of seaborne crude from Russia, have not shown any willingness to adhere to the cap. Discounted imports from Russia have shielded India from the worst effects of high global energy prices, but a prolonged period of disruption could fuel inflation, increase the subsidy burden on government finances, widen the country’s current-account deficit, and deplete foreign-exchange reserves.
In August 2022, the Indian government formally updated its nationally determined contribution (NDC) under the Paris Agreement on climate change. The updated NDC states that by 2030, India’s carbon emissions relative to GDP would be reduced by 45% from 2005 levels (having previously targeted a cut of 33-35%), and that about 50% of its installed electricity-generation capacity would be based on non-fossil-fuel sources (up from 40% previously), subject to the availability of international technological and financial assistance. At the COP27, the UN climate conference held in November 2022, India also submitted its Long-term Low Emission Development Strategy, a plan in addition to the NDCs, expected from all parties to the UN Framework Convention on Climate Change (UNFCCC).
The plan highlights the importance of a sustainable and inclusive path to decarbonization, with due regard to energy security and the country’s development priorities. Key features include the National Hydrogen Mission, launched in 2021, which aims to make India a green hydrogen hub by expanding production of green hydrogen and electrolyzer manufacturing; increased use of biofuels, especially ethanol blending in petrol; rapid electrification of the transport sector; building climate-resilient and sustainable urban centers; energy efficiency; and increasing the country’s forest cover for carbon sequestration. In December 2022, the upper house of India’s parliament passed the Energy Conservation (Amendment) Bill, which includes measures to promote energy efficiency and conservation and mandates non-fossil-fuel.
India’s hydroelectric capacity, the sixth-largest in the world, reached approximately 52 GW in 2022, generating 9.4% of the country’s electricity. High project costs and tariffs, financing difficulties, seasonal fluctuations in water flows, and concerns about community displacement and environmental degradation hinder local hydro projects. As of October 2022, over 12.9 GW of hydroelectric capacity was under construction, with work on about 1.2 GW of local hydropower projects being held up. With interstate transmission charges waived off for hydropower projects commissioned by the end of June 2025, India’s installed hydropower capacity is expected to reach 69.7 GW by 2032.
India had the fifth-largest installed solar power capacity globally in 2022, at 65.8 GW, generating 5.5% of the country’s electricity. Officials estimate the technical potential for solar power in India to be 750 GW and aim for 100 GW of local grid-connected solar power by the end of 2022. Growth in domestic solar capacity is constrained by limited local manufacturing capacity, multiple changes in the duty regime on imported solar cells and modules, and various other challenges. However, due to a favorable policy environment, low installation costs, and the growing viability of hybrid solar projects, India’s installed solar capacity is expected to reach 246.3 GW by 2032.
In 2022, India had the world’s fourth-largest installed wind power capacity, estimated at 42.9 GW, generating 4.6% of the country’s electricity. The government estimates India’s technical potential for onshore and offshore wind power capacity to be about 695 GW and 70 GW, respectively. However, the wind power subsector has faced auction cancellations, delays, land acquisition issues, and other challenges. Despite these obstacles, India’s wind power capacity is expected to reach 90.2 GW by 2032, supported by plans for annual tenders to develop local offshore wind power capacity.
The government’s “Self-reliant India” and “Make in India” programs, launched in 2020 and 2014 respectively, aim to transform India into a manufacturing powerhouse by bolstering local production and attracting foreign investment by 2025. The primary tools for these initiatives are the production-linked incentives (PLI) introduced during the coronavirus pandemic in 2020, with INR 1.97 trillion in funding over five years. The PLI scheme offers monetary incentives for incremental sales of domestically manufactured goods in 16 sectors, with solar modules and semiconductors added in 2022. By the end of October 2022, application periods for PLI schemes in several sectors had closed, with hundreds of applicants selected. However, applications remained open for other sectors, such as large-scale electronics manufacturing, IT hardware, medical devices, pharmaceuticals, renewable energy, and white goods like air conditioners and LED lights.
The PLI incentives supplement the temporary corporate tax rate reduction introduced in 2019 for newly established manufacturing companies that began operations before March 31st, 2024 (extended by one year in the fiscal year 2022/2023 budget). Concurrently, several liberalization measures increased the foreign investment cap in multiple sectors, aligning with the “Make in India” campaign. Since early 2020, the central government implemented numerous measures to protect businesses from the pandemic’s adverse economic effects, such as emergency working capital for small businesses, credit guarantees, and deferred payments on loans and taxes. However, most pandemic-related relief measures had expired by October 2022.
India’s investment incentives aim to guide investments towards specific industries, foster growth in economically lagging regions, and promote exports. Various preferential schemes are available, such as tax and non-tax incentives for establishing new industrial enterprises, unique programs for industries like power, ports, highways, electronics, and software, and incentives for units in underdeveloped areas or those involved in export processing zones. Development banks, overseen by central and state governments, provide medium and long-term loans and occasionally invest equity in new projects, with some states offering additional incentives.
The construction sector in India has experienced significant growth, fueled by investment-linked tax deductions and infrastructure development projects. These tax deductions apply to projects such as airports, seaports, inland ports, waterways, industrial parks, natural-gas distribution networks, temperature-controlled supply chains, affordable housing, and hospitals. Additionally, the International Finance Services Centre (IFSC) Authority Act of 2019 has encouraged the establishment of offshore financial centers, such as Gujarat International Financial Tech City, attracting both domestic and foreign banks.
Housing, particularly affordable housing, is considered a “thrust sector” by the Indian government and is eligible for various incentives. Home-loan borrowers can receive tax deductions on interest and principal repayments, while housing companies may claim tax exemptions for reserves set out of profits earned from long-term lending. Affordable housing projects meeting certain criteria can enjoy a 100% tax exemption on profits, which has been extended to qualifying affordable rental housing projects as well.
The shipping and ports industry benefits from automatic investment approval for the acquisition of ships and relaxed cabotage laws. The Indian government is also working on the Sagarmala project, which aims to develop and modernize ports, coastal economic zones, and related infrastructure through 574 projects with investments of INR 6.01 trillion. Plans to build six new major ports and transform existing major ports into profit-seeking companies are underway, with ships and inland-water vessels qualifying for accelerated depreciation at 20%.
India’s energy sector is supported by tax incentives and policy reforms. Oil-exploration companies enjoy 100% tax deductions on amounts deposited with the State Bank of India, while the Hydrocarbon Exploration and Licensing Policy (HELP) has replaced the previous New Exploration License Policy, allowing single licenses for all hydrocarbons and more pricing and marketing freedom. The open acreage licensing policy (OALP) allows companies to identify blocks of their choice for auction, promoting exploration and development.
The power generation and distribution industries in India are eligible for a ten-year tax holiday, with incentives for substantial renovation and modernization of existing transmission and distribution lines. Foreign investment in the power sector is encouraged, and the government has set ambitious targets for renewable power capacity expansion with incentives like capital and interest subsidies, viability gap funding, concessional finance, and concessional customs duty.
Companies in India’s scientific research and development sector benefit from 100% income tax deductions on capital and revenue expenditure for in-house R&D, while knowledge-based industries enjoy duty-free import of R&D equipment. The telecommunications industry has also experienced growth due to the abolition of customs duty on specific tariff lines and the introduction of production-linked incentive (PLI) schemes for mobile phones and specified electronic components.
Manufacturing in India has been bolstered by the production-linked incentive program announced in September 2021. This program offers financial incentives to automotive original equipment manufacturers (OEMs) producing electric and hydrogen fuel-cell vehicles and to auto component manufacturers using advanced automotive technology. Non-automotive investor companies or their group companies are also eligible for incentives, with the government expecting significant investments from selected applicants over the next five years.
India’s healthcare and pharmaceutical sector is a global leader in production and exportation, but the country relies heavily on imports for medical devices and raw materials. To address this, the government has initiated schemes to boost domestic production of bulk drugs and medical devices, develop drug and medical devices parks, and offer production-linked incentives for pharmaceuticals covering various drugs, intermediaries, and ingredients. These efforts aim to reduce dependency on imports and strengthen the domestic healthcare and pharma industry.
The North-East Industrial Development Scheme 2017, which applied to eight north-eastern states between April 2017 and March 2022, aimed to promote investment in industrial manufacturing and services sectors. This scheme provided capital subsidies, transport and employment-linked subsidies, reimbursements for the central government’s share of goods-and-services tax and income taxes paid, interest rate subsidies on working-capital loans, and insurance premium reimbursements for plant and machinery. Companies seeking grants for investment in less developed areas should apply to the relevant state’s industrial-development corporation, as local ministries and state governments actively compete to attract foreign investment and may tailor incentives for specific projects, particularly large and employment-generating ones.
Tax and other incentives are available to units established in special economic zones and government-sponsored technology parks, some of which are dedicated to specific industries like Electronics City in Karnataka. State governments have also set up industrial-development organizations offering industrial estates with zoned sites, water, power, and occasionally, rebates on state taxes and special concessions. The Indian government plans to establish 100 “smart cities,” offering advanced infrastructure and sustainable environments. Companies locating in these cities may not receive financial incentives but can benefit from improved infrastructure, facilities, affordable land, and housing.
India has expanded export-promotion benefits and policies from the previous five-year program. It consolidated various schemes into a main incentive program for both merchandise and service exports, along with other existing initiatives. The government extended the existing policy until March 2023 and plans to issue a new policy effective April 2023, lasting until 2027, which will replace or rework some schemes.
To stimulate a slowing economy and flagging exports, the government is introducing measures to benefit exporters, such as better credit flow, lower interest rates, improved insurance cover, affordable testing facilities, automatic indirect tax assessments, and refunds for exporters. Additionally, they are implementing a digital platform for export clearances and improving turnaround times at airports and ports. Companies interested in export-tax incentives should apply to the Ministry of Commerce and Industry.
The Remission of Duties or Taxes on Export Products (RoDTEP) scheme aims to reimburse the taxes and duties incurred by exporters that are not refunded under any other schemes. The RoDTEP prioritizes labor-intensive sectors and extends to traders and exports through e-commerce platforms, replacing the earlier Merchandise Exports from India Scheme (MEIS). However, exporters are disappointed with the RoDTEP since its rates are lower than those of the MEIS, and it excludes certain sectors.
The Service Exports from India Scheme (SEIS) applies to service providers in India, including foreign companies providing services from India. Eligible service providers receive a duty credit of 3% or 5% of net foreign exchange earned, depending on the service. A 2017 mid-term review increased the rate by 2% for around nine services such as legal, accounting, architecture, engineering, hotels, and hospitals.
Under the Export-Promotion Capital-Goods (EPCG) Scheme, companies may import capital goods, consumables, and spares at a zero customs-duty rate in exchange for a fixed export obligation. The obligation is reduced for green-technology products, locally sourced capital goods, and exports from India’s north-eastern states and the union territory of Jammu and Kashmir.
The Deemed-exports scheme provides special benefits, such as duty exemption and duty drawbacks, for goods supplied within the country that either earn or save foreign exchange. The Duty-drawback scheme offers exemptions for customs tariffs and excise taxes on imports required for export production, with refunds available monthly. The products eligible for drawback and associated industry rates are announced annually and listed by the Central Board of Indirect Taxes and Customs.
The Advance Authorization Scheme allows duty-free imports of inputs needed for exports against licenses received in advance. The government has fixed a reasonable quantity of inputs per unit of output. Benefits are provided based on self-declaration where standard input-output norms do not exist. The Duty-Free Import Authorization Scheme permits duty-free import of required inputs before exports in return for a value-added commitment.
The Trade Infrastructure for Export Scheme (TIES) provides assistance to central and state government agencies for setting up and upgrading infrastructure projects with major export linkages. Special export zones and status can also be used by companies committed to exporting 100% of their production. Such businesses may be set up as export-oriented units (EOUs) in special economic zones (SEZs), government-sponsored electronic-hardware technology parks, and software technology parks.
Debt markets are expected to become more accessible to foreign investors as India’s financial regulatory system strengthens and bond index inclusion becomes a reality. This will result to a substantial improvement of India’s financing environment. Despite concerns surrounding the impact of government-guaranteed loans during the COVID-19 crisis, the most recent RBI Financial Stability Report shows that the gross NPL ratio for commercial banks fell to a seven-year low of 5% in December 2022. The proposed “bad bank,” the National Asset Reconstruction Company, will aid in managing non-performing assets held by public-sector banks.
The coming decade should see an increase in the pool of savings available for investment, due to the passage of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act in August 2021. This amendment ensures depositors receive up to INR 500,000 within three months after the RBI withdraws a troubled lender’s license, compared to the previous guarantee of INR 100,000. Minister of Finance, Nirmala Sitharaman, disclosed that following the approval of the changes in 2021, it presently takes up to ten years for depositors to recover their funds.
Financial regulation in India is expected to improve throughout the forecast period, with insolvency law amendments likely to occur as court cases set precedents that could impact the law’s effectiveness. Enhanced bad-loan provisioning and stricter regulations will contribute to the sector’s health improvement, increasing the availability of financing towards the latter part of the forecast period. Public-sector lenders will still account for most of the total lending, particularly in rural areas.
However, the deteriorating asset quality due to the COVID-19 pandemic suggests that further bank recapitalization will be required, presenting fiscal and political challenges that could hinder banks’ ability to fund private-sector credit growth. Privatization of state-owned banks may alleviate these issues, although progress on sales is expected to be slow in the early part of the forecast period. Priority-sector lending, which aims to achieve socio-developmental objectives, will continue to be a feature of government policy throughout the forecast period, with commercial banks and foreign lenders with over 20 branches in India required to provide 40% of their net credit to specific sectors.
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