As the world’s fifth-largest economy by gross domestic products (GDP), India is becoming one of the most attractive business destinations. With the annual average GDP growth standing at 7.5% and projected to remain at the same level for the next ten years, many global entrepreneurs are looking at the country with renewed interest and studying how to conduct business in India.
However, like any other country, India offers some unique advantages and disadvantages for every businessperson. It is crucial to examine both the pros and cons before making any decision.
What India offers overseas entrepreneurs and businesspeople?
Being one of the fastest-growing countries, India offers some exciting prospects for entrepreneurs. Some of them are listed below.
Huge consumer market
India’s middle class (constituting 350–400 million of its 1.36 billion people) is the leading consumer. India is the largest market in the world for manufactured goods and services. As per the World Economic Forum’s (WEF) Global Competitiveness Index, the country ranks third in market size (out of 141 countries). As per a report released by Bain & Company in association with The World Economic Forum, the country’s consumer market can leap to $6 trillion by 2030.
With a score of 90 of 100 (ranked 41st out of 141 economies) in the WEF’s Global Competitiveness Index, India has a stable economy. US-based credit rating agency Moody’s and its Indian equivalent ICRA in February 2021 gave a stable outlook for Indian corporate. As per several experts, the country’s economy is stable despite the COVID-19 pandemic, and all sectors look promising enough to yield good returns for investors.
India has a young workforce equipped with sound technological knowledge. They can build and leverage innovations and develop new technologies. India is one of the largest exporters of IT products and services, and its megacity Bangalore, dubbed as the country’s “Silicon Valley”, is the outsourcing hub of the world.
Low operational and set up costs
For many businesspeople, starting a business in India involves low operating costs. From raw materials, labor, salaries, rent, electricity, phone, and internet bills, almost everything is cheaper. For both product- and service-based multinational companies, India is an attractive destination for its low labor costs, low real estate costs, abundant and cheap raw materials, and moderate tax strategies.
Over the past few years, the Indian administration has relaxed many restrictions on foregin direct investment (FDI), such as increasing foreign equity limits for defense and insurance, resulting in a considerable rise in improving its overall business environment. In the World Bank’s Doing Business 2020 study, India leaped 14 places and ranked 63rd in ease of doing business.
Despite all the points, conducting business in India is not every businessperson’s cup of tea. Some factors can impede a business and careful planning is a must.
Where does India need to improve?
The factors that inhibit India’s position as a top business destination are:
Not much ease of doing business
Starting a business, registering property, and enforcing contracts are considerably longer in India. The steps needed to start a business are rather cumbersome. Registering a company can take 68 days at a 7.4% cost of the property’s value, which is much longer and expensive than in other countries. In case a commercial dispute arises, it can take 1,445 days to resolve it at a local court. On the brighter side, however, the country has taken many steps to make it easier for business people to do business and invest across sectors.
Size and fragmented nature of the market
Indian states, given their size and regional diversities, are vastly different from each other. Some policies, laws, rules, and regulations vary from one state to another and create a vast difference in business landscapes. The large and fragmented market presents enormous challenges for business people and investors.
High tariffs and protection policies
India has one of the highest bound tariff rates in the World Trade Organization. Its applied tariff is the highest compared to any G20 nation. The government has raised import tariffs to reduce the inflow of cheap commodities from foreign countries and has refused to join the Regional Comprehensive Economic Partnership (RCEP).
The country’s infrastructure impedes its ability to deliver public services and meet the requirements of a growing economy, the rapid pace of urbanization, and an increasing population. More than 70% of the country’s population lives in rural areas, with poor infrastructure, lack of access to reliable and safe water, power, communication, and transportation services.
Protecting intellectual property
Before considering conducting business in India, it is essential to understand intellectual property issues in the country. Even though the local laws are compatible with the US and EU’s IP laws, the actual enforcement is a different story. There is a general lack of transparency of IP patent landscapes in the country, and the judicial system is prolonged. It can take several years for IP enforcement cases to yield any results.
Differing local tax rates
The tax rates in the country differ by entity types, which can be confusing for overseas businesspeople. India has tax treaties with more than 100 countries for private limited companies and limited liabilities partnerships. The value-added tax is 18%, while a private limited firm or its branch attracts a 25% tax, and a limited liability partnership is taxed 30%.
Business Tips for India
If you have decided to go ahead with your business plan in the Southeast Asian country anyway, here are some business tips. It is pertinent to know the dos and don’ts in the Indian business ecosystem and understand the transactions in a high-context culture. Nonverbal communication, social roles, and other background factors play a crucial role in communication.
Mind the language barrier and cultural differences
Though English is one of India’s official languages, the seventh-largest country has 28 regional languages. The speakers of each language differ in their ways of thinking, expression, and articulation from another. Apart from a distinct accent, many Indians use phrases and words that don’t exist in American or British English, which may confuse native English speakers or western audiences. Though most Indians appear to know and understand many western countries’ cultural aspects, they still bear the customs and ways unique to their culture, and foreigners must respect that.
Be a little more formal
To come across as a decent and trustworthy business person or professional, it is advisable to be a bit more formal when dealing with and addressing your Indian counterparts. India is one of the most hierarchical societies, and Indians are serious about their social standing. It is ubiquitous to find people addressing their seniors (in terms of age, position, and social status) as ‘sir’ or ‘ma’am.’ However, it is better to address people by their title and surname.
Know when to shake hands and when not to
Though urban Indians have warmed up to handshakes as part of exchanging pleasantries in a business setting, their way may hugely differ from that of other countries. Most Indian handshakes will be light and soft, which isn’t a sign of indifference or lack of interest. You may consider greeting your Indian counterparts with their traditional salutations by joining palms and saying ‘Namaste.’ The form of greeting is more prevalent in rural areas and the most appropriate one to greet women in the country.
Be a little more flexible and patient
In India, it is not uncommon for things to change at the last moment, delays in schedule or delivery, unexpected holiday(s) resulting from a strike or any unforeseen circumstances, unexpected interruptions, to name a few. The key is to keep calm and be patient and flexible to tackle the unexpected.
The most important thing is to keep an open mind and remain energetic to conduct a business in India. It provides immense learning for both new and seasoned businesspeople. There is one thing common in doing business and driving in the country—if you do either one successfully there, you can do it perfectly anywhere in the world.
Xinergy Global can help you make the first steps towards operating in India. Contact us for tailor made solutions and more.