India

Sanctions

No

FATF AML Deficient List

No

Higher Risk

US Dept of State Money Laundering Assessment 
International Narcotics Control Majors List
Not on EU White list equivalent jurisdictions

Medium Risk

Non - Compliance with FATF 40 + 9 Recommendations
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

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ANTI-MONEY LAUNDERING

FATF Status


India is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies.
 
Compliance with FATF Recommendations


The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in India was undertaken by the Financial Action Task Force (FATF) in 2010. According to that Evaluation, India was deemed Compliant for 4 and Largely Compliant for 25 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 out of the 6 Core Recommendations.  

Extract from 2014 Asia Pacific Group on Money Laundering Yearly Typologies Report:


The investigation of money laundering cases under investigation where proceeds of crime have been attached under AML provisions, it is noticed that proceeds of crime are mostly invested in immovable properties, followed by jewellery, vehicles etc.
 

US Department of State Money Laundering assessment (INCSR)


India is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

India’s AML activities followed a positive trajectory in 2018, with India’s Prime Minister Modi continuing to make progress in curtailing illicit financial activity, including tax evasion and money laundering.  The government continues to focus on monitoring the 2016 demonetization initiative’s outcomes and implementing the 2017 Goods and Services Tax (GST) to, in part, formalize and digitize India’s financial system.  Despite this positive trend, India continues to face vulnerabilities, including informal financial networks; complex onshore and offshore corporate structures; and enforcement capacity constraints.  The Reserve Bank of India’s (RBI) August 2018 Annual Report reveals 99 percent of the high-denomination banknotes cancelled during the demonetization program were deposited or exchanged for new currency, meaning the “black money” that authorities expected to purge found its way back into the system.  Analysts suggest that while demonetization met the objective of bringing transactions into the formal economy, the objective of identifying tax evaders and criminals attempting to exchange excessive high-denomination currency was less successful.  

 

 

SANCTIONS


India is not currently subject to any International Sanctions however the UK government has had a stated policy on exports to nuclear and nuclear-related end users in India and Pakistan since March 2002.

BRIBERY & CORRUPTION

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           41

World Governance Indicator – Control of Corruption             49

Companies operating or planning to invest in India face high corruption risks. Despite that the government has stepped up its efforts to counter corruption, red tape and bribery continue to be widespread. Corruption is especially prevalent in the judiciary, police, public services and public procurement sectors. Due to varying levels of corruption and quality of government operations across India, local investment conditions vary between and within states. The Prevention of Corruption Act is the principal legal framework that focuses on corruption in the public sector. Both active and passive bribery are covered by legislation, and public officials are only allowed to accept gifts of nominal value. Private sector corruption is addressed by the Companies Act. Due to low levels of enforcement and monitoring, integrity in all state bodies is lacking, and corrupt practices such as facilitation payments and bribes persist. For further information - GAN Integrity Business Anti-Corruption Portal


 
ECONOMY


India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly less than half of the work force is in agriculture, but services are the major source of economic growth, accounting for nearly two-thirds of India's output but employing less than one-third of its labour force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services, business outsourcing services, and software workers.

India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization measures, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and served to accelerate the country's growth, which averaged under 7% per year from 1997 to 2011. India's economic growth began slowing in 2011 because of a decline in investment caused by high interest rates, rising inflation, and investor pessimism about the government's commitment to further economic reforms and about slow world growth. Rising macroeconomic imbalances in India and improving economic conditions in Western countries led investors to shift capital away from India, prompting a sharp depreciation of the rupee.

Growth rebounded in 2014 and 2015, with both years exceeding 7%. Investors’ perceptions of India improved in early 2014, due to a reduction of the current account deficit and expectations of post-election economic reform, resulting in a surge of inbound capital flows and stabilization of the rupee. Since the election, economic reforms have focused on administrative and governance changes largely because the ruling party remains a minority in India’s upper house of Parliament, which must approve most bills. Despite a high growth rate compared to the rest of the world, in 2015, India’s government-owned banks faced mounting bad debt, resulting in low credit growth and restrained economic growth.

The outlook for India's long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. However, India's discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, high spending and poorly targeted subsidies, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration are significant long-term challenges.

Agriculture - products:
rice, wheat, oilseed, cotton, jute, tea, sugarcane, lentils, onions, potatoes; dairy products, sheep, goats, poultry; fish

Industries:
textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticals

Exports - commodities:
petroleum products, precious stones, vehicles, machinery, iron and steel, chemicals, pharmaceutical products, cereals, apparel

Exports - partners:
US 15.2%, UAE 11.4%, Hong Kong 4.6% (2015)

Imports - commodities:
crude oil, precious stones, machinery, chemicals, fertilizer, plastics, iron and steel

Imports - partners:
China 15.5%, UAE 5.5%, Saudi Arabia 5.4%, Switzerland 5.3%, US 5.2% (2015)

Investment Climate  -  US State Department


In May 2014, the Narendra Modi-led Bharatiya Janata Party (BJP) won the world’s largest democratic election, defeating a Congress Party-led coalition that been in power for the past decade. At the time, the 2014 election marked a turning point in investor sentiment, as a fractured minority government, seemingly unable to advance essential economic reforms, was displaced in favor of a government that had won on a platform of economic growth. Additionally, the monetary stewardship of Raghuram Rajan, the respected Governor General of the Reserve Bank of India, further boosted investor sentiment.

The Modi government has prioritized economic growth to fulfill its electoral promises and to address the Indian electorate’s high expectations. Initially, the government focused on streamlining bureaucratic decision making and raising FDI limits in certain sectors—including defense and railway infrastructure. Modi also called for foreign and domestic companies to support his signature initiative, “Make in India”—a branded campaign to attract international capital to the country’s struggling manufacturing sector. He also set a goal for India to rise rapidly in the World Bank’s Ease of Doing Business rankings. The government has continued to relax FDI restrictions in a wide variety of sectors as part of the government’s efforts to further open the economy. Most recently, the government approved up to 100 percent foreign investment in civil aviation, defense, certain sectors of e-commerce, and the pharmaceutical sector. Additionally, the government eased requirements for some retailers to source “state-of-art” technology in India could be particularly beneficial to high-tech companies such as Apple, although underlying supply chain constraints remain.

However, the government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through Parliament. This has resulted in many investors retreating slightly from their once forward-leaning support of the BJP-led government. For example, the government failed to muster sufficient political support on a land acquisition bill in Parliament—all but ending its chance of passage in the near term—and is still negotiating with opposition parties the details of a Goods and Services Tax Bill, which if not watered down in negotiations, could streamline India’s convoluted tax structure and provide an immediate boost to GDP.

Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated. There are few quick fixes to the structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localization requirements, restrictions in many services sectors, and massive shortages of electricity that hinder India’s economic growth potential. Recognizing that the gains from a massive, positive terms-of-trade shock due to lower oil prices that India has benefitted from may not be repeated in the current global economic environment, the Finance Ministry has slightly reduced the official growth outlook for next year.


India’s political system is highly decentralized. Investors must be prepared to face varied political and economic conditions across India’s twenty-nine states and seven union territories, including differences in the quality of governance, regulation, taxation, labor relations, and education levels. Although India prides itself on its rule of law, the country ranks 178 out of 189 in the World Bank’s Ease of Doing Business Report in the category of Enforcing Contracts. Its courts have cases backlogged for years, and by some accounts more than 30 million cases could be pending at various levels of the judiciary.

Despite the challenges, the opportunities are immense for foreign companies operating in India, although many highlight that success requires a long-term planning horizon and a state-by-state strategy to adapt to the complexity and diversity of India’s markets. India’s infrastructure needs are estimated at $1.5 - $2 trillion over the next 5-7 years, offering excellent opportunities for U.S. companies to participate in India’s development, provided appropriate mechanisms for financing are developed. For example, in June 2015, PM Modi launched a program to build 100 Smart Cities. Indian conglomerates and high technology companies are generally equal in sophistication and capability to their international counterparts, while certain industrial sectors, such as information technology, telecommunications, and engineering are globally recognized for their innovation and competitiveness.

 

Country Links

Financial Intelligence Unit-India (FIU-IND )
Reserve Bank of India
Securities and Exchange Board of India (SEBI)
Insurance Regulatory and Development Authority of India (IRDAI)
Pension Fund Regulatory and Development Authority (PFRDA)
Ministry of Corporate Affairs (MCA)
Other Useful Links
FATF
US State Department
Transparency International
World Bank
CIA World Factbook

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