One of the largest foreign investments in a Greenfield setup in India was witnessed by Andhra Pradesh recently, when Indonesian paper giant, Asia Pulp & Paper, pledged $3.5 billion to building one of the biggest paper mills in the world. FDI investments into India continue to grow at an impressive rate. And a significant chunk of them are being dedicated to Greenfield projects. But setting up a new facility in India is filled with challenges of its own.
The purpose behind setting up a Greenfield facility in India, is to produce the goods cost effectively as well as to overcome the constraints imposed by previous infrastructure. But if you’re building from scratch you also expose yourself to the risk of delay. This delay could be caused by time-consuming regulatory procedures and governmental approvals. It could also be caused by issues in acquiring location, hiring the right management team, or understanding the nuances of local project markets. Compliance requirements need decision-making right from the stage of market entry.
Incorporating Your Company
There are multiple modes of entry to the Indian market. From limited companies to Joint Ventures, project, branch or liaison offices, your choice of business form affects the scale of your operations. Creating each of these business forms involves different legal requirements. If you’re setting up a company, you must register it with the Registrar of Companies and obtain a Certificate of Incorporation.
Because some company types have limited capabilities you may need the assistance of professional management consultants. Once you’ve settled upon the type of company, the next step is to acquire land for building your facility.
Acquiring Land for Your Greenfield Facility
Because land holdings are often distributed among extended families, different claims of title to the same property could appear. This affects easy access to land for building your facility. Quite often, you may need to acquire large tracts of land spread over multiple properties.
Lands earmarked for agricultural practices need to be first approved for conversion in the use of land for industrial purposes. This could be a lengthy process involving getting permits from the Department of Town and Country Planning and the district authorities.
Because foreign investors in India are not allowed to buy agricultural land you may need to buy a lease instead. Obtaining land or an existing facility on lease in India means that you risk exposure to costly lock-in periods.
Delays in acquiring land for a greenfield facility are common and must be accounted for when you’re planning project timelines. Industrial development corporations provide long-term land leases. This is a safer alternative if you’re completely new to the Indian market. Land banks are available, but you need to structure your relationship with intermediaries and aggregators.
Obtaining Statutory Approvals
India is a federal polity with governments at the state level having modified clauses in some business statutes. This complicates the approval process as multiple compliances have to be met simultaneously. The Manufacturing industry is particularly strictly regulated.
Manufacturing Plant Setup in India
Typical approval documents include getting No-Objection-Certificates from the State Pollution Control Board, building plan and construction activity approval from municipalities and local bodies, and obtaining commercial power from the district electricity board. Further, certain industrial equipment requires you to get additional certificates of approval.
Meeting Tax Compliances
Tax compliances have been considerably simplified with the Goods and Services Tax (GST). However, different tax rates on different industries and activities apply. You could face stiff penalties if your tax compliance is inconsistent. Hence, it is necessary to hire the services of a reliable Chartered Accountant to protect yourself against compliance risk.
Obtaining Capital
Different stages of activity during project establishment may require intensive funding resources. The manner in which a foreign company can provide funds to an Indian incorporation is both meticulous and slow. You may need to get approvals to fund certain industries from each Ministry or Government Department.
Outward flows of money from profit or other remuneration depends on the way in which you brought in your project capital in the first place. Detailed planning is required to successfully implement each stage of the project lifecycle. Again, it is best to get in touch with a third party consultant to manage smooth workflows.
Accommodating for Cultural Differences & Local Market Structures
No single caption can fit India’s diverse customs, habits, languages and incentives to buy. This could be baffling for the first-time investor. Workplace cultures may need to be modified without changing the underlying philosophy behind your brand. For example, you may find certain workplace departments to be more productive when they are relatively opaque and sequestered.
It is a good idea to synthesize certain elements of each work culture and obtain the right fit. Local headhunters may help in acclimatizing you to local talent. In this way, you also safeguard against failing to meet Indian labour law regulations.
Managing Intellectual Property
IP rights flowing from the parent company to the Indian subsidiary or partner must be protected with available procedures. It is recommended that you remain vigilant for rights infringements.
Resolving Disputes
India’s legal process is long-drawn and could result in expensive losses to your company. To make industrial dispute resolutions faster, there exist arbitrators, and independent tribunals. You need to ensure that contracts are drawn fairly and provide adequate clauses for protecting your business.
As you can see, putting your greenfield setup plans requires you to meet several complex regulations. That is why it is recommended that you connect with a reliable consulting firm in India. Tecnova has been the partner of choice for over 1500 clients, helping them setup their India entry successfully. With a 100 plus strong team of qualified accountants and project consultants and more than three decades of experience, we are your best bet for success. Get in touch with a Tecnova Greenfield Project Setup consultant today.
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