[India Entry Guide] Choosing a State in India: The Decisions You Can Undo and the Ones You Cannot

Hello, this is ADL Consulting.

There is a pattern common to the timetables of companies preparing to enter India. Three or four months go on settling the form of the entity, and a fortnight or so goes on settling which state to enter.

The question you spent months on is the one that still leaves you room to act later. The question you passed over in a fortnight is the one that does not. The form of your company changes if the papers are drawn up again; the latitude and longitude at which your plant stands do not change on paper.

What an India entry strategy needs first, therefore, is not a longer list of items to examine but a rule for sorting the decisions into two piles. In this article we set out that rule, and show which pile each of the decisions attached to your choice of state belongs in.

Key Points of This Article

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

• The test is not how important a decision is but what it costs to undo. Sort your decisions not into large and small but into doors you can come back out of and doors you cannot.

• The test is easy to apply. Write one line giving the cost and the time required to reverse the decision. Where that line cannot be filled in, the decision is not yet ready to be taken.

• The decisions attached to your choice of state fall on four rungs — those undone at once, those undone at a price, those that close when a deadline passes, and those that cannot be undone short of relocating.

• The doors do not all close at the same moment. Signing for the land, breaking ground, the incentive deadline and your first payroll each lock a different set of items.

• Put only the irreversible items before your board. Start small on the reversible ones and adjust them in the field.

1. The Order in Which You Spend Time and the Order in Which Things Lock

In a Korean head office, an India proposal spends most of its time with the legal and finance functions. The form of the entity, the shareholding structure and the size of the initial capital go through several rounds of discussion. These deserve the attention they receive.

While that is going on, however, the choice of state is often compressed into a single line — "near the customer's plant" — and passed down to the working team as a property exercise.

This is where the two orders come apart. The earlier decisions generally leave you at least some room to restructure afterwards. The choice of state, by contrast, fixes the tariff at which that plant will buy its electricity, the stamp duty it will pay, the terms on which it may reduce headcount and the incentives for which it will qualify — all at the moment you sign for the land.

There is a structural reason for this. The form of the entity and the capital structure have owners inside the head office, and those owners have a professional interest in examining them closely. The choice of state has no such owner: it touches property, labour, tax and incentives at once, and so falls between the functions that would otherwise argue about it. What no one owns tends to be decided by whoever is closest to the map.

Put briefly: the time you spend examining a decision should be set by how quickly that decision locks, not by how large it is.

2. The One Line That Decides Whether a Decision Can Be Undone

Whether a decision is reversible is not settled by argument. In most cases it becomes clear once the following line is entered on the approval paper.

What would it cost, and how long would it take, to undo this decision?

For a lease the line reads "the break fee and the agent's commission, two months". For a hire it reads "notice pay and some cost in reputation, one month". Decisions of that kind can be delegated to the field and taken quickly.

For "reducing the industrial electricity tariff", however, neither a figure nor a period can be entered, because the tariff is not something your company is in a position to negotiate. That the line cannot be filled in is itself the finding.

One qualification. The same item changes character as it grows. Reducing headcount is undone at a price in a small establishment; once you are above the threshold at which prior approval is required, it ceases to be your company's decision at all and becomes the state government's.

3. The Four Rungs of the Ladder

Choosing a state looks like a single decision but is in fact a bundle of them. Regrouped by whether they can be undone, they fall on four rungs.

The distinction worth dwelling on is the one between the third rung and the fourth. The fourth was never open to you and is not a choice at all. The third is open now and is about to close. The third rung is where your company can still act, and it is where most of the loss occurs.

The rungs are also worth reading upwards. An item does not always stay where it began: the second rung becomes the fourth once a threshold is crossed. The old Industrial Disputes Act required prior state approval for retrenchment above 100 workers; section 77 of the Industrial Relations Code, 2020 has adopted 300 as the national standard, but how warmly that is applied still depends on how far each state has notified its own rules. The same establishment therefore sits on a different rung in different states, for no reason your company controls.

4. The Doors Do Not All Close at Once

Why the third rung matters becomes clearer once the locking moments are set out side by side. Each item closes at a different point.

Nor do the four arrive in that order. Prior registration for incentives has to precede breaking ground. We would therefore suggest that, when you compare candidate states, you do not confine yourself to a table of terms but put the date on which each item locks into the same calendar.

5. How Heavy the Fourth Rung Is

Two items will show what the fourth rung actually weighs. We have taken one where the sum is large and one where it is small.

Electricity. There is no single industrial tariff for the whole of India. On 2025 published data compiling the tariff orders of the state regulators, industrial rates run from about ₹7.55 per unit in Karnataka to about ₹9.04 in Tamil Nadu. For an establishment consuming 50 million kWh a year, ₹1.5 per unit is roughly ₹7.5 crore in operating profit every year. The column headed "how it is undone" stays empty.

Professional tax sits at the other end. Article 276(2) of the Constitution caps it at ₹2,500 per person per year, so the sum itself is modest. The trap lies not in the amount but in whether the state levies it at all. Maharashtra, Karnataka and Tamil Nadu do; Delhi, Haryana and Uttar Pradesh do not. Place an establishment in a state that levies it and you take on a registration and a filing obligation, and failure to register is itself a penalty.

The point of the contrast is that the size of the sum does not tell you how much attention an item deserves. Both are settled in the same moment — the moment you settle on a state. Read across the twenty-year life of a plant rather than a single year, the first item becomes a figure your board would ordinarily insist on seeing before it approved anything; the second never appears in a business case at all, and surfaces two years later as arrears and a penalty in an audit.

※ Note — the figures above vary with slabs, demand charges, time-of-day tariffs and each state's own revisions. They should be confirmed against the latest notifications at the time of your own review.

6. So the Order Runs Like This

In practice the guidance comes down to three lines.

First, put only the third and fourth rungs before your board. Put the first and second there and the meeting is spent on what can be undone anyway.

Second, against third-rung items write a date rather than a figure. Where an item has a deadline, the closing date matters before the terms do.

Third, start small on the first and second rungs. Leases, hiring and distribution are more safely adjusted once the market has answered.

And if you narrow to a single state before you enquire about incentives, much of the third rung has closed by the time you ask. Keeping several states in contention is, before it is a negotiating technique, the way you hold the third-rung doors open.

Frequently Asked Questions (FAQ)

Q1. If a decision cannot be undone, does spending longer on it produce a better choice?
Time alone does not supply the answer. Since information on such items can only be gathered before the decision is taken, however, it is more efficient to concentrate your review effort there.

Q2. Where are the deadlines on third-rung items to be found?
They are generally stated in the state's industrial policy documents and in the notices of its investment promotion agency. They are revised often, so we would suggest confirming them at the stage at which you narrow your candidate states.

Q3. If we have already settled on a state and broken ground, is this distinction of any use?
The fourth rung has passed, but part of the third may remain. The first step is to establish which items are still open to a later application and whether any registration obligation has been missed.

Q4. Should the form of the entity or the choice of state be settled first?
It is usual to settle the purpose of the entry, then narrow the state, and only then decide the form. Settle the form first and you may find yourself fitting the structure back to what the state's incentives require.

In Closing

An India entry strategy begins not by examining more items but by sorting the items you already have by whether they can be undone.

A reversible decision can be taken quickly and corrected if it turns out to be wrong. An irreversible one must be taken slowly and got right the first time. Treating the two at the same speed is the most common shape that loss takes in India. There is no state that is simply the best; which one suits you depends on what you have come to do.

In the next article we will set out what it looks like when this distinction is missed — the failure patterns that recur among Korean companies entering India.

📘 If You Would Like to Go Deeper into This Subject

• The full list of the seven irreversible decisions — which decisions, besides the state and the site, share this character.

• The real price list for undoing a decision — how the time to incorporate differs from the time to wind up.

• The tax gate on each route by which capital returns — dividends, buy-backs, capital reduction and liquidation.

• A chart of the order among the decision stages — why purpose leads to state, and state to form.

📗 India Incorporation and Foreign Direct Investment (FDI) Regulation, the first volume of the series The Real Rules of Entering India, is available from BOOKK.

https://bookk.co.kr/bookStore/6a86df65b1468f4a36f5a612

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

ADL Consulting has been at work since establishing a local company in Delhi in 2017, and now operates from four offices — Delhi, Bengaluru, Chennai and Seoul. We have advised more than 100 companies and handled more than 300 approvals and government matters.

Company incorporation, tax and accounting, certification and incentives, human resources and legal, real estate, and distribution and marketing: all six areas are supported by a single team. ADL Consulting will be beside you as you enter the Indian market.