India: Selling

Customs Procedures

Import Procedures

Traders intending to import goods must submit an application to the Directorate General of Foreign Trade and obtain an Importer and Exporter Code (IEC) number. If the trading firm is considered an EOU/EPZ (Export Oriented Units - Export Processing Zone) (100% of the production is exported), the IEC is issued by the Development Commissioner of the Export Processing Zone. This number has to be indicated on all documents filed with the Indian Customs for customs clearance procedure. This number is not required for the import of gifts and suitcases.
To determine whether a license is needed to import a particular commercial product or service, an importer must first classify the item by identifying its Indian Trading Clarification based on a Harmonized System of Coding or ITC (HS) classification.
After obtaining import licenses, importers are required to furnish import declaration in the prescribed Bill of Entry along with permanent account number (PAN) based Business Identification Number, as per Section 46 of the Customs Act (1962).
All imported goods must meet the terms of the Article 11 of the 1962 Customs Act, the Foreign Trade (Development and Regulation) Act and the EXIM policy in force. Goods that do not fall under the purview of the EXIM policy are generally confiscated or may be reimbursed in exchange for the payment of a fine.

For more information, please visit the Indian Trade Portal.

Specific Import Procedures

Schemes and procedures that facilitate customs clearance include: Electronic Data Interface (EDI), enabling e-payment of duties, implementation of customs Risk Management System (RMS), automation of customs formalities to Special Economic Zones (SEZ).

Certain goods are prohibited under the Foreign Trade (Development and Regulation) Act, 1992.

Importing Samples

Samples for non-commercial use are allowed in case the goods are supplied free of charge.

India is a member of the ATA Convention. Samples are accepted for exhibitions and fairs, whether governmental or private. Goods imported into India under ATA carnets must be re-exported within six months of importation. To stay in India longer than the six month period, obtain approval (1) from the importing customs office; (2) before the six month period expires. In the absence of such approval within the six month period and before the expiry of the six month period, duties, taxes and interest will become payable.

Customs Duties and Taxes on Imports

Customs threshold (from which tariffs are required)

No customs threshold.

Average Customs Duty (Excluding Agricultural Products)

The average customs duty is around 13.6%. For more information, visit World Tariff Profiles 2019 by WTO.

The Central Board of Indirect Taxes and Customs (CBIC) is the apex body for customs matters.

Products Having a Higher Customs Tariff

Alcohol, wines, pet foods, some processed food products, and some manufactured goods are attracting higher customs tariff.

Preferential Rates

Some customs preferences are granted to certain goods imported, subject to conditions. You can consult a list on the website of the Ministry of Finance of India. Preferential rates also apply to imports from those countries with which India has signed special Trade Agreements. For details on Trade Agreements, visit the site of Ministry of Commerce.

Customs Classification

India uses the harmonised system.

Method of Calculation of Duties

Customs duties are levied either as a Specific Rate (prescribed per unit of item) or Ad-valorem (a percentage on CIF value of item), or, sometimes, as a combination of both.

Method of Payment of Customs Duties

Consignment Purchase, cash-in-advance (pre-payment), down Payment, open account, documentary collections, letters of credit.
For more information, visit the site: Indian Customs & Excise Gateway –ICEGATE.

Import Taxes (Excluding Consumer Taxes)

In July 2017, India implemented the Good and Services Tax (GST) system to unify Indian states into a single market and improve the ease of doing business. Before the GST implementation, imports could be subject to an “additional duty,” a “special additional duty,” an education cess (tax), state level value added or sales taxes. Under the new system, goods and services are taxed under four basic rates – five percent, 12 percent, 18 percent and 28 percent.

Labeling and Packaging Rules

Packaging

All pre-packaged commodities imported into India must carry the following declarations on the label:
- name and address of the importer,
- generic or common name of the commodity packed,
- net quantity in terms of standard unit of weights and measurement,
- month and year of packing in which the commodity is manufactured, packed or imported,
- the maximum retail sales price (MRP) at which the commodity in packaged form may be sold to the end consumer.

Languages Permitted on Packaging and Labeling

English and/or Hindi.

Unit of Measurement

All imported goods as well as transport documents must show standard units of measurement and weight.

Mark of Origin "Made In"

Not mandatory, except in the case of foodstuffs and drinks and also where preferential import duties are claimed.

Labeling Requirements

The packaging and labeling requirements for packaged food products is laid down in the Part VII of the Prevention of Food Adulteration (PFA) Rules, 1955, and the Standards of Weights and Measures (Packaged Commodities) Rules of 1977.

Specific Regulations

In specific cases, the product label also has to contain:

• The purpose of irradiation and license number in case of irradiated food
• Extraneous addition of coloring material
• Non-vegetarian food – must have a symbol of a brown color-filled circle inside a brown square outline prominently displayed on the package
• Vegetarian food must have a similar symbol of green color-filled circle inside a square with a green outline prominently displayed

Distribution Network

E-commerce

Internet access

As of December 2017, India had an estimated 481 million internet users, 11.3% more than the previous year. While internet penetration in urban India is at 64.84% (up from 60.6% in 2016), in rural areas internet penetration has grown only a little - from 18% in 2016 to 20.2% in 2017. Delhi, Mumbai and Kolkata are the cities with the highest penetration. Online communication remained the top activity among urban users, whereas in rural areas entertainment is the most common reason for browsing the internet. The majority of internet users in India are male, with women estimated to represent only about 30% of total users. According to data released by the Telecom Regulatory Authority of India (TRAI), India’s mobile phone subscriber base has reached the one billion users mark, with a smartphone user base of over 300 million. India has topped the U.S. to become the second largest market for smartphones after China. Google is by far the most common search engine, with a market share of 97.6%, followed by Bing (1.4%) and Yahoo (0.9%).

E-commerce market

Indian e-commerce is growing at an annual rate of 51%, the highest in the world, and is expected to jump from US$ 30 billion in 2016 to US$ 120 billion in 2020. According to a Morgan Stanley report, India’s e-commerce market will be worth US$ 200 billion by 2026. As per industry body NASSCOM's latest estimates, India's e-commerce market was worth US$ 33 billion in the financial year 2017. India’s e-commerce sector is highly competitive, as it sees the presence of international marketplace players like Amazon, eBay, Alibaba and others competing alongside the domestic marketplace operators such as Flipkart, Snapdeal, TataCliq. Since 2014, the Government of India has announced various initiatives to propel e-commerce and internet usage in general, namely, Digital India, Make in India, Start-up India, Skill India and Innovation Fund. Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. Cross-border B2C e-commerce is growing fast, with automotive, baby supplies, toys, clothing, footwear, wearables and accessories, jewelry, watches, cosmetics, health products and digital entertainment and educational services being the leading product categories for international purchases. The major challenges restricting growth of cross-border e-commerce are high shipping costs, import duties and complexities in returns and exchanges. The Indian B2B eCommerce market is also expected to grow, reaching US$ 700 billion by 2020. In order to exploit the huge potential in the B2B e-commerce market in India, leading B2B companies have started to build their own platforms for small business owners and traders.

E-commerce sales and customers

Fashion is currently the leading product category in India, followed by electronics, home and furnishing and entertainment. E-commerce is increasingly attracting customers from 2nd and 3rd tier cities, where people have limited access to brands but have high aspirations. The Associated Chambers of Commerce of India estimated the number of online shoppers to have crossed 100 million in 2017, compared with 69 million in the previous year. 56% of online shoppers in India buy using desktops, compared to 29% using smartphones and 10% preferring tablets. The main reason why Indian consumers are adopting e-commerce is because of price convenience. The possibility to access an expanded basket of goods is also one of the main drivers. Thanks to rising income levels and increased awareness, there is growing interest for international brands and better quality foreign products. Due to transport infrastructure difficulties, consumers often prefer the service providers that offer the fastest delivery. Cash on Delivery (COD) payments accounted for 45% of online payments and remained a popular mode of payment for Indian e-commerce transactions. Nevertheless the demonetisation process started in November 2016 by the government affected this trend, with cash on delivery quickly changing into “card on delivery”. The shift away from the cash is evident by the growth in payments by credit cards and mobile wallets. The launch of a Unified Payments Interface (UPI) by the Reserve Bank of India is expected to be a game changer, as it will enable e-commerce delivery staff to collect money electronically even for COD transactions.

Social media

Social networks' penetration rate in India - at only 14% of the population – is one of the lowest rates in the world. Facebook is the most popular social network: India is the country with most Facebook users in the world (270 million) ahead of the US. Key Facebook users from India are aged 18-24, with more than three-fourth of the users being male. WhatsApp has more than 200 million users, followed by Messenger, Instagram (59 million), Google+ and Twitter (10.1 million) (Statista). The professional social networking platform LinkedIn has over 42 million users. Most active users on LinkedIn in India are in age group 24-35, with an almost even share of men and women.

Direct Selling

Evolution of the Sector

The World Federation of Direct Selling Associations (WFDSA) 2017 report shows direct selling in India grew 7%, was valued at USD 1.513 billion, and involves 5,102,231 independent representatives. 2017 retail sales by product category were divided as follows: wellness (53%); cosmetics and personal care (30%); household goods and durables (9%); and home care (4%) according to WFDSA.

According to Euromonitor International, direct selling in India is dominated by beauty and consumer health products (nutrition and well-being) offered by companies such as Amway India Enterprises, Herbalife International, Oriflame India, Eureka Forbes, and Avon Beauty Products India. Internet retailing increasingly pressures direct selling as a more convenient purchasing option, a trend that is most evident in metropolitan areas but not in semi-urban areas. Amway remained the leading direct selling company in 2017.

The Indian Direct Selling Association (IDSA) promotes best practices in the industry.

Commercial Intermediaries

Trading Companies

 

• Type of Organization

A distributor acts as an importer and typically purchases the product on his own account and stocks the products before selling it to the retailer or even to an end user.

Wholesalers

 

• Type of Organization

Import-export wholesalers are particularly useful for their logistic organization, information processing, product promotion and selection. Normal wholesalers who mainly offer a logistic service, stocking goods so as to supply retailers, as they need them.

Nevertheless with competition increasing in the Indian distribution market, manufacturers are directly getting in touch with the retailers, leading to an evolution in wholesaling. As a result many wholesalers have opted for a more vertical integration of their activity by even developing their own brand names and retailing goods themselves.

Using a Commercial Agent

The Advantages

To have on-the-ground presence an agent, representative, or a distributor could be appointed. It is advisable to appoint regional representatives & dealers, considering the fact that India is a diverse country with 30 local languages. Moreover, a small distributor may be ideal for implementing a flexible distribution strategy because of India is a vaste nation.

Where to Be Vigilant

When evaluating a distributor or agent, the Indian firm’s business reputation, financial resources, willingness and ability to invest, marketing strength should be checked.

In addition, one should be aware of:

1. The long-list syndrome: The potential representative offers you a long list of foreign clients, which may be outdated and the relationships may no longer exist.

2. The no follow-through syndrome: Generally the Indian agent projects a professional image in terms of having a qualified workforce and countrywide presence. A foreign company should make sure that such an agent should not leave everything on its network and sales should not suffer due to lack of follow-up.

Elements of Motivation

Exclusivity, higher sales commissions, incentives for achieving sales targets, foreign trips, frequent communication per fax, mail, phone, plus regular visits to India .

The Average Amount of Commission

- From 5 to 15% for regular business transactions, and from 10 to 25% for occasional transactions.

- From 1 to 4% in the case of bulk materials (iron ore or coal).

- Up to 40% in the case of medical, laboratory, scientific analytical instruments, and software products.

Breach of Contract

It depends upon the terms and conditions of the contract. But, in case the local agent goes to court, it may be time consuming for the foreign company and favorable results cannot be always guaranteed.

Finding a Commercial Agent

Infobanc, Agents in India
Alibaba

Setting Up a Commercial Unit

The Advantages

Setting up a commercial unit in India should be considered in case the foreign company has long-term business interests in the country.

Where to Be Vigilant

State government support and flexibility, cost and availability of power, law & order situation. Other factors to take into account include labor availability and cost, labor relations and work culture, and proximity to resources and/or markets. In the area of labor law, an employer with more than 100 workers cannot fire them without permission from a government labor commissioner -- something usually not so easy to obtain.

Different Possible Forms of Settlement

 

• A Representative Office

Most of the foreign companies initially establish a presence in India with a representative office that is not directly engaged in commercial transactions in India to obtain market information, provide necessary promotional & service support, and explore further opportunities for business and investments.

A liaison office is not allowed to undertake any commercial activity and cannot earn any revenue in India.

• A Branch Office

A branch of a foreign company is limited to the following activities by the RBI: representing the parent company and acting as its buying/selling agent; conducting research for the parent company, carrying out import and export trading activities; promoting technical and financial collaborations between Indian and foreign companies, rendering professional or consulting services, rendering services in Information Technology and development of software in India, and rendering technical support to the products supplied by the parent/group companies.

The branch office is allowed to repatriate the profits generated from the Indian operations to the parent company after payment of taxes. However, a branch office is not allowed to carry out manufacturing and processing activities directly (it can only sub-contract such activities to an Indian manufacturer).

• A Company

It can offer an effective means of guaranteeing better protection for proprietary information, obtaining credit, and penetrating the Indian market more effectively.
For setting up of an office in India, a foreign company needs an approval of the Reserve Bank of India (RBI).
A foreign company also needs to register with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Franchising

Evolution of the Sector

Franchising in India has witnessed a four-fold growth since 2013 and was estimated at USD 50.4 billion in 2019. The franchising industry in India is growing at 30-35% year-on-year and is pegged to touch USD 100 billion by 2024. Today, India has more than 4,600 active franchise networks and almost 200,000 outlets managed by almost 170,000 franchisees. In the last two years, multi-unit franchising has grown by over 36%. However, the Indian franchise market is still very young; the sector accounts for about 2% of the national gross domestic product (GDP). Job creation is estimated at 1.5 million jobs in the franchising sector in India.

Some of the challenges faced by the franchising system in India are:

• Lack of Legal Framework: no specific law on franchising.

• Expensive Real Estate: retail space is extremely expensive and the quality is relatively poor.

• Understanding local Culture and Tastes: “Indianization” of products is vital to a franchise success.

• Resistance to Fees & Cap on Royalty: The foreign franchisers should also be prepared to face stiff resistance from prospective Indian franchisees toward the franchisee fees/royalty payments, which are considered high.

Some Big Franchises

Hertz, car rentals
Avis, car rentals
Radisson, hotels
Kentucky Fried Chicken, restaurant
Domino’s Pizza, restaurant
Subway, fast food
Pizza Hut, restaurant

For Further Information

FAI, Franchising Association of India
The official directory of FAI
Franchise in India