Looking to break into one of the world’s fastest-growing economies? Then look toward India. That’s right—as the country with the largest population, India is expected to become the second-largest economy by 2075. So what does the booming growth of this nation mean for its economy and for exporters who may want to enter it?
In this article, I’ll look at the history of U.S. trade with India; the process of exporting to India, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Indian market.
Trade and Exporting to India
Despite the COVID-19 pandemic’s slowing effect on the Indian economy, bilateral U.S.-India trade in goods and services jumped from $120.6 billion in 2020 to $159.1 billion in 2021. As of 2022, the U.S. remains India’s largest trading partner. Data from the U.S. Census Bureau shows that exports of U.S. goods and services to India reached $47.2 billion and imports from India $85.5 billion.
Exporting to India: The Challenges
U.S. exporters must be aware of certain barriers when exporting to India. But with careful planning and assistance from agencies like the U.S. Commercial Service, exporters of all sizes can absolutely be successful in the Indian market. According to the India Country Commercial Guide, challenges include:
High Tariffs and Protectionist Policies
U.S. exporters and investors often encounter non-transparent or unpredictable regulatory and tariff policies. Likewise, U.S. goods and services in some sectors have limited access to the market. India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among WTO members.
Price Sensitivity
Indian companies and consumers are extremely price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians are willing to pay and may need to adjust their sales models accordingly. For example, some companies sell products in smaller sizes or with fewer features to reflect price sensitivities of Indian consumers.
Infrastructure
India has significant infrastructure development needs, and improvements in this sector are vital to the country’s economic growth. India’s congested road transportation infrastructure; inordinate delays in railway freight movement; inefficient and long turnaround time at ports; and a fast-growing but highly concentrated airport sector all contribute to significant capacity constraints that, if not addressed, may stymie economic growth.
Infrastructure projects in India often suffer from delays in completion, mainly due to an inadequate regulatory framework and inefficiency in the project approval process. India has ambitious infrastructure development plans, notably in airports and inland waterways as alternative means of transport to traditional road and rail, as well as in intermodal logistics to focus on improving first and last mile connectivity. India has devoted significant portions of its recent annual budgets to infrastructure development and plans to execute these initiatives largely through a public-private partnership model. However, timely execution of projects within allocated budgets remains a challenge, even when funding is available.
Power of States
As a federal system, power and decision-making are decentralized in India, with differences at the state level in political leadership, quality of governance, regulations, taxation and labor relations. Indian states generally hold greater power than their U.S. counterparts. U.S. companies face varying business and economic conditions across India’s 28 states and eight union territories and should factor these variations into their national business strategies. The current government has promoted the idea of “cooperative, competitive federalism,” encouraging states to compete against each other to attract investment.
Exporting to India: The Opportunities
In many situations, the potential rewards of exporting to India outweigh any challenges exporters may face. Exporters should identify and cultivate business opportunities while building a strategy to minimize the risks.
With this population boom comes the need for new industries, infrastructure and more. According to the International Trade Administration, the following sectors provide growth opportunities for U.S. companies in the Indian market:
- Civil aviation
- Defense
- Education
- Energy
- Environmental technologies
- Food and agriculture value chain
- Healthcare
- Information and communication technology
- Travel and tourism
- Safety and security
Export Assistance
If you do decide that the benefits of exporting to India outweigh the considerations, the best thing about exploring the opportunities to export to India is knowing you don’t need to go it alone. You can rely on assistance from your in-country allies, including the U.S. Commercial Service office, trade missions and chambers of commerce.
U.S. Commercial Service Office in India
The first place to go for help is your local and in-country U.S. Commercial Service offices. The Commercial Service’s seven in-country offices offer U.S. exporters business partners in India—boots on the ground in the country—and include representation by an agent, distributor or partner who can provide essential local knowledge and contacts critical for your success. You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service’s In-Country Offices.
District Export Councils (DECs)
DECs across the country can help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth and create jobs. DEC members also serve as mentors to new exporters and can provide advice to smaller companies.
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to get introduced to and network with contacts. Check into them.
International Trade Administration (ITA)
The ITA is an excellent resource to help you combat problems. Staff at the ITA are resident experts in advocating for U.S. businesses of all sizes, customizing their services to help solve your trade dilemmas as efficiently as possible. If you find yourself caught in an unfair international trade situation, the ITA is a valuable resource that can expeditiously help you understand and solve your problems. The ITA makes it easy to report a problem, allowing you to submit your report online.
U.S.-India Chambers of Commerce
Chambers of commerce may be a way to help you when exporting to India. You can learn more about various chambers in our article, The Chamber of Commerce Role in Exporting.
Export Document Requirements for India
Export documentation and procedures for India are as critical as they are for any other country. Documents you need to export to India from the U.S. will vary depending on your products, but may include:
You should also study up on Indian trade agreements and documentation requirements.
Export Compliance Issues When Exporting to India
It’s important to understand the regulations covering exports to India, especially export controls.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: Is it the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department’s Directorate of Defense Trade Controls (DDTC)?
If your goods fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS, part of the Commerce Department). To do so you need to answer the following questions:
- What is the Export Control Classification Number (ECCN) of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
To determine jurisdiction, you must know how to determine the correct classification of your item, also known as the Export Control Classification Number (ECCN). There are three ways to classify your products for export controls: You can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor to provide the information. You can learn about that process in our article, Export Codes: ECCN vs. HS, HTS and Schedule B.
By making sure your product is classified correctly, you’ll be protecting the U.S. from threats abroad and protecting yourself from severe fines, penalties and even jail time.
Export License Determination
There are several reasons the U.S. government prevents certain exports to India without an export license. Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that uses the ECCN code for your product(s) and the destination country to tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process – Redesign (SNAP-R) before you can export your products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce, not items controlled by the State Department or some other agency.
Deemed Exports
Surprise! You May Be an Exporter without Even Knowing It! Deemed exports, or the disclosure of information or services rather than an actual product, is an important issue to pay attention to when exporting to India. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, conducting tours of facilities and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly. You can learn how to apply this principle here.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.
There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization; they may have a history of corrupt business practices; or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more restricted party lists to ensure they are not doing business with a restricted party.
The primary restricted party lists in the United States are published by the Department of Commerce, Department of State and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to India, it’s imperative you check every restricted party list every time you export. If not, you could face the following penalties:
- Fines for export violations can reach up to $1 million per violation in criminal cases (Bureau of Industry and Security).
- Administrative cases can result in a penalty amounting to $250,000 or twice the value of the transaction, whichever is greater.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re an exporter who is considering exporting to India, consider this: Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Click here to register for a free online demo of the software.
This article was first published in 2017 and has been updated to include current information, links and formatting. It is one in a series of articles exploring exporting to specific countries across the globe, including China, Canada, Japan, Mexico, Brazil, and the United Kingdom.
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