Business process outsourcing (BPO) functions. India is one of the world's leading outsourcing destinations, and many Indian cities host outsource businesses such as call centres or research and development facilities. India is attractive for BPO because of its skilled workforce which has a good command of English, as well as cost advantages.

To confirm this, R&D costs in India are 75% lower than in the US. Because of this, many US firms and entrepreneurs choose to outsource R&D to India, some by setting up a company in India.

Although India is a cheaper location from which to operate compared with western countries, costs are rising, especially compared to China. Economic growth fuels demand for skilled labour, which pushes up labour costs. Investors must factor in rising salaries. For example, the average annual salary of an Indian IT professional is now Rs620,000 (US$14,450).

The manufacturing sector in India also suffers higher overhead costs than its counterparts in China. Indian manufacturers pay more than double what their Chinese counterparts pay for power.

Although India experienced a period of low inflation from 5.7% in 1997 to a 5-year low of 3.5% in January 2008, in June 2008 Indian inflation hit a 7-year high of 8.75%.

Although India has an unsophisticated financial and banking system (especially when compared to established global financial hubs such as Singapore or Hong Kong), it is in theory possible for entrepreneurs setting up a company in India to find venture capital. The Bombay Stock Exchange (BSE), for example, is the world’s 10th largest stock exchange by market capitalisation (US1.6 trillion), the world’s 5th busiest stock exchange with average daily trading volume of 330 million shares and the world’s biggest stock exchange in terms of number of companies listed.

The cost of borrowing in India has fallen steadily since 1997, making bank loans more affordable for Indian companies and entrepreneurs who are setting up companies in India. In January 2008, India’s interest rate was 7.5%.

For more detailed information for setting up a company in India, purchase our Asia Business Setup book, contact email@healyconsultants.com or call us in Singapore at (+65) 6735 0120.