The appeal of India company formation is stimulated by the gradual easing of foreign investment restrictions. Inward foreign direct investment (FDI) into India in 2007 was US$32.4 billion, a 90% increase over 2006 (US$17 billion), and has had an annual average of US$2 billion since 1990. In 2007 Ford Motor Company announced it would spend US$500 million on expanding car manufacturing facilities in India.

Several foreign investors deciding to form an Indian company require access to India's thriving domestic consumer market. The Indian economy is primarily a services-based economy, including business process outsourcing for western firms, software development, tourism and financial services. While the services sector accounts for 61% of total economic output, the sector employs a mere 28% of the work force. However, the manufacturing, pharmaceuticals and biotechnology sectors are booming in India thanks to India’s low cost labour base.

India's poor ranking of 84th on the 2009 Corruption Perceptions Index by Transparency International, a global measure of corruption amongst public officials and politicians, would have a negative impact on the appeal of India company formation. India is also ranked a low 49th place on the World Economic Forum's Global Competitiveness Report 2009-2010.

Furthermore, India's economy is restricted. The Heritage Foundation's 2010 Index of Economic Freedom ranks India as only the world's 124th-freest economy. For example, Indian companies are also subject to foreign exchange controls.

Another driver of the Indian economy is its burgeoning services sector. Many international companies are realising the benefits of business process outsourcing to India. India captures approximately 12% of global business processing outsourcing engagements, amounting to annual revenue to India of US$34 billion. More than 400,000 people work in Indian call centres. Foreign entrepreneurs who undertake India company formation benefit from the country's large pool of young, educated, fluent English speakers to provide services for companies around the world. India's labour availability is one of its major competitive advantages.

While there are positive aspects for India company formation India’s economic growth is vulnerable to i) heavy state control of many industry sectors, for example transport sectors ii) pressure on infrastructure and land because of the country’s high population iii) excessive rules, regulations and paperwork when dealing with public and private sector organisations and iv) corruption among government officials and civil servants.

India's complex business regulations and bureaucracy are factors in its low ranking of 133rd in the World Bank's Doing Business 2010 Survey and this discourages many foreign investors from undertaking India company formation.