Costs of Doing Business in India

The unique commercial and political history of the country and the liberalization of its economy since 1991 have shaped the costs of doing business in India in a way that can confuse American executives.

In many industries the cost of doing business in India as it related to automobile and property insurance, to legal expenses, to product liability and to workers compensation can be dramatically lower. Medical insurance and health benefits don’t drain employers as they do in the United States. The cost of factory workers and often the cost of industrial land can be remarkably lower than in the West.

But executives are often surprised by many high costs of doing business in India. Annual compensation at senior and middle levels often matches developed country salaries. Noncash benefits such as car, driver and housing allowances are not unusual. For junior employees in many industries, subsidized or free transportation and meals are often provided by the employer.

In the cities, land is in short supply and rents for offices as well as for apartments can seem astronomical. Top quality housing and hotels for Western executives in prime locations is premium priced.

Compared to most other countries the cost of taxes and duties is higher in India.  Utility costs can also be higher: India imports most of its gas and oil. Electricity costs are higher and most factories and offices require backup power in the form of diesel-fired generators as well as battery backups.

While road and rail transportation is improving, your relative cost of transport logistics may be higher than other countries.   Distributing products for sale in India can be much more complex than in the West. Multiple channels and multiple layers are common; while each layer may be relatively inexpensive their cumulative effect on costs can be substantial.

When travelling to India, hiring a chauffeur driven car or a nice taxi for the day won’t dent the budget of most overseas travelers.

Perhaps a less immediately visible cost of doing business in India is the implied cost of uncertainty, delays and occasional corruption and fraud. In 2012, 56 percent of the foreign companies operating in India felt that business in India can be conducted without paying bribes.

Amritt’s advisors can help you be wary of improper offers while anticipating and planning for reasonable delays and avoiding paths with higher uncertainty.

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