Market Feasibility Study for your India Bound Investment
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Invest in India Opportunities- Market Feasibility Study for your India Bound Investment
We explain the importance of conducting a market feasibility study in India for foreign investors seeking to set up for the first time or expand their business and commercial operations in this dynamic and diverse country.
India’s economic outlook
The latest projections from both the World Bank and the Reserve Bank of India (RBI) further underline the enduring strength of India’s economic trajectory. The World Bank maintains its outlook for India’s GDP to grow at a formidable 6.3 percent for the fiscal year 2023/24. In parallel, India’s central bank echoes this sentiment by projecting a robust 6.5 percent growth rate for FY 2024. In fact, the RBI foresees continued quarterly growth rates in FY 2024-25, narrowing its initial projection range from 5.5-7 percent to 6.3-6.5 percent.
The compelling story of India’s economic growth is further substantiated by its stellar performance in the FY 2022/23, where it achieved an impressive growth rate of 7.2 percent. This achievement positioned India’s growth rate as the second highest among G20 countries, nearly doubling the average for emerging market economies. India continued this momentum into the first quarter of FY 2023/24, with GDP surging by 7.8 percent in the period from April to June, marking a significant improvement from the preceding quarter’s growth of 6.1 percent.
Below we list the factors typically considered in an India market feasibility study:
1. Economic Indicators
Gross State Domestic Product (GSDP) Growth: Analyze the state’s historical and projected GDP growth rates to gauge economic vitality.
Sectoral Contribution: Understand the state’s major industries and their contribution to GDP.
Per Capita Income: Evaluate the average income levels to assess consumer purchasing power.
2. Business Environment
Ease of Doing Business: Assess the state’s ranking in national and global ease-of-doing-business indices.
Regulatory Environment: Examine state-specific regulations, taxation policies, customs bureaucracy, and license and reporting requirements.
Investment Policies: Understand the state’s incentives and support for foreign investors.
3. Infrastructure and Logistics
Transportation: Evaluate the quality of roads, ports, airports, and railways for efficient movement of goods and people.
Land Cost: Evaluate infrastructure and logistics, paying particular attention to land costs, as they play a pivotal role in shaping the economic viability of the project.
4. Incentives and Support
Tax Benefits: Investigate tax incentives, exemptions, and benefits for investors.
Subsidies: Check for government subsidies and grants available for specific industries.
Infrastructure Support: Evaluate state-led infrastructure development initiatives.
5. Risk Assessment
Natural Disaster Risk: Assess susceptibility to natural disasters and the state’s disaster management capabilities.
Political Stability: Consider the state’s political stability and the potential for political disruptions.
Security: Evaluate the state’s security situation, especially if your investment involves sensitive assets.
6. Sustainability and Environmental Compliance
Environmental Regulations: Understand and comply with state-specific environmental regulations.
Sustainability Initiatives: Evaluate the state’s commitment to sustainable practices.
7. Legal Due Diligence
Legal Framework: Understand the state’s legal framework, property rights, and contract enforcement mechanisms.
Dispute Resolution: Familiarize yourself with dispute resolution mechanisms available in the state.
Key drivers of foreign investment in India
Key drivers of foreign investment in India include contemporary factors such as sector-specific production-linked incentive (PLI) schemes, the rapid growth of untapped markets in tier-2 and tier-3 cities, and investment facilitation measures like the National Single-Window System (NSWS). The NSWS simplifies approval and clearance processes for investors, entrepreneurs, and businesses.
Additional factors propelling India’s growth trajectory include high-tech industrial development, the sheer size of its market, and ongoing advancements in the digital and technology ecosystem. Furthermore, strong public investment has driven growth in the construction sector, reflecting India’s commitment to infrastructure development.
Where to invest in India
India comprises 28 states and 8 union territories, each characterized by its unique language, culture, outlook, laws, and regulations. Consequently, businesses should remain cognizant of these distinctions when engaging in trade with or planning investments in India, leveraging the diverse strengths of individual states.
Factors influencing investment decisions within India often revolve around the ease of doing business, encompassing aspects like seeking approvals, navigating regulations, liaising with local customs officials, and consumer market appeal. The latter includes considerations such as market size, spending power, purchasing habits, and the availability of a skilled workforce.
The importance of making state comparisons in your India market entry planning
Comparing states in India is a critical step in the investment decision-making process. It enables investors to make informed choices that align with their business objectives, reduce risks, and maximize opportunities for success in their sector of operation. Different states offer various advantages and disadvantages, depending on your sector of economic activity, goals, and preferences.
Here, we briefly discuss key factors of consideration:
1. Regulatory variations: State governments in India have the authority to create and implement policies and regulations in their jurisdiction, impacting business and economic activity. These include provisions related to taxation, such as tax on agricultural income, professional tax, value-added tax (VAT), state excise duty, land revenue, and stamp duty, as well as labor laws and environmental clearances, among others. These regulations can significantly impact the ease of doing business. Comparing states helps investors understand the regulatory landscape and its implications.
2. Incentives and support: State governments often offer incentives and support to attract investments. These incentives may include tax benefits, subsidies, and preferential treatment for specific industries. Comparing states helps investors evaluate which region provides the most favorable incentives for their business.
3. Risk mitigation: By comparing states, investors can diversify their geographic risk. Investing in multiple states can reduce exposure to regional economic downturns, political instability, or natural disasters.
4. Local partnerships: In some cases, forming partnerships with local businesses or government entities may be necessary. Choosing the right state for investment involves assessing the availability of suitable partners and collaborators
5. Long-term viability: A thorough comparison helps investors assess the long-term viability of their investment. Understanding the stability and growth potential of a state’s economy is essential for making sustainable investments.
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