High Tariffs and Protectionist Policies
When doing business in India, U.S. exporters and investors often encounter non-transparent or unpredictable regulations and tariffs. Likewise, U.S. goods and services in some sectors have limited access to the market. India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among WTO members.
Price Sensitivity
Indian companies and consumers are quite price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians are willing to pay and may need to adjust their pricing models accordingly. For example, some consumer-packaged goods companies make their products in smaller sizes or with fewer features to reflect price sensitivities of Indian customers.
Infrastructure
India has significant infrastructure development needs, and improvements in this sector are vital to the country’s economic growth. India’s roads, railways, seaports, and airports are often congested and inefficient, creating capacity constraints that could stymie future economic growth. Infrastructure projects in India are often delayed, a function of gaps in the regulatory framework and inefficiencies in the project approval process. India has ambitious infrastructure development goals for airports and inland waterways, in part to offset weaknesses in traditional rail and road infrastructure. Intermodal logistics is another focus area addressing first and last mile connectivity. India has devoted a growing portion of its public purse to infrastructure development and plans to execute these initiatives largely through a public-private partnership model. However, projects are often late and over budget.
Power of States
As a federal system, power and decision-making are decentralized in India, with differences at the state level in political leadership, governance quality, regulations, taxation, and labor relations. Indian states generally hold greater power than their U.S. counterparts, while cities hold less. U.S. companies face varying business and economic conditions across India’s 28 states and eight union territories, which should factor into their business plans.
The current government has promoted the idea of “cooperative, competitive federalism,” encouraging states to compete against each other to attract investment. Under the Business Reforms Action Plan (BRAP), the Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade assesses all States and Union Territories on “Ease of Doing Business” and maintains a state-by-state ranking on its website.