Manoj Ladwa on UK-India trade and investment...
Last year saw UK-India trade and investment grow by 20 per cent, bringing the total to £13 billion. This figure is expected to grow to £24 billion by 2015. It is therefore a significant bi-lateral relationship, and provides huge opportunities for UK companies.
India’s laws relating to foreign direct investment, though based on the English legal system, require careful navigation. Manoj Ladwa explores and provides top tips to the key questions that UK companies must consider at the start of their Indian venture.
Are there any restrictions on foreign companies doing business in India?
It used to be the case that virtually every sector of the Indian economy prohibited, or severely restricted, foreign direct investment. Since 1991 the rules have been gradually liberalised to encourage foreign companies to do business in India. Today, 100% foreign direct investment is permitted in most sectors.
In some sectors such as retail, real estate, insurance, banking, defence, and the legal sector there are still caps on foreign ownership.
Top Tip: Check at the outset what, if any, restrictions will apply to your Indian venture.
Can foreign investments be repatriated out of India?
Yes. All foreign investments can be repatriated subject to the completion of a relatively small number of formalities. The methods typically used to take money out of India include dividend payments, royalties for technology, and consultancy fees.
One common pitfall faced by a foreign company is failing to notify the Reserve Bank of India of their investments. Also, there still remain significant restrictions on loans from parent companies (external commercial borrowings).
Top Tip: Establish a clear revenuestream model with the help of yourlegal and tax advisers.
Are there any risks to intellectual property?
There has been a perception that India is a high risk area for intellectual property theft. This is changing.
India is a signatory to various international treaties on intellectual property rights. Furthermore, rights such as trademarks, patents and copyright can be protected through registration. These rights are enforceable through the Indian courts, which, in the event of infringement, can provide interim remedies, such as injunctions, relatively quickly. The courts can also order perpetrators to account for profits generated from their infringement.
Top Tip: Do an audit of intellectual property that may be exposed to the Indian market and, if it’s commercially worth it, take steps to register it in India.
Does India have similar employment rights legislation to the UK?
No. Employment laws, particularly for skilled or so-called “white collar” workers, are in no way as rigorous in letter or in implementation as employment laws in the UK.
There are, however, more stringent rules for manual workers. India has adopted the core labour standards of the ILO relating to the welfare of workers. If your company sets up in a Special Economic Zone, then these laws are further relaxed.
The Indian Contract Act of 1872 regulates the terms and conditions of employment contracts. Thus a more “hire and fire” attitude prevails.
Top Tip: Many Indian companies are adopting best recruitment and retention practice from international organisations.
How effective are Indian courts in resolving disputes?
Though India has a well-established judiciary, litigation can be costly and time-consuming. Changes are being made to speed up litigation, such as the creation of night courts and commercial courts which adjudicate purely on commercial matters. Notwithstanding, the Indian courts are best avoided by foreign investors.
It is important that clear termination clauses are set out and provision made for alternative methods of resolving disputes. Arbitration is increasingly being used. Certain foreign judgements are enforceable in India under section 13 of the Civil Procedure Code.
Top Tip: Avoid Indian courts!