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Doing business in India: What to expect culturally

India is hugely diverse in terms of culture and religion, and has 18 official languages, 15 of which have their own script.

And while regions may differ vastly in terms of traditions and festivals, there are some cultural generalities which can be made, according to Sunit Jilla, a lecturer at international consultancy Farnham Castle.

And while multinationals which set up shop in India and have a ‘Western’ or international façade, ultimately there will be an Indian culture in the organisation.

Family

He says: “People’s families are very important and relationships at work tend to be the same. The office can be seen as an extended unit for the family. For example, if your daughter is getting married you may invite the whole department.” To a Westerner this may be seen as extravagant, but to an Indian to not invite them might be seen as selfish, he says.

Staff may not actively put their points of view to their boss, even if they disagree with them. “People respect their parents and they may respect their boss in a similar way,” says Mr Jilla.

Saying no

It is common for people to say yes to something, to save face, rather than telling the truth and saying no. “One way to get round this is to ask more questions. But the answer may still include a ‘yes’. If someone says: “Yes I’ll try and call you if I can but I am very busy,” this is likely to mean ‘no’,” says Mr Jilla.

He adds that people don’t want to come across as dishonest by saying yes when they mean no, but they may be trying to keep everyone happy. “This can be frustrating and can be a source of major consternation,” he says.

Contracts

Indians may be surprised if you turn up at a meeting with legal people to sign a contract. “It may imply that you don’t trust them,” says Mr Jilla. “The relationship supersedes the contract.” Work may in fact start before a contract is signed.

Meetings

You may be asked a lot of questions about yourself, how the flight was and whether you are comfortable in your accommodation. Business cards are important: they are a synopsis of the person and include qualifications.

Time

“Time keeping is not as sacrosanct as in the UK. It may require patience and also build a time contingency into projects,” says Mr Jilla. He adds that traffic can be very bad in the cities so to allow more time than you think you need for travel. “Be specific about times and don’t assume anything,” he says.

Festivals

There are many religions in India, with celebrations throughout the year when entire states may be closed down. It is worth checking before you travel. Divali is one of the major festivals, happening for five days between 13 October and 14 November. If you have clients which may celebrate these it maybe worth sending a gift to them.

Setting up a business in India

Fast track procurement procedures recently put in place have allowed construction companies to
obtain crucial working capital at market rates. As a result, institutional investors have re-rated many
Indian construction stocks and joint ventures are being discussed with foreign construction
companies.

It is advisable to have a physical presence in India, rather than fly in, fly out. This helps to develop relationships with clients and key people and allows the monitoring of the supply chain or a JV partner.
There are various types of corporate vehicle. Prime among them is an incorporated, limited liability
company which can be set up as wholly owned subsidiary under the Companies Act 1956 or through a joint venture (often with an Indian partner).

This will be treated as a domestic company and will allow for profits to be repatriated to the foreign parent
(usually as a dividend), but only after tax has been levied.

It is also possible to set up unincorporated entities which are mainly liaison or representative
offices, branch offices or project offices. For construction, the only permitted type is the project office,
which can be attractive if the foreign company is only planning to execute a specific project in India.
It will be treated as a foreign company but has the advantage that, with the permission of the Reserve
Bank of India, it may remit the surplus of the project outside India on completion.

A project office will be treated as a foreign company and taxed accordingly. The basic tax rate for
foreign companies “resident” in India is 40 per cent (plus surcharges and cess). Comparatively, an
incorporated subsidiary/joint venture company, which will be treated as a domestic company for
tax purposes, is taxed at a basic rate of 35 per cent.

Tax rules in India are complex. If a foreign company is not “resident” in India, the tax imposed will depend on the nature of the company’s income earned from a business connection in India or from Indian sources. The Double Taxation Agreement between UK and India could also be relevant.

Shourav Lahiri is a partner and head of the India Group at Pinsent Masons

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