India

India is a highly important market for Basque companies due to its rapid economic growth, its large population and its increasing demand for goods and services in strategic sectors such as technology, manufacturing, renewable energy and the automotive industry. Furthermore, its position as a global centre for innovation and trade has awoken the interest of Basque companies that have increased their presence in the country. The favourable business landscape, combined with trade agreements and policies to open up to foreign trade are major pull factors for India as a key partner for Basque business expansion.

A giant with huge opportunities for Basque companies.

India is strategically positioned globally as one of the fastest growing economies, the second most populated country in the world and a key player in international geopolitics. Its influence extends to different fields, such as technology, where it is a global development and innovation centre, and renewable energy, leading initiatives such as the International Solar Alliance. Furthermore, its role in international forums such as the G20, BRICS and the UN underlines its importance in global decision making. India also stands out as a crucial emerging market, attracting foreign investment thanks to its size, the youth of its population and reforms focused on economic development.

India’s economy is one of the most dynamic and diversified in the world, addressing key sectors such as agriculture, manufacturing, services and technology. This traditionally agriculture-based country has undergone a significant transformation to one based on advanced industries, with a services sector that accounts for over 50% of its GDP, driven by the information technologies and business process outsourcing (BPO). At the same time, India is bolstering its manufacturing sector, attracting foreign investment and driving local production. Furthermore, the country is diversifying in emerging areas such as renewable energy, biotechnology and infrastructure, which is consolidating its position as a global player in many economic sectors.

The GDP is expected to grow by around 6.5% between 2025 and 2028. This growth will be driven by factors such as increasing investment in infrastructure, strong domestic demand and economic reforms that seek to improve the business climate and attract foreign direct investment. However, India has to address challenges, such as the need to tackle youth unemployment and regional differences, which could impact the rate of economic growth, mainly driven by its manufacturing industries and construction. With the rise of the Indian middle classes, the service industry is forecast to boom in the coming years.

India’s foreign sector plays a crucial role in its economy, primarily as an important exporter of goods and services. In terms of goods, India is a leader in exports of agricultural products, textiles, pharmaceuticals and gems; while it excels in information technologies and BPO when it comes to services. Furthermore, the country imports large amounts of oil and machinery, reflecting its energy dependency and the impetus to its industrialisation. India has also diversified its trade partners, strengthening ties with the United States, China, the European Union and countries of South-East Asia.

India’s trade balance surplus is expected to grow, with a rising inflow of foreign investment in Indian industry, which is significant in the chemical and automotive industries, driven by the devaluation of the rupee and the protectionist measures of the USA and of the EU. The Indian government has focused on entering into bilateral free trade agreements, such as those signed with the Eurozone and Australia, and it is expected to maintain an active position in that regard.

The Indian market is one of the largest and most dynamic in the world, noted for its huge population of over 1.4 billion inhabitants and a fast-growing middle class. This combination offers huge consumer potential in sectors such as consumer goods, technology, vehicles, housing and financial services. Furthermore, the youthfulness of its population and its increasing digitalisation are driving a greater demand for e-commerce, technology services and innovative solutions. The Indian government has implemented reforms to stimulate the domestic market, such as tax incentives and greater openness to foreign direct investment, which makes it more attractive for international companies.

Furthermore, the Indian government has unveiled some incredibly ambitious decarbonisation targets. Given that India is the third largest energy consumer in the world, a need for renewable manufactures is foreseen, creating opportunities for the solar and wind sector. The government has also created opportunities in the semiconductors industry. The growth of India’s middle class has led to a considerable rise in the automotive industry, and private vehicle sales are forecast to continue growing, which increases opportunities for vehicle part manufacturers. This diverse and expanding ecosystem positions India as a strategic market for global and local companies alike.

India’s varied economic landscape, its large workforce and its ever-greater integration in the international supply chains have made an attractive destination for investment. The efforts to strengthen local manufacturing offer attractive options for companies looking to reduce dependency on continental China. The initiatives to improve digital skills, pursue environmental sustainability and to expand commercial connections are likely to drive the economic progress of India. However, investors must grapple with India’s weak legal framework, the specific protection measures of the sector and the significant administrative obstacles that affect the business outlook. Inconsistencies in the application of the policies and regulations in the different states make it complex to do business.

The public intervention of the State in India’s economy has been historically significant, evolving from a centralised approach after independence to a more liberalised model in recent decades. The government is currently playing a key role in strategic areas such as infrastructure, energy, education and health, while it is encouraging private initiatives and foreign investment through measures such as ‘Make in India’, ‘Digital India’ and ‘Atmanirbhar Bharat’. However, the State retains a regulatory role in critical sectors such as banking, agriculture and natural resources, where it seeks to balance economic growth with social targets such as reducing poverty and job creation. The notable drawbacks include the high corporation and sales taxes at regional level, along with the complexity of the tax administration and the legislation requirements.

India has made significant progress in its trade openness, from a protectionist economic model to an economy that is part of world trade, as it an active member of organisations such as the WTO. The Indian government has become increasingly more proactive in the search for free trade agreements with the main trade blocks and world trade centres, including Mercosur, ASEAN, while negotiations are underway with China and the EU. However, agreements are still to be signed with some important trade partners, such as China and the markets of the Gulf Cooperation Council (GCC), and it withdrew from the negotiations to join the Regional Comprehensive Economic Partnership (RCEP) in 2019.

India is a country open to trade, that is capitalising on advantages such as the large volume of its economy, its huge population or its strategic position in terms of European, Asian and African markets. The government’s expansionist policies, along with the high degree of industrialisation and specialisation of Indian industry has made the country a linchpin in the global supply chain. The main obstacles to this market openness are the high tariffs and the slow customs processes. Furthermore, the country is raising tariffs in energy and technological industries to favour local companies.

Tariffs on imports continue to be high in a worldwide comparison, and some national industries continue to enjoy protection that raises the costs of imported goods and partially hampers competitiveness.

Given the higher labour costs in China, India will continue to be an attractive destination for companies to transfer their low-range manufacturing operations during the coming decades, which bodes well for the country’s long-term growth outlook. India’s tariff and non-tariff barriers are aimed at forcing foreign companies to establish manufacturing operations in country by making access to the Indian market prohibitive. As proof of this, India keeping tariffs for vehicles and motorbikes at between 60% and 75%, alcoholic drinks at 150% and tariffs in some cases in the textile sector at 300%. Furthermore, the application of the customs duties is complex and inconsistent, which makes it difficult for companies to assess accurately the impact of the trade tariffs on costs.

India’s streamlined administrative procedures make it easy for companies to set up, which attracts foreign investment, particularly in the attractive dynamic ecosystem of startups. The strong protection of intellectual property and the emphasis on research and development are an even greater lure for investors, fostering a fertile ground for technological innovation. Even though digitalisation is aimed at making the public administration more efficient, corruption and political intervention pose challenges. Furthermore, the laxity of regulatory oversight can obscure the transparency of public contracts and undermine investor confidence.

Contact office

Pablo Huidobro

Director of Basque Trade & Investment ASEAN

BASQUE TRADE & INVESTMENT INDIA

Unit 1117, C wing, One BKC, G block, Bandra Kurla Complex Bandra (East), Mumbai 400051

+91 22 61831101

+91 99 67547126

india@basquetrade.eus

* Office hours:

Monday to Thursday: 7.30 a.m. to 4.00 p.m.
Fridays: 8.00 a.m. to 1.00 p.m.

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