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

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry.

The DPIIT, under the Ministry of Commerce and Industry, is the lead investment agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document that is updated every year. This updated policy compilation can be accessed at: http://dipp.nic.in/foreign-directinvestment/foreigndirectinvestment-policy.  The DPIIT disseminates information about India’s investment climate and, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems. The DPIIT oftentimes consults with lead ministries and stakeholders. However, there have been specific incidences where some relevant stakeholders reported being left out of consultations.

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. However, there are sectors of the economy where the government continues to retain equity limits for foreign capital as well as management and control restrictions. For example, India caps FDI in the Insurance Sector at 74 percent and mandates that insurance companies retain “Indian management and control.” Similarly, India allows up to 100 percent FDI in domestic airlines but has yet to clarify governing substantial ownership and effective control (SOEC) rules. A list of investment caps is accessible in the DPIIT’s consolidated FDI circular at: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy .

The Indian Government has continued to liberalize FDI policies across sectors. Notable changes during 2021 included:

Increasing the FDI cap for the insurance sector to 74 percent from 49 percent, albeit while retaining an “Indian management and control” requirement.

Increased the FDI cap for the pensions sector to 74 percent from 49 percent. The rider of “Indian management and control” is applicable in the pension sector.

Eliminated the FDI cap in the telecom sector. 100 percent FDI allowed for insurance intermediaries.

Eliminated the FDI cap for insurance intermediaries and state-run oil companies.

Increased the FDI cap for defense manufacturing units to 74 percent from 49 percent and up to 100 percent if the investment is approved under the Government Route review process.

Since the abolition of the Foreign Investment Promotion Board (FIPB) in 2017, FDI screening has been progressively liberalized and decentralized. All FDI into India must complete either an “Automatic Route” or “Government Route” review process. FDI in most sectors fall under the Automatic Route, which simply requires a foreign investor to notify India’s central bank, the Reserve Bank of India (RBI), and comply with relevant domestic laws and regulations for that sector. In contrast, investments in specified sensitive sectors – such as defense – require review under the Government Route to obtain the prior approval of the ministry with jurisdiction over the relevant sector along with the concurrence of the DPIIT.

In 2020, India issued Press Note 3 requiring all proposed FDI by nonresident entities located in (or having “beneficial owners” in) countries that share a land border with India to obtain prior approval via the Government Route. This screening requirement applies regardless of the size of the proposed investment or relevant sector. The rule primarily impacted the People’s Republic of China, whose companies had more FDI in India, but other neighboring countries affected include Pakistan, Bangladesh, Nepal, Myanmar, and Bhutan.

A. Third-party investment policy reviews

https://www.oecd.org/economy/india-economic-snapshot/ 

https://www.worldbank.org/en/country/india/overview 

https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

B. Civil society organization reviews of investment policy-related concerns

https://www.ncaer.org/publication_details.php?pID=370 

https://www.orfonline.org/research/jailed-for-doing-business/ 

The DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. The DPIIT also is responsible for the overall industrial policy and facilitating and increasing FDI flows to the country.

However, Invest India  is the government’s lead investment promotion and facilitation agency and is managed in partnership with the DPIIT, state governments, and business chambers. Invest India works with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs (MCA) website: http://www.mca.gov.in/ .

To fast-track the regulatory approval process, particularly for major projects, the government created the digital multi-modal Pro-Active Governance and Timely Implementation (PRAGATI) initiative in 2015. The Prime Minister personally monitors the PRAGATI process, to ensure government entities meet project deadlines. As of September 2021, the Prime Minister had chaired 38 PRAGATI meetings with 297 projects, worth around $200 billion, approved and cleared. In 2014, the government also formed an inter-ministerial committee, led by the DPIIT, to track investment proposals requiring inter-ministerial approvals. Business and government sources report this committee meets informally on an ad hoc basis as they receive reports from companies and business chambers seeking assistance with stalled projects.

According to data from the Ministry of Commerce’s India Brand Equity Foundation (IBEF), outbound investment from India has both increased and changed which countries and sectors it targets. During the last ten years, Overseas Investment Destination (OID) shifted away from resource-rich countries, such as Australia, UAE, and Sudan, toward countries providing higher tax benefits, such as Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest overseas primarily through mergers and acquisitions (M&A) to get direct access to newer and more extensive markets and better technologies and increasingly achieve a global reach. According to RBI data, outward investment from India in 2021 totaled around $29 billion compared with around $30 billion the previous year. The RBI’s recorded total of outward investment includes equity capital, loans, and issuance of guarantees.

3. Legal Regime

Policies pertaining to foreign investments are framed by the DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, India bars foreign investors from engaging in multi-brand retail, which also limits foreign e-Commerce investors to a “market-place model.” On most occasions major rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. However, in some instances the rules have been enacted without any consultative process.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the MCA, which all listed companies must then adopt. These can be accessed at: https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/accounting-standards.html 

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to adjust for Indian law when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy ). The DPIIT issues policy pronouncements on FDI through the Consolidated FDI Policy Circular, Press Notes, and press releases that are also notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act (FEMA), 1999. These notifications take effect from the date of issuance of the Press Notes/Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the RBI.

The government has introduced “Make in India” and “Self-Reliant India” programs that include investment policies designed to promote domestic manufacturing and attract foreign investment. The “Digital India” program aims to open new avenues for the growth of the information technology sector. The “Start-up India” program creates incentives to enable start-ups to become commercially viable and grow. The “Smart Cities” program creates new avenues for industrial technological investment opportunities in select urban areas.

The central government has successfully established independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. India’s antitrust body, the Competition Commission of India (CCI) reviews cases against cartelization and abuse of dominance and is a well-regarded regulator. The CCI’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The CCI conducts capacity-building programs for government officials and businesses.

Tax experts confirm that India does not have domestic expropriation laws in place. The Indian Parliament on August 6, 2021, repealed a 2012 law that authorized retroactive taxation. In first proposing the repeal on August 5, Finance Minister Nirmala Sitharaman committed the government to refund the disputed amounts from outstanding cases under the old law. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in state owned enterprises as part of the FY 2021-22 (March 31-April 1) budget.

India made resolving contract disputes and insolvency easier with the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. The World Bank noted that the IBC introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or are liquidated. The IBC created effective tools for creditors to successfully negotiate and receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar, and the time required for resolving insolvency also was reduced from 4.3 years to 1.6 years. India is now, by far, one of the best performers in South Asia in resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken, and cost of proceedings.

India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law (UNCITRAL) model to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement.

Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). However, Indian firms are known to file lawsuits in domestic courts to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983. In 2021, Amazon received an interim award against Future Retail from the Singapore International Arbitration Centre. However, Future Retail has refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although this remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.

In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government approved amendments that would allow Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions of the High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.

Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Law. In cases that involve constitutional or criminal law, traditional litigation remains necessary.

The introduction and implementation of the IBC in 2016 overhauled of the previous framework for insolvency with much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank, the time required for resolving insolvency was reduced significantly from 4.3 years to 1.6 years after implementation of the IBC. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.

In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. The Finance Minister announced in her February 2021 budget speech to Parliament plans to establish the National Asset Reconstruction Company Limited (NARCL), or “bad bank” to resolve large cases of corporate stress. In October 2021, the RBI approved the license to set up the NARCL.

On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular to introduce new environment, social, and governance (ESG) reporting requirements for the top 1,000 listed companies by market capitalization. According to this circular, new disclosure will be made in the format of the Business Responsibility and Sustainability Report (BRSR), which is a notable departure from SEBI’s existing Business Responsibility Report and a significant step toward bringing sustainability reporting up to existing financial reporting standards. BRSR reporting will be voluntary for FY 2021-22 and mandatory from FY 2022-23 for the top 1,000 listed companies by market capitalization. This is to provide companies subject to these requirements with sufficient time to adapt to the new requirements.

4. Industrial Policies

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the government opened new sectors for foreign direct investment, increased the investment limit of existing sectors, and simplified other conditions of the FDI policy. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. Details can be accessed at- https://www.investindia.gov.in/production-linked-incentives-schemes-india 

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). According to the Ministry of Commerce and Industry, as of February 2022, 425 SEZ’s have been approved and 376 SEZs were operational with 5,604 operating units. The SEZs are treated as foreign territory, and businesses operating within the zones are not subject to customs regulations, FDI equity caps, or industrial licensing requirements and enjoy tax holidays and other tax breaks. Since 2018, the Indian government also announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and led by a government official. So far, three NIMZs have received “final approval” and 13 more have received “in-principal approval.” In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted duty-free import of intermediate goods; income tax holidays; exemption from excise tax on capital goods, components, and raw materials; and a waiver on sales taxes. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,  

https://www.stpi.in/  

http://www.fisme.org.in/export_schemes/DOCS/B- 

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The Indian government does issue guarantees to investments but only for strategic industries.

The government has an ambitious target of installing 500 gigawatts of renewable energy (RE) by 2030 and has introduced several schemes and policies  supporting clean energy deployment. State governments used to provide feed-in tariffs during the initial stages of RE development. However, with the RE sector becoming competitive, the scheme was discontinued in 2016. Most projects now are awarded through a Tariff Based Competitive Bidding Process . The Ministry of New & Renewable Energy (MNRE) provides ‘ Must Run ’ status to RE projects. MNRE offers Production Linked Incentives (PLI) under the National Program on High Efficiency Solar PV Modules. The PLI scheme was initially offered for just under $617 million and was oversubscribed. Under the FY 2022-23 budget, it was expanded by another $2.6 billion. The Ministry of Heavy Industry (MHI) launched the National Electric Mobility Mission to provide a roadmap for the faster adoption of electric vehicles. Can be accessed at https://policy.asiapacificenergy.org/sites/default/files/National%20Electric%20Mobility%20Mission%20Plan%202020.pdf . MHI also launched a PLI scheme National Program on Advance Chemistry Cell (ACC) Battery Storage  to promote battery manufacturing. The Department of Science & Technology leads Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub. Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub.

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. The government and SOEs give a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

  1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
  2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
  3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers, or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
    1. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
    2. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
    3. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
  4. The current guidelines establish a ceiling on fees linked with the compliance procedure. There would be a complaint fee of roughly $3,000, or one percent of the value of the domestically manufactured electronic product being procured, subject to a maximum of about $7,500, whichever is higher.In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma 

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. The RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. In 2021, the RBI banned American Express, Diners Club, and Mastercard from issuing new cards for non-compliance with the data localization rule. In November 2021, the RBI deemed Diners Club compliant and permitted them to resume issuing new cards, but the ban on Mastercard and American Express continues.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. The implementation of a New Information Technology Rule through Intermediary Guidelines and a Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled.

5. Protection of Property Rights

In India, a registered sales deed does not confer title of land ownership and is merely a record of the sales transaction that only confers presumptive ownership and can still be disputed. Instead, the title is established through a chain of historical transfer documents that originate from the land’s original established owner. Accordingly, before purchasing land, buyers should examine all the documents that establish title from the original owner. Many owners, particularly in urban areas, do not have access to the necessary chain of documents. This increases uncertainty and risks in land transactions.

Several cities, including Delhi, Kolkata, Mumbai, and Chennai, have grown according to a master plan registered with the central government’s Ministry of Urban Development. Property rights are generally well-enforced in such places, and district magistrates – normally senior local government officials – notify land and property registrations. Banks and financial institutions provide mortgages and liens against such registered property.

In other urban areas, and in areas where illegal settlements have been established, titling often remains unclear. The government launched the National Land Records Modernization Program (NLRMP) in 2008 to clarify land records and provide landholders with legal titles. The program requires the government to survey an area of approximately 2.16 million square miles, including over 430 million rural households, 55 million urban households, and 430 million land records. Initially scheduled for completion in 2016, the program is now scheduled to conclude in 2021.

Although land title falls under the jurisdiction of state governments, both the Indian Parliament and state legislatures can make laws governing “acquisition and requisitioning of property.” Land acquisition in India is governed by the Land Acquisition Act (2013), which entered into force in 2014, and continues to be a complicated process due to the lack of an effective legal framework. Land sales require adequate compensation, resettlement of displaced citizens, and 70 percent approval from landowners. The displacement of poorer citizens is politically challenging for local governments.

Foreign and domestic private entities are permitted to establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices, and liaison offices, subject to certain sector-specific restrictions. The government does not permit FDI in real estate, other than company property used to conduct business and for the development of most types of new commercial and residential properties. Foreign Institutional Investors (FIIs) can invest in initial public offerings (IPOs) of companies engaged in real estate. They can also participate in pre-IPO placements undertaken by real estate companies without regard to FDI restrictions.

Businesses that intend to build facilities on land they own are also required to take the following steps: 1) register the land and seek land use permission if the industry is located outside an industrially zoned area; 2) obtain environmental site approval; 3) seek authorization for electricity and financing; and 4) obtain appropriate approvals for construction plans from the respective state and municipal authorities. Promoters must also obtain industry-specific environmental approvals in compliance with the Water and Air Pollution Control Acts. Petrochemical complexes, petroleum refineries, thermal power plants, bulk drug makers, and manufacturers of fertilizers, dyes, and paper, among others, must also obtain clearance from the Ministry of Environment and Forests.

The Real Estate Act, 2016 aims to protect the rights and interests of consumers and promote uniformity and standardization of business practices and transactions in the real estate sector. Details are available at: http://mohua.gov.in/cms/TheRealEstateAct2016.php 

The Foreign Exchange Management Regulations and the Foreign Exchange Management Act set forth the rules that allow foreign entities to own immoveable property in India and convert foreign currencies for the purposes of investing in India. These regulations can be found at: https://www.rbi.org.in/scripts/Fema.aspx . Foreign investors operating under the Automatic Route are allowed the same rights as an Indian citizen for the purchase of immovable property in India in connection with an approved business activity.

Traditional land use rights, including communal rights to forests, pastures, and agricultural land, are protected according to various laws, depending on the land category and community residing on it. Relevant legislation includes the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, the Tribal Rights Act, and the Tribal Land Act.

India remained on the Priority Watch List in the USTR Office’s 2022 Special 301 Report due to concerns over weak intellectual property (IP) protection and enforcement. The 2022 Review of Notorious Markets for Counterfeiting and Piracy includes physical and online marketplaces located in or connected to India.

In the field of copyright, procedural hurdles, cumbersome policies, and ineffective enforcement continue to remain concerns. In February 2019, the Cinematograph (Amendment) Bill, 2019, which would criminalize illicit camcording of films, was tabled in the Parliament and remains pending. In June 2021, the Ministry of Information and Broadcasting sought public comments on the Draft Cinematograph (Amendment) Bill, 2021. While the draft Bill proposes to enhance the penalties against piracy envisaged in the earlier 2019 bill, it also creates new concerns for the right holders by exempting all exceptions to copyright infringement covered by Section 52 of the India Copyright Act. The expansive granting of licenses under Chapter VI of the Indian Copyright Act and overly broad exceptions for certain uses have raised concerns regarding the strength of copyright protection and complicated the market for music licensing. In April 2021, India abolished the Intellectual Property Appellate Board (IPAB) and transferred its duties to the High Courts and Commercial Courts, creating uncertainties throughout the IP landscape, including raising concerns regarding the efficient adjudication of contentious IP matters. In addition, the abolishment left open how certain IP royalties will be set, collected, and distributed across the country.

In August 2021, the DPIIT issued a notice requesting stakeholder comments on the recommendation of the July 2021 Department Related Parliamentary Standing Committee on Commerce (DRPSCC) Report to amend Section 31D of the Indian Copyright Act to extend statutory licensing to “internet or digital broadcasters.” The recommendation broadens the scope of statutory licensing to encompass not only radio and television broadcasting, but also online transmissions, despite a High Court ruling earlier in 2019 that held that statutory broadcast licensing does not include online transmissions. If implemented to permit statutory licensing for interactive transmissions, the DRPSCC Report’s recommendation would not only have severe implications for rights holders who make their content available online, but also raise serious concerns about India’s compliance with relevant international obligations.

In the field of patents, the potential threat of compulsory licenses and patent revocations, and the narrow patentability criteria under the Indian Patents Act, burden companies across industry sectors. Patent applications continue to face expensive and time consuming pre- and post-grant oppositions and excessive reporting requirements. In October 2020, India issued a revised “Statement of Working of Patents” (Form 27), required annually by patentees. While some stakeholders have welcomed the revised version of Form 27, concerns remain as to whether the requirement and its associated penalties suppress innovation, and whether Indian authorities will treat as confidential the sensitive business information that parties are required to disclose on the form.

India has made some progress on certain administrative decisions in past years, upholding patent rights, and developing specific tools and remedies to support the rights of a patent holder. Nonetheless, concerns remain over revocations and other challenges to patents, especially patents for agriculture, biotechnology, and pharmaceutical products. In addition to India’s application of its compulsory licensing law, the Indian Supreme Court in 2013 interpreted Section 3(d) of India’s Patent Law, as creating a “second tier of qualifying standards for patenting chemical substances and pharmaceuticals.”

India currently lacks an effective system for protecting against unfair commercial use, as well as unauthorized disclosure, of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical and agricultural products. Investors have raised concerns with respect to allegedly infringing pharmaceuticals being marketed without advance notice or adequate time or opportunity for parties to achieve early resolution of potential IP disputes.

U.S. and Indian companies have advocated for eliminating gaps in India’s trade secrets regime, such as through the adoption of legislation that would specifically address the protection of trade secrets. While India’s National Intellectual Property Rights Policy called in 2016 for trade secrets to serve as an “important area of study for future policy development,” this work has not yet been prioritized.

India issued a revised Manual of Patent Office Practice and Procedure in November 2019 that requires patent examiners to look to the World Intellectual Property Organization’s Centralized Access to Search and Examination (CASE) system and Digital Access Service (DAS) to find prior art and other information filed by patent applicants in other jurisdictions.

Other recent developments include India’s steps toward reducing delays and examination backlogs for patent and trademark applications. In addition, India actively promotes IP awareness and commercialization throughout India through the Cell for IPR Promotion and Management (CIPAM), a professional body under the aegis of the DPIIT, and through the Innovation Cell of the Ministry of Education. Following the IPAB’s abolition in July 2021, the Delhi High Court created an Intellectual Property Division (IPD) to deal with all matters related to Intellectual Property Rights (IPR), including those previously covered by the IPAB.

In July 2021, DRPSCC issued a report on “Review of the Intellectual Property Rights Regime in India” that is largely based on a premise that stronger protection and enforcement of IP would lead to better economic and social development in the country. The report makes many positive recommendations and emphasizes that India’s IP regime should comply with “International agreements, rules and norms” and be compatible with other nations and foreign entities. Some of the DRPSCC’s recommendations are problematic and raise serious concern from the perspective of U.S. innovators and creators, such as those relating to statutory licensing for “internet or digital broadcasters” under copyright law, and compulsory licensing under patent law.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
email: john.cabeca@trade.gov
website: https://www.uspto.gov/ip-policy/ip-attache-program 
tel: +91-11-2347-2000

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Indian stocks experienced significant losses at the start of 2021, stemming from the effects of the COVID-19 pandemic on the economy. By midyear, markets began to recover, with India’s stock benchmarks reaching record highs and becoming among the top performers globally. Indian companies raised a combined $15.57 billion through 121 IPOs in 2021, the highest amount ever raised in a single calendar year compared with the previous high of $8.4 billion in 2017.

Foreign investment inflows drove markets higher through February 2021. However, these investments began exiting the market when faced with the potential for faster-than-expected withdrawal of monetary stimulus and the Delta variant of COVID-19. Domestic institutional investors compensated outflows of foreign investment through significant investment in Indian stocks. Foreign investors’ net investment in 2021 was about $7 billion, significantly lower than the $14.5 billion in 2020 and $19 billion in 2019. Domestic investors put about $12.5 billion in 2021 into Indian domestic equity markets. Indian investors opened 27.4 million new stock trading accounts in 2021, up from 10.5 million accounts opened in 2020.

The SEBI is considered one of the most progressive and well-run of India’s regulatory bodies.  The SEBI regulates India’s securities markets, including enforcement activities and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC).  The Board oversees seven exchanges: BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), the Metropolitan Stock Exchange, the Calcutta Stock Exchange, the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the Indian Commodity Exchange.

Foreign venture capital investors (FVCIs) must register with the SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, as well as FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure.

Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank was the only foreign entity to list in India but delisted in June 2020. Experts attribute the lack of interest in IDRs to initial entry barriers, lack of clarity on conversion of the IDRs holdings into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product.

External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510 

According to RBI data, ECB by corporations and non-banking financial companies reached $38.8 billion in 2021. Companies have been increasingly tapping overseas markets for funds to take advantage of low interest rates in global markets. On December 8, 2021, the RBI announced a switch in calculation of interest rates for ECB and trade credits from the London Interbank Offered Rate (LIBOR) to alternative reference rates (ARRs).

The RBI has taken several steps in the past few years to bring the activities of the offshore Indian rupee (INR) market in Non-Deliverable Forwards (NDF) onshore, with the goal of deepening domestic markets, enhancing downstream benefits, and obviating the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds.

The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians. The RBI has stated that trading on INR derivatives would be allowed and settled in foreign currencies in International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in IFSCs to participate in the NDF. With the INR trading volume in the offshore market higher than the onshore market, the RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the INR. In August 2021, the RBI released a working paper  discussing the influence of offshore markets on onshore markets.

The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) is being developed to compete with global financial hubs. In January 2016, BSE Ltd. was the first exchange to start operations there. The NSE, domestic banks, and foreign banks have also started IFSC banking units in GIFT city. As part of its FY 2021-22 budget proposal, the government recommended establishing an international arbitration center in GIFT City to help facilitate faster resolution of commercial disputes, akin to the operation of the Singapore International Arbitration Centre (SIAC) or London Commercial Arbitration Centre (LCAC).

The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks in total loans and advances has fallen sharply in the last five years (from 70.84 percent in FY 2015-16 to 58.68 percent in FY 2021-22), primarily driven by stressed balance sheets and non-performing loans. In recent years, several new licenses were granted to private financial entities, including two new universal bank licenses and 10 small finance bank licenses. The government announced plans in 2021 to privatize two PSBs. This followed Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of PSBs from 18 to 12. However, the government has yet to introduce the necessary legislation needed to privatize PSBs. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities.

PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2021, gross non-performing loans represented 6.9 percent of total loans in the banking system, with the PSBs having a larger share of 8.8 percent of their loan portfolio. The government announced its intention to set up the NARCL and India Debt Resolution Company Limited (IDRCL) to take over legacy stressed assets from bank balance sheets. With the IBC in place, banks are making progress in non-performing asset recognition and resolution.

To address asset quality challenges faced by public sector banks, the government has injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Bank mergers and capital raising from the market, improved public sector banks’ total capital adequacy ratio (CAR) from 13.5 percent in September 2020 to 16.6 percent in September 2021.

Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming toward women as customers. International Finance Corporation (IFC) analysts have described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion.

The government-affiliated think tank NITI-Aayog provides information on networking, mentorship, and financing to more than 25,000 members via its Women Entrepreneurship Platform (WEP), launched in March 2018. The government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 2, 2022, 249 million women comprised 55 percent of the program’s 448 million beneficiaries. In 2015, the government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 to non-corporate, non-farm small and micro enterprises. As of October 29, 2021, 215 million loans have been extended to women borrowers.

In FY 2016, the Indian government established the National Infrastructure Investment Fund (NIIF), India’s first sovereign wealth fund, to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, with an additional $3 billion raised from the private sector primarily from foreign sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. Currently, the NIIF manages over $4.3 billion in assets through its funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure.

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.

The government has not generally privatized its assets but instead adopted a gradual disinvestment policy that dilutes government stakes in SOEs without sacrificing control. However as announced in the FY 2021-22 budget, the government has recommitted to the process of privatization of loss-making SOEs with an ambitious disinvestment target of $24 billion. In addition to completing the privatization of national carrier Air India in early 2022, the government has prioritized privatizing the Bharat Petroleum Corporation Limited and reducing its shares in the state-owned Life Insurance Corporation (LIC). Details about the privatization program can be accessed at the Ministry of Finance site for Disinvestment ( https://dipam.gov.in/ ).

FIIs can participate in these disinvestment programs. Earlier limits for foreign investors were 24 percent of the paid-up capital of the Indian company and 10 percent for non-resident Indians and persons of Indian origin. The limit is 20 percent of the paid-up capital in the case of public sector banks. There is no bidding process. The shares of the SOEs being disinvested are sold in the open market.

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.

Department of State

Department of the Treasury

Department of Labor

The Government of India launched the National Action Plan on Climate Change (NAPCC) on June 30, 2008, outlining eight “National Missions: on climate change. These include:

  1. National Solar Mission
  2. National Mission for Enhanced Energy Efficiency
  3. National Mission on Sustainable Habitat
  4. National Water Mission
  5. National Mission for Sustaining the Himalayan Eco-system
  6. National Mission for a Green India
  7. National Mission for Sustainable Agriculture
  8. National Mission on Strategic Knowledge for Climate Change

In addition, India has the Biological Diversity Act 2002 that focuses on the conservation of biological resources, managing its sustainable use, and enabling the fair and equitable sharing of benefits arising out of the use and knowledge of biological resources with the local communities. The Act has a three-tier structure to regulate access to biological resources:

The National Biodiversity Authority (NBA)

The State Biodiversity Boards (SBBs)

The Biodiversity Management Committees (BMCs) (at local level)

India does not yet have a system of ecosystem services, but the government is currently discussing within its interagency and with outside stakeholders the value of developing a strategy for ecosystem services.

During the CoP 26 in Glasgow, Prime Minister Modi announced that India planned to reach net-zero carbon emissions by 2070. The government is now developing a strategy and a detailed plan to achieve that goal.

The government has regulatory systems in place that include pollution standards, biodiversity off-sets through compensatory forestation, and a forest policy and wildlife management plans with numerous national parks and wildlife sanctuaries that protect forests and biodiversity. At CoP 26 Prime Minister Modi called for making LIFE – Lifestyle for Environment – a global movement that advances sustainable lifestyles as a part of addressing the climate crisis.

While there is no sustainable public procurement law in India, the General Financial Rules (GFR) 2017 contain provisions that allow purchasing authorities to include environmental criteria when making procurements. Ministry of Finance procurement manuals also emphasize this ability. Various public sector entities and some government departments have started considering environmental and energy efficiency criteria in their procurement decisions. In addition, the government constituted a taskforce on sustainable public procurement in 2018 with the mandate to:

Review international best practices in Sustainable Public Procurement (SPP)

Identify the current status of SPP in India across Government organizations

Prepare a draft Sustainable Procurement Action Plan

Recommend an initial set of product/service categories (along with their specifications) where SPP can be implemented

However, the government has not yet developed a sustainable procurement action plan or policy mandating sustainable public procurement.

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.

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Indian chapter of Transparency International was closed in 2019.

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

Mr. Suresh Patel
Central Vigilance Commissioner
Satarkta Bhavan , Block-A
GPO Complex, INA New Delhi – 110 023
Ph: +91-11- 24651020
www.cvc.gov.in 

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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The Lessons of 1989: Freedom and Our Future