There are many reasons for companies to be investing in India, such as market size, tax benefits and their high quality multilingual work force. An important reason to invest in India is the youth of this country. As it is known, India has a large population which offers a wide variety of opportunities in different demographic segments. One of the most attractive segments in India is the youth or teenage population. India has the largest population of teenagers around the world, having about 115. million of adolescents. This amount even exceeds the number of teenagers in the United States, Brazil, Russia, Mexico and Japan combined. This amazing number of teenagers in India provides an immense market potential for areas, such as, fashion accessories, fast foods, books, education, clothes, music, electronics, sports, entertainment, among others. This is why we can see companies like Levi’s, Adidas, Louis Vuitton, Nike, MTV, Disney, McDonald’s, Pizza Hut, Domino’s, Subway, Pepsi, Coca Cola that are already successfully established in India.
And, there is still a huge market potential that can be attacked for foreign companies that want to invest in this country. 74% percent of the urban teenagers have cell phones, 81 % of the urban youth use computers, 89% watch television daily, 73% listen to radio, 91% watch movies regularly. Knowing that India’s GDP has grown at almost 9 percent the past years, it is a potential to become the third largest economy by 2012 surpassing Japan. India offers an incomparable business opportunity for foreign companies that desire to open their business in it. Indian youth are highly brand conscious and are willing to pay more for a recognized brand.
They are very rational in their purchase decisions, for them the brand name is essential. An example of this is the case of Louis Vuitton where 18 percent of their sales come from teenagers. As we know, economy is always driven by the market demographics. For example, the population in the United States, Japan and Western Europe is becoming old quickly. Meaning that businesses where the main segment is young people cannot expect growth from these countries. Therefore, companies should concentrate on countries which have a large youth population, like India.
Some American firms such as Starbucks have comprehended this fact and have begun to explore the market entry options, having now a great success in the country. The next important factor in deciding to do business in India is the country’s tariffs. The India – USA tax treaty reduces the withholding tax in India for royalties, fees for technical services, and for interest paid to the US banks and financial institutions. “The withholding tax on dividends arising out of India is 15%, if the parent company owns at least 10% of the voting stock. The withholding tax on royalties and technical services fees is at the rate of 15%.
The capital gain is taxed at a rate of 20%. The withholding tax on rental of equipment and interest paid to U. S. banks and financial institutions is at the rate of 10%. All these rates are lower than the regular withholding tax rates. ” [Noida Special Economic Zone] Most of the states in India have adopted the value-added tax (VAT) system. Some exceptions like the states of Uttar Pradesh and Tamil Nadu and the union territory of Pondicherry are also expected to implement VAT in time. VAT is system set in place where the tax is charged at each stage of sale on the value added to the goods.
Where the business selling the goods collects tax on the full price, subtracts tax which has been charged along the way, and deposits the balance with the Government treasury. This means that only the value addition in the hands of each business is subject to tax. The introduction of VAT has meant that all other taxes, including turnover tax, resale tax, surcharge and additional tax, have been abolished. [8 Steps to India] India has tax treaties with several countries such as Australia, Belgium, Canada, Denmark, France, Germany, Indonesia, Japan, Korea, Mauritius, Singapore, the United Kingdom and the United States.
These treaties try to avoid double taxation and attract know-how and technology and by ensuring the withholding tax on royalties and fees for technical services is lower than the general tax rate. Having a careful planning and corporate structuring can reduce the tax obligations greatly. The India – USA tax treaty has been successfully used by investors to reduce their tax obligations in India and in their home country. Last but not least is the labor benefits of India . Indians are becoming more educated . The educational system is improving.
India is one of the highest sources of skilled and sophisticated workforce in the world. This is good news for doing business in India. Skilled labour is available. People are ready to adapt to change. As everybody knows, the wage of the workforce in India is low. Indian engineers or financial analysts usually earn much less of the amount than that their counterparts do in America. Since all corporations are pursuing low cost and high return on investment, it makes economic sense to produce products or provide services where the labor cost is lower.
In addition to cheap labor India has the availability of a highly motivated workforce. The quality of the labor pool willing to work in certain areas, for instance call centers and back-office functions where Americans have low interest, is much higher in countries like India. The markets like the UK or the US call center turnover is generally pretty high and motivation pretty low. The opposite is true in India and there are plenty of metrics showing that client satisfaction is also higher. Moreover, applicants for call center posts in India are young graduates, often with master degrees.
A thousand applicants per call center vacancy are not uncommon in some regions of the country. In addition to its low cost wage standards, India has a huge highly educated workforce that speaks English fluently. India is a nation whose advanced training is done in English. Therefore, Indian is high in English fluency, which is important for some professional service jobs. These jobs, which require English speakers, are often liable to flow to India, including call centers and software programming. For this reason, India is an attractive business destination and many big global companies are there.
Based on above advantages, India has been identified as one of the main countries absorbing work from the US businesses. Huge Opportunities exist for American firms in India The Indian market has a variety of productive opportunities for U. S. exporters with the right products, services, and commitment. India’s infrastructure, transportation, health, technology, and services will exceed tens of billions of dollars in the mid-term as the Indian economy globalizes and expands. India’s GDP, lately has grown at almost 9 percent; which makes it one of the fastest growing economies in the world.
India’s economy is growing so fast at this point it has a potential to become the third largest economy by 2012 surpassing Japan. American firms should think about investing in India because this country offers amazing business opportunities to foreign corporations that they cannot find easily in another country; having a huge teenage population that offers oppurtunities for market segment, money saving tax benefits and a competitive work force all are reasons India should be America’s number one choice for business investments.
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