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India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms that should help attract private and foreign direct investment (FDI). In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing FDI limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone.  Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities.

India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment.

Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards effectively closed off producers from global supply chains and restricted the expansion in bilateral trade and investment.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank/
Amount
Website Address
TI Corruption Perception Index 2021 85 of 180 https://www.transparency.org/en/countries/india 
Innovation Index 2021 46 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country (Million. USD stock positions) 2020 $41,904 usdia-position-2020.xlsx (live.com) 

 

 

World Bank GNI per capita (USD) 2020 $1,920 https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=
n&zm=n&country=IND
 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities.

According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation.

Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp . While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land.

8. Responsible Business Conduct

Among Indian companies there is a general awareness of standards for responsible business conduct. The MCA administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws, mandating that companies spend an average of two percent of their average net profit of the preceding three fiscal years. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. According to the MCA website, in FY 2020-21, 8,633 companies spent $2.72 billion on more than 25,000 CSR projects across India.

The MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019, to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is neither a member of Extractive Industries Transparency Initiative (EITI), nor a member of the Voluntary Principles on Security and Human Rights.

9. Corruption

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.

Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

The Real Estate (Regulation and Development) Act, 2016, enacted in 2017

The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized

The Companies Act, 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011 may afford some protection once implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was appointed in March 2019.

10. Political and Security Environment

India is a multiparty, federal, parliamentary democracy with a bicameral legislature. The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government. National parliamentary elections are held every five years. Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order. Electors chose President Ram Nath Kovind in 2017 to serve a five-year term. Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returned Modi for a second term as prime minister. Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.

11. Labor Policies and Practices

Although there are more than 20 million unionized workers in India, unions still represent less than five percent of the total work force. Most of these unions are linked to political parties. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port and dock, banking, and insurance sectors. According to provisional figures from the Ministry of Labor and Employment (MOLE), over 672,000 workdays were lost to strikes and lockouts during 2021. Nonetheless, the International Labor Organization and International Monetary Fund both estimate India’s informal economy accounts for over 80 percent of overall employment. Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. Most reported labor problems are the result of workplace disagreements over pay, working conditions, and union representation.

To reduce the number and complexity of India’s previous 29 national labor statutes, address statutory contradictions, improve compliance, and improve labor rights protections by shifting businesses and workers into the formal economy, the parliament consolidated and reformed India’s national labor laws, beginning with passage of the Code on Wages in 2019. During 2020, the parliament passed the Industrial Relations Code; the Occupational Safety, Health and Working Conditions Code; and the Code on Social Security. These laws’ reforms expanded minimum wage and social security coverage to informal sector workers in agriculture and the growing gig economy, raised the threshold for small and medium sized enterprise exemptions from 100 to 300 employees to foster growth of medium sized enterprises and move workers into the formal economy, expanded the authorized use of contract labor, and gave employers greater hiring and firing flexibility. Details of the laws can be accessed at https://labour.gov.in/labour-law-reforms . The new labor laws require adoption by India’s states for full implementation, which remains ongoing.

The Maternity Benefits Act, 1961, as amended in 2017, mandates 26 weeks of paid maternity leave for women. The Act also mandates for all industrial establishments employing 50 or more workers to have a creche for babies to enable nursing mothers to feed the child up to four times in a day.

The Child Labor Act, 1986 establishes a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. The Bonded Labor Act, 1976 prohibits the use of bonded/forced labor.

There are no reliable unemployment statistics for India due to the informal nature of most employment. During the COVID-19 pandemic experts claimed the unemployment rate spiraled as people in the informal sector lost their jobs. The Centre for Monitoring Indian Economy (CMIE) reported that the average unemployment in October-December period of 2021 was around 7.54 percent.

14. Contact for More Information

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000
ingeneripm@state.gov

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