Challenges in Doing Business in India: Insights from Timken India
Despite being one of the fastest-growing economies globally, India presents a complex landscape for foreign companies, as illustrated by the experiences of Timken India, a subsidiary of an Ohio-based bearings manufacturer.
Timken’s Experience in India
Timken India has been operational for nearly three decades, employing over 1,200 staff across various Indian states. However, managing director Sanjay Koul expressed concerns about the business environment, referring to “tax terrorism” and the need for greater “ease of doing business.” Recently, the company has been faced with a tax demand of Rs250 million ($2.9 million), which it plans to contest.
The Need for Reforms
Koul recognized India as a valuable sourcing location but stressed the necessity of careful investment decisions to maximize returns. This sentiment aligns with ongoing discussions among investors advocating for reforms to reduce bureaucratic hurdles, simplify labor laws, and streamline tax regulations. These changes are seen as vital for fostering investment and job creation in the country.
Government Initiatives Under Modi Administration
Prime Minister Narendra Modi has actively sought to attract global investors and position India as a manufacturing hub to rival China. However, economic growth has reportedly slowed, with forecasts at 6.5 percent for the current fiscal year, down from a higher rate in previous years. To counter stagnation, Modi’s economic adviser V Anantha Nageswaran urged a reduction in regulatory burdens.
In light of these challenges, Finance Minister Nirmala Sitharaman announced a review of business rules and an initiative to create an investment friendliness index for states within the February budget.
Issues with Taxation and Compliance
Taxation remains a contentious issue for many companies operating in India. Tensions have arisen due to noteworthy legal disputes over tax demands, notably affecting major corporations like Volkswagen and Infosys. As of March 2024, disputed tax demands reportedly reached Rs13.4 trillion, demonstrating the scale of the challenge businesses face.
The complexity of the tax system—comprising central, state, and local levels—often leads to lengthy legal disputes. Many companies find themselves entangled in cases that jeopardize their financial stability, highlighting the urgent need for tax reform.
Struggles with Bureaucracy
Business leaders have expressed concerns regarding India’s bureaucratic environment, characterized by overlapping authority and lengthy approval processes. In contrast, executives argue that countries like China offer more direct and streamlined processes for establishing operations.
Ajay Shriram, who chairs the Ease of Doing Business task force at the Confederation of Indian Industry, pointed out the remnants of outdated regulations, some dating back to India’s independence, which continue to hinder operational flexibility for business owners.
Focus on Future Improvements
While India has made strides in simplifying company registrations and digitizing certain processes, perceptions of it as a challenging place to do business persist. Experts warn that until significant improvements are made to tax clarity and regulatory consistency, India may struggle to attract foreign investment at the levels needed to fuel its growth ambitions.
As the Indian government works toward these necessary reforms, the experiences of companies like Timken serve as critical indicators of the current landscape, emphasizing the importance of a supportive business environment for sustainable economic growth.
