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Starting a Business in India With No Money as a Foreigner – A Complete Guide

Are you interested in starting a business in India with NO money? If YES, here is a complete guide plus legal formalities for starting a business in India as a foreigner.

Okay, having provided an in-depth analysis of the top 50 best small business ideas in India and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in India. So put on your entrepreneurial hat and let’s proceed.

Why Start a Business in India?

If you are mulling over where to start a business, look no further than India. If for nothing else, do so because of its large youth based population. According to IMF, India is one of the emerging economies leading the world output by 5.9% which is double of that of the United States at 2.5%. Also, due to a Banking Laws Amendment law passed in 2012, capital is more available for willing entrepreneurs.

In terms of GDP, India is seventh in the world and third in PPP. It also has the largest growing economy, which has attracted several global enterprises. India’s growing economy affords investors not only a large young population but also a strong export sector. India’s potential consumer base is more than that of most developed and developing nations. The median age in India is 25.1 which is better when compared to that of the United States that is 36.9.

Any entrepreneur looking to start business in India will have an edge over his counterparts in other countries especially as India has a large untapped market that is worth $1.2 trillion in the consumer sector. With this knowledge, you shouldn’t hesitate to start off that business you intend to in India, as you might just strike gold.

Starting a Business in India With No Money as a Foreigner – A Complete Guide

  • General Overview

According to the economic survey by the Central Statistics Organization (CSO) and International Monetary Fund (IMF) in 2015 – 2016, India has the fastest growing major economy in the world and is also expected to grow more than 7% between 2016 and 2017.

As at 2015, India was ranked the highest globally in terms of consumer confidence, by a global consumer confidence index created by Nielsen. The growth in India is regardless of the economic certainties happening in the global market. From 2018, India’s economy is expected to grow at 8% or more.

Foreign Direct Investment (FDI) increased by 29% from October 2014 to December 2015. Steps taken by the Indian government has reflected positively in the country’s GDP which saw a growth rate of 7.6%. Sectors of the economy that saw a significant growth included insurance, financing, business services, and real estate. According to a report by Goldman Sachs in 2015, India’s growth potential was pegged at 8% from between 2016 to 2020, if there are greater accesses to banks, technology adoption, as well as urban and structural reforms.

The Indian government has prioritized sustainability as parts of its efforts to ensure that India’s development is not only maintained but continues at a pace as well. This is being achieved by an encouragement in education, skill development, digital connectivity as well as skill development.

Facts and Figures of India that Will Interest You as an Investor/Entrepreneur

India has been touted to become the third-largest economy of the world by 2030 due to the fact that India possesses democracy, demography, as well as demand. India also has the world’s largest population of youth; these are various reasons why India is the place to be for businesses. Here are some good facts and figures for you;

  • In terms of Gross Domestic Product (GDP), India is the seventh largest, while it takes the third position in terms of Purchasing Power Parity (PPP)
  • India is one of the fastest growing economies in the world.
  • India has become the leading center for disruptive innovation as well as cutting edge technology.
  • Out of all Southern Asian economies, India is the best as regards getting credit. It also ranks 23rd in the world, according to the World Bank as well as the International Finance Corporation.
  • India’s economic liberation provides investors with more access to its vast and varied market.

Factors or Incentives Encouraging Investors to Venture into Business in India

India has several encouraging factors that are attractive to investors especially as it is in the threshold of major reforms. There are several incentives that attract investors India and they are;

  • Demographic advantage
  • Strong technical and engineering capabilities
  • Low cost of manpower
  • R&D incentives
  • Export incentives
  • Strong consumerism
  • Sustainable quality workforce
  • Reduced corporate tax rate from 30% to 25%

Starting a Business in India With No Money – Market Feasibility Research

Before starting your business in India, it is imperative that you carry out a market feasibility research. This is an essential investigation that helps you to assess the different business options available to you, which will later help transform your idea into a profitable reality. It is necessary that you are thorough about your market feasibility research, as accuracy will determine the success or otherwise of your business.

India has a constitutional set up and there is a high degree of devolution to the states which include key issues such as resource sharing, land acquisition, and law and order. It presently has 29 states, one quasi state, and six union territories that is directly administered by the center.

Due to the global crises, India has had its fair shares of downturn especially as an emerging economy. However, even when the global recession was high, India’s growth wasn’t affected that much, falling to 6.7%, however in 2013 and 14 growth slowed to 4.7%.

India will need to maximize its demographic dividend especially as half of its population is under the 25 years age range. This means India has to improve on raising not only public but private investment in infrastructure, improving delivery of public services, such as education, skills and health so as to make itself more attractive to investment.

10 Well Known Foreign Brands Doing Business in India

Over the years, these foreign brands in India have not only become popular, they have been firmly rooted in the minds of Indians as brands that can be trusted. Here is a list of 10 well known foreign brands in India;

  • Vicks (Proctor & Gamble) – America
  • Ponds, Lifebuoy (Unilever)
  • Maggi Noodles, Nescafe (Nestle) – Switzerland
  • Bata – Czech
  • Colgate (Colgate-Palmolive) – America
  • Horlicks (GlaxoSmithKline) – Britain
  • Nokia – Finland
  • Cadbury (Mondelez International)
  • Johnson Baby (Johnson & Johnson) – America
  • Adidas – America

List of 10 Well Known Indigenous Entrepreneurs in India

The existence of foreign entrepreneurs in no way means that there aren’t successful indigenous entrepreneurs in India as well. Every indigenous entrepreneur always have to compete with foreign brands, so to then become successful and popular means a lot of hard work was done.

Here is a list of popular indigenous entrepreneurs in India;

  • Dhirubhai Ambani – Reliance Industries
  • Jehangir Ratanji Dadabhoy Tata – TATA Group
  • Nagavara Ramarao Narayana Murthy – Infosys
  • Azim Premji – Wipro Industries
  • Lakshmi Niwas Mittal – ArcelorMittal
  • Ghanshyam das Birla – Birla Group
  • Dilip Shanghvi – Sun Pharmaceuticals
  • Mukesh Micky Jagtiani – Landmark
  • Shiv Nadar – HCL Infosystems
  • Ardeshir Godrej – Godrej Group

List of 10 Most Popular Indigenous Entrepreneurs/Business Owners

The Indians are a very entrepreneurial bunch with big brands that one would never have thought were indigenous to the country especially as most of the indigenous brands have foreign sounding names. Most of the big brands that are indigenous to India have successfully become rooted in other countries as well. Here are 10 most popular indigenous businesses in India;

  • Jaguar Cars
  • Amrut Single Malt
  • East India Company
  • Allen Solly
  • HiDesign
  • Monte Carlo
  • Louis Philippe
  • American Swan
  • Peter England
  • Franco Leone

Top 5 Best Cities to Do Business in India

India has one of the fastest growing economies in the world with cutting edge technology as well as disruptive innovation. If your aim is to start a business in India, then you should be guided on the best cities in which will give your business the success it deserves. Here is a list of top 5 best cities to do business in India;

  • Bengaluru
  • Gurgaon, National Capital Region near New Delhi
  • Hyderabad
  • Delhi
  • Mumbai

Economic Analysis

Carrying out an economic analysis is vital as it ensures that as entrepreneur, you look at all the aspects that are likely to affect your business. This economic analysis will give you an idea of how well your business might boom. This also allows you to know if your business idea should remain just that or become a reality.

India has always relied on service exports, remittances as well as foreign capital to bridge the gap as well as build its foreign exchange reserve. India has also diversified its export markets through regional Free Trade Agreements and is currently undergoing negotiations with the European Union. The World Bank’s Ease of Doing Business index ranks India 142 out of 183; which is due to factors such as taxation, infrastructure and bureaucracy, corruption, and bureaucracy.

India has got a considerable wealth in natural resources which include coal, iron, and petroleum reserves. However, even with the abundance of these natural resources, there haven’t been sustainable policies to harness the resources for economic growth. Experts have attributed the fall of the GDP growth to the sluggish growth of the natural resource sector.

Possible Threats and Challenges You will Face When Starting a Business in India

India might be a vast country with enormous economic potential; this however does not mean that businesses in the country aren’t plagued with challenges and threats. Here are some challenges to face when you do business there;

  • High cost of starting a business
  • Poor electricity
  • Lack of protection for investors especially in enforcing contracts
  • High tax rate
  • Cultural barriers
  • Legal complexities of international business
  • Multiculturalism
  • Terrorism threat
  • Bribery and corruption
  • Organized crime

Starting a Business in India as a Foreigner – Legal Aspect

  • Business Licenses and Permits You Need to Start a Business in India

Business licenses and permits are authorizations usually issued by government agencies so that businesses could conduct their businesses legally. This doesn’t mean that only new businesses require business licenses, as even already established businesses need to renew theirs from time to time. They include the following;

  • Service Tax Registration – Tax on certain services, costs Rs. 7,500
  • Permanent Account Number (PAN) Card – 10 digit number that is used on return of income, costs Rs. 1,000
  • Tax Collection & Deduction Account Number (TAN) – Another 10 digit number to be quoted for tax purposes, costs Rs. 2,000
  • VAT/CST Registration – VAT is applicable to intra-state sales, while CST is applicable to inter-state sales. This costs Rs. 12,500
  • Shops & Establishment License – Costs about Rs. 7,500 and helps the state government provide relief to unorganized sector employees.
  • Central Excise License
  • Importer Exporter Code – This is a 10 digit code that is issued to businesses to enable them engage in international trade, costs Rs. 7,500
  • Professional Tax – Levied by the state government and usually costs Rs. 10,000
  • Employee State Insurance (ESI) Registration – Provides medical benefits to employees of factories and other commercial establishment whose wages fall under a specified ceiling. This costs Rs. 25,000
  • Employee Provident Fund Registration – Created and managed by the Central Government Trust, and has both employers and employees contributing a certain amount each month throughout the tenure of the employee. This costs Rs. 25,000

The Best Legal Entity to Use in India?

Choosing a business entity is very important when intending to start your own business in India. There are different entities available for those intending to conduct business in India. You would need to carefully study the entities available and pick which will likely be the best for your business. Here is a list of entities to guide you;

  • Sole Proprietorship

This is the easiest form of legal entity as you would not be required to get a Permanent Account Number (PAN) for the business, as your personal PAN can be used. Also, you are required to register with various government departments on a need basis only. Business owners under this legal entity have unlimited business liability, which means that personal assets can be used to meet business liability claims.

  • Partnership Firm

A partnership firm can be owned by 2 to 20 people. The partnership has no legal standing and has a separate PAN from that of the members. Assets can be purchased by the legal entity but the owners of the asset are the partners of the firm.

A partnership firm is not required to register with the Registrar of Firms (ROF), although registering with the ROF ensures that the partnership deed is treated as a legal document, thereby offering some legal protection to partners should there be any differences between them.

  • Limited Liability Partnership

This is a new legal entity that has been established by the Act of Parliament. It allows members to gain a form of flexibility that is similar to that of a Partnership firm, but also provides a liability protection. The LLP has its own PAN and also a legal standing. Partnerships, Private and Public Limited Companies can convert to LLP.

  • Private Limited Company

This is similar to the C-Corporation in the United States. It is separate legal entity both in taxation and liability. The company name must be registered with the appropriate Registrar of Companies (ROC). Winding down this type of entity is usually tedious and requires several months.

  • Public Limited Company

It is similar to a Private Limited Company but has provision for unlimited owners. It can either be listed in a stock exchange or remain unlisted. This is also an independent legal entity from its owners.

List of Legal Documents You Need to Run a Business in India

The legal documents needed to start a business in India might vary depending on what state you intend to launch the business in. Also, the kind of business you intend to run might require more or less registrations, compliance and certifications. Here are some of the documents that you will need;

  • Certificate of Incorporation
  • Business Plan
  • Director Identification Number (DIN)
  • Insurance Policy
  • Digital Signature Certificate (DSC)
  • Memorandum and Articles of Association
  • Permanent Account Number (PAN)
  • Business License
  • Tax Deduction Account Number (TAN)
  • Value Added tax
  • Professional Tax
  • Service Tax

List of Government Agencies and Parastatals in-charge of Registering businesses and Issuing Licenses and Permits in India

In different countries of the world, there are various licensing bodies. India has a tedious registration process that is overseen by different government agencies. Here is a brief list;

  • Ministry of Corporate Affairs-: They are in charge of regulating corporate affairs in India through the Companies Act and other allied Acts, Bills and Rules.
  • Registrar of Companies-: The Registrar of Companies in India is the official agency that carries out the administration of Companies Act. It is through them you can check if a company name is registered already.
  • Income Tax Department-: It ensures that tax is collected on income and checked via PAN card.
  • Professional Tax Office-: This is a tax levy by the state government.
  • Employees Provident Fund organization-: This is created and managed by the Central Government Trust, and oversees the contributions of both employers and employees towards a purse for the well being of the employee throughout his tenure with the business.
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