[India Entry Guide] India Is Not One Market: The Cost Gap Created by 28 States

Hello, this is ADL Consulting.

One of the questions we hear most often from clients considering entry into India is this: "Where in India should we build our plant?"

There is, however, something you need to establish before that question. It is "If we change state, what changes — and by how much?" Many companies treat this as little more than a comparison of logistics distance, when in reality it is a decision that fixes your cost structure for the next twenty years on the spot. In this article we will set out that gap in figures alone.

Key Points of This Article

For those of you who are pressed for time, we will begin with the conclusions.

• In India only the tax rates are uniform nationwide; costs differ from state to state. Land, electricity tariffs, stamp duty and professional tax are matters within the exclusive competence of the state governments under the Constitution, and they have remained so irrespective of GST.

• The single largest gap is electricity. The difference is roughly ₹1.5 per kWh, which for a plant consuming 50 million kWh a year comes to approximately ₹7.5 crore (about KRW 1.2 billion) a year.

• Stamp duty goes out in one payment. The difference is 1 to 2 percentage points of the site value, and where you are allotted a site by a state industrial development corporation you are frequently exempt.

• Incentives are the only item that reduces your costs — but most of them require prior registration before the investment commences, so if you apply after breaking ground you are excluded.

• These items are fixed the moment your plant stands on that land. They cannot be undone.

1. Why Do Costs Differ from State to State?

India's Constitution divides legislative competence three ways. Defence, currency, foreign direct investment and company law fall exclusively to the central government. Land, electricity tariffs, stamp duty and professional tax, however, fall exclusively to the state governments.

There is one sentence worth remembering here.

Incorporating a company is something you do with India. Running a business is something you do with a state.

When GST was introduced in 2017 there was a good deal of comment to the effect that "India has finally become a single market". That is not untrue — the tax barriers that had accumulated at every state border genuinely did disappear. What GST unified, however, was the single indirect tax levied on supplies of goods and services, and the remaining costs of actually running a plant stayed exactly where they were: in the hands of the state governments.

GST guarantees that "the tax rate is the same wherever in India you sell". It does not guarantee that "the cost is the same wherever in India you manufacture".

2. The Costs That Move When You Change State

Let us begin with the overall picture.

All four items are marked "cannot be undone". You should take it that twenty years' worth is fixed the moment your plant stands on that land.

3. Electricity — the Single Largest Gap

There is no single nationwide industrial electricity tariff in India. Tariffs are set by each state's electricity regulatory commission, and on top of that sit the electricity duty levied by the state and the open access surcharge.

The tariffs for the principal industrial states, based on publicly available data as at 2025, are as follows.

The difference between the lowest and the highest is roughly ₹1.5 per kWh.

₹1.5 a unit is a small figure. It looks trivial — but once you multiply it by consumption the picture changes. For an electricity-intensive operation consuming 50 million kWh a year that is approximately ₹7.5 crore (about KRW 1.2 billion) a year, and on a twenty-year plant life it is around ₹150 crore. Since the tariff is set by the state electricity regulatory commission and your plant is already standing in that state, this figure cannot be negotiated down after the event.

Note: The figures above vary considerably depending on slabs, demand charges, time-of-day tariffs and whether open access is used. For your actual review you should re-confirm them against the latest Tariff Order of the state concerned.

4. Stamp Duty — the Money That Goes Out in One Payment

If you purchase industrial land privately, stamp duty is payable on the transfer of title. This is a state tax, so the rate differs from state to state. Delhi levies a flat rate of around 6%, whereas Haryana levies 7% in urban areas and 5% in rural areas. On a site purchase of around ₹62 crore, a difference of 1 to 2 percentage points means ₹60 lakh to ₹1.2 crore leaving your account immediately.

There is a further layer to this. In India, industrial land is generally not an asset you buy on the open market but something allotted to you by a state industrial development corporation. Gujarat's GIDC, Maharashtra's MIDC, Tamil Nadu's SIPCOT and Karnataka's KIADB each perform that role.

If you are allotted a site by a development corporation you will frequently be exempt from stamp duty, and the price per unit of land is also lower than the private market price. If schedule pressure leads you to rush into a private land purchase, you lose both of these at once.

5. Professional Tax — Not the Amount, but Whether It Exists

Professional tax is a local tax levied by state governments on employment income, and under India's Constitution it may only be levied up to ₹2,500 per person per year. Even for a site with 240 employees that is less than ₹6 lakh (under KRW 10 million) a year.

The trap in practice lies not in the amount but in whether the tax exists at all.

Maharashtra, Karnataka, Tamil Nadu, Gujarat, West Bengal, Telangana and Andhra Pradesh levy it. Delhi, Haryana, Uttar Pradesh, Rajasthan and Uttarakhand, by contrast, do not levy it at all.

If you place a site in a state that levies it, separate registration and periodic filing obligations arise. If your head office's standard payroll system has no line for this item, unfiled periods simply accumulate, and once the matter is picked up in an audit you bear both the retrospective payment and the penalty. It becomes a problem not because the tax is heavy, but because people pass over it without knowing it is there.

6. Incentives — the Only Item That Lowers Your Costs

The three items above all push costs up. Incentives are the one variable that moves in the opposite direction. A state incentive package is generally made up of the following.

• Capital subsidy — cash support amounting to a set proportion of fixed asset investment

• SGST reimbursement — the state's share of GST paid, reimbursed at typically 75–100% over 7 to 15 years

• Interest subsidy — partial coverage of interest on borrowings for plant and equipment

• Electricity tariff support, exemption from electricity duty, exemption from stamp duty, discounts on land price

Where the scale is large, this more than offsets the electricity and stamp duty gaps set out above. In practice it is not uncommon for the total value of state incentives to exceed that of central government incentives.

The question is when your eligibility disappears. Most state incentive policies impose prior registration before the investment commences as a condition. If you apply after breaking ground, core items such as the capital subsidy and the SGST reimbursement are excluded, and there is no retrospective application. It is the only variable a company can control, and at the same time the item most frequently lost in its entirety.

7. What Does It Come To over Twenty Years?

Let us place the figures above into a single hypothetical case. We will assume a manufacturing company with 240 employees consuming 50 million kWh a year, on a site worth around ₹62 crore.

This table is not a set of definitive figures comparing two particular states. It is an illustration, placing item-by-item gaps into a single business of a given size so as to show the order of magnitude involved. Actual amounts vary considerably with sector, consumption, investment scale and the outcome of negotiations.

Even so, one thing is clear. The sums that turn on state selection are not a matter of "a few per cent" but of tens of crores of rupees.

Frequently Asked Questions (FAQ)

Q1. GST unified everything, so why do costs still differ from state to state?

A. What GST unified was a single indirect tax. Land, electricity tariffs, stamp duty and professional tax are matters within the exclusive competence of the state governments under India's Constitution, and they remained exactly as they were, irrespective of GST. It is accurate to understand it as follows: the tax rate on sales was unified; the cost of production was not.

Q2. Is the difference in electricity tariffs really that large?

A. It is small per kWh, but it changes once you multiply by consumption. ₹1.5 a unit is a trivial figure. Yet on the basis of 50 million kWh a year it comes to approximately ₹7.5 crore a year, and over twenty years around ₹150 crore. The more electricity-intensive your operation, the more this single item determines your choice of state.

Q3. Can we not apply for incentives later?

A. In most cases, no. A considerable number of state incentive policies impose 'prior registration before the investment commences' as a condition, so if you apply after breaking ground the capital subsidy and the SGST reimbursement are excluded. Please do keep in mind that applying for incentives is a step that has to come before you sign for the site.

Q4. So which state is the best?

A. There is no single correct answer to that question. The weighting of each item changes entirely according to whether your purpose in entering India is domestic sales or a manufacturing base. The question to ask first is not "which state is good" but "which item is decisive for our purpose".

In Closing

Choosing a state in India is not a property decision. It is a twenty-year cost decision that fixes your electricity tariff, stamp duty, professional tax and incentive eligibility all at once.

For many companies, logistics distance is in practice the only item examined when choosing a state. Logistics distance can be corrected later with warehousing and 3PL. Latitude and longitude cannot be changed.

📘 If You Would Like to Go Deeper into This Subject

This article draws the cost element out of Chapter 1 of India Incorporation and Foreign Direct Investment (FDI) Regulation (India Entry: The Real Rules Are Elsewhere, Volume 1), which we wrote ourselves.

There is material we could not fit into a single blog post and which is dealt with only in the book.

• Licensing timelines and the threshold for prior approval of retrenchment — two items that do not appear in the profit and loss account but come back as money in the end

• How to compare incentive offer letters quantitatively on a twenty-year cash flow basis — putting three states' offers into a single table

• The five questions a board should ask on a state selection agenda item — a decision framework that also sets out how far each item can be undone

• The case study in full — what a Korean automotive component manufacturer that decided on logistics distance alone lost over three years

📗 India Incorporation and Foreign Direct Investment (FDI) Regulation is available from BOOKK.

If You Are Unsure Where to Begin with Your Entry into India

ADL Consulting has supported Korean companies entering India since establishing our Indian subsidiary in Delhi in 2017, and today we operate from four bases: Delhi, Bengaluru, Chennai and Seoul. We advise on everything from incorporation to accounting and tax, HR, labour and legal matters, certification and government incentives, real estate and commerce.

We would encourage you to review this together with us from the state selection stage onwards. If you simply share with us the candidate states you are considering and your expected investment scale, we will carry out a preliminary assessment and provide you with an item-by-item comparison table.

ADL Consulting will be at your side as a dependable partner for your entry into the Indian market.