Looking to break into the world’s fastest-growing economy? Then look toward India. That’s right—within the next decade, India will outrank China as the most populous country in the world. So what does the 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 pressing problems such as significant overpopulation, environmental degradation, extensive poverty, and widespread corruption, the economic growth following the launch of economic reforms in 1991 and a massive youthful population are driving India's emergence as a regional and global power,” according to the CIA Factbook. In addition, India’s diversified economy and increased role in the global economy make it a good trade partner to consider for interested U.S. exporters.
In 2019, Indian GDP growth slowed to 4.8% (from more than 7% in 2018) to $8.98 trillion as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences.
Data from the U.S. Commercial Service’s 2020 India Country Commercial Guide shows that, despite declining overall levels of global trade volumes, the U.S. remained India’s largest trading partner in 2019. Exports of U.S. goods and services to India reached $59.6 billion and imports from India reached $87.3 billion. The U.S. also remained India’s top export market, while India was the 12th biggest export market for U.S. goods in 2019.
According to the Office of the U.S. Trade Representative, the top U.S. export categories to India in 2019 by two-digit HS numbers were:
- Mineral fuels: $8.2 billion
- Precious metal and stone (diamonds): $6.4 billion
- Aircraft: $2.8 billion
- Machinery: $2.4 billion
- Organic chemicals: $1.9 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 such as 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
Exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes.
Even before the economic slowdown and the pandemic, Indian companies and consumers were extremely price sensitive.
Insufficiently developed roads, railroads, ports, airports, education, power grids and telecommunications infrastructure are significant obstacles as the country strives to achieve strong economic growth. India’s ongoing urbanization, together with rising incomes, has resulted in a heightened need for improved infrastructure, both to deliver public services and to sustain economic growth.
Data Localization Requirements and e-Commerce Curbs
The Indian government is actively pursuing policies requiring that Indian data be processed and stored only in India, severely impacting the business of many American companies. A proposed data protection bill, currently working its way through the Indian legislature, would impact a wide range of businesses, both Indian and international. Changes to the laws governing what e-commerce companies can sell online and how they can sell, have been an unexpected blow to U.S. online giants. The new law restricts discounts by e-commerce companies and prevents companies from selling products from companies they are affiliated with or own.
Local Content Requirements
In specific areas, including information and communications technologies (ICT), electronics, and solar energy, the Indian government is pursuing local content requirements to spur an increase in the manufacturing sector’s contribution to GDP. These policies negatively affect U.S. exporters.
Powers of States
Companies should be prepared to face varying business and economic conditions across India’s 29 states and seven union territories. Power and decision-making are decentralized in India, and there are major differences at the state level in political leadership, quality of governance, regulations, taxation, labor relations and education levels.
Intellectual Property (IP)
India is one of the world’s most challenging major economies with respect to protection and enforcement of IP.
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. India’s most promising sectors include the following:
- Aerospace and defense
- Environmental technology
- Information and communications/digital technology
- Safety and security
- Mining and mineral processing equipment
- Travel and tourism
- Agricultural sector
- Education services
The best thing about exploring India export opportunities is knowing you don’t need to go it alone. If you’re an exporter interested in exporting to India for the first time, or you currently export to India but are facing challenges, you can get help from in-country allies, including the U.S. Commercial Service offices, trade missions and chambers of commerce.
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.
DECs across the U.S. 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 provide advice to small companies interested in exporting to India.
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to meet new business contacts and network.
The ITA is an excellent resource to help you combat trade problems. ITA staff members are experts in advocating for U.S. businesses of all sizes. They customize their services to help solve trade dilemmas as efficiently as possible. The ITA makes it easy to report a trade barrier, even allowing you to submit your report online.
U.S.-India Chambers of Commerce
Chambers of commerce may be a resource when exporting to India. You can learn more about various chambers and how they may help smooth the way for your export activities 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:
- Bill of lading
- Commercial invoice
- Packing list
- Sales contract
- Proforma invoice
- AES filing
- Customs declaration
- Insurance policy
The ITA website provides more documentation requirements.
India Export Compliance Issues
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 classifying your product correctly, you’ll be protecting yourself from severe fines, penalties and even jail time.
Export License Determination
Next, 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. Countries fitting that bill 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, such as 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.
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. 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.