While the UK Government sees export as a way forward for fast-growth businesses, India – with a 1.2 billion population and a 7% growth rate – offers massive potential, with Indian consumers keen to make the most of their increasing personal wealth. However, any such export plan requires careful research and consideration.
India is a diverse trading environment. Most commercial opportunities are concentrated around the major cities with certain states – Gujurat in the North West, Maharashtra and Kerala – providing particularly business-friendly environments. Second-tier cities like Pune and Ahmedabad also have potential, offering lower costs and less competition. In fact, India has over 60 cities with a population greater than one million.
Businesses need to research those areas that might provide them with a sound base. Pune in Maharashtra and Bangalore in Karnataka both have significant concentrations of media and creative companies. Aerospace players will find existing manufacturing resources in Bangalore and Hyderabad, while Pune and Chennai are also centres for automotive and logistics industries.
The commercial and trading environment needs careful consideration. India’s union government has a mandate to liberalise trading conditions, and progress towards a more transparent import and export regime is underway.
While most of the Indian economy used to prohibit or severely restrict foreign direct investment, recent years have seen a liberalisation. Now, 100% of foreign direct investment is permitted in most sectors, although caps on foreign ownership remain in retail, real estate, insurance, banking, defence and the legal sector. Efforts to relax foreign investment restrictions in retail, aviation and financial services are also underway.
Tariffs remain high by international standards and inter-state taxes are also a hotly debated area. EU-India foreign trade talks are ongoing and aim to reduce Indian import tariffs, which would put India on a more equal footing with China. Currently, import duty on foreign-built luxury cars stands at 60% and can go up to as much as 110%, for instance, once local taxes are factored in. However, cuts in duty on disparate products including tobacco, electronics components and certain green technologies have recently come into effect, so improvements are in sight.
India’s banking system has weathered the global financial crisis well. The country has a strong network of banks, and most of the major international banks do business in India. UK businesses may approach high street banks in the UK for facilities such as letters of credit to cover export of goods to India. However, advice from the UK India Business Council is to consider using Indian banks – SBI, ICICI, HDFC and the Bank of Baroda – since Indian partners may prefer working with a local bank or be better served by their products.
Products and services
India’s great social diversity means the country can be difficult to generalise in terms of products and services likely to succeed. That said, international companies are increasingly fixing their sights on Indian markets as the country’s consumers become more affluent and aspirational.
Twenty-five percent of the world’s under-25s are Indian and there are in excess of 600 million mobile phone users. Fast-moving consumer goods such as mobile phones and apps, white goods, cars, any products that make life better day-to-day or are in some way aspirational tend to do well. And as Indian culture places a premium on education and professional qualifications, there are targets for 500 million vocational qualifications and 40 million new university places by 2022. Services around academic courses and skills also stand to do well.
Investment in infrastructure – both physical and digital – will also present opportunities for foreign companies. India’s automotive and aviation manufacturing bases are also areas likely to provide alliances and market opportunities. India’s citizens are increasingly spending money on private healthcare and food and drink retailing. Although restricted to single-brand providers, these sectors are also healthy and growing.
One caveat (particularly regarding consumer markets) is that well-known brands are often favoured. Newcomers will need to make sure they are offering something desirable and correctly priced for the Indian market.
Many private sector companies in India are family-run and quite hierarchical. Indian businesspeople set great store on getting to know their contacts socially and rushing straight into commercial discussions may be perceived as rudeness.
There is a great deal of social interaction around doing business in India. It is common to receive dinner invitations and even to do business at family weddings. If you receive an invitation it is correct to attend.
India has been perceived as a high-risk territory in terms of intellectual property (IP) theft. But with more Indian businesses operating globally, the importance of intellectual property protection is being more widely recognised. India is a signatory to international treaties on IP rights.
Trademarks, patents and copyrights can be protected through registration and the Indian courts can act quickly to provide injunctions. But overall the legal system is longwinded, despite efforts being made to speed up litigation.
India intends to invest some US $1tn in its infrastructure over the next five years, half of which is expected to come from the private sector. The sum tells its own tale in terms of the country’s need for an improved transportation network, as well as hospitals and schools. The Foreign and Commonwealth Office issues updates on travel in specific areas, but stresses that most visitors enjoy a trouble-free stay.
While India has moved up the World Bank’s Ease of Doing Business rankings from 139 in 2011 to 132 in 2012, corruption remains an issue. According to pressure group Transparency International, India is in 95th position out of 182 countries in the 2011 Corruption Perceptions Index, which looks at perceived levels of public sector corruption.
A great growth story
Oxford Economics expects India’s 7% GDP growth to continue until 2025, while a PricewaterhouseCoopers report suggests the country could become the third largest consumer market in the world by 2050. Such a spectacular growth story makes current opportunities hard to ignore.
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