Business, Real Business, India - Sun May 1, 2011

Should you bother with India?

Our government ministers have spent the past year currying favour with India. But what’s in it for the entrepreneur?

Britain has launched a major charm offensive in India. David Cameron kicked off the trend when, in July last year, he flew out to India with Chancellor George Osborne, Foreign Secretary William Hague and Business Secretary Vince Cable in tow – leading what Downing Street described as the largest UK trade delegation in living memory. “I want to take the relationship between India and Britain to the next level,” gushed our PM.Lord Stephen Green flew out there in March (his first major trip as trade minister) and, in the same month, the UK India Business Council held a mammoth summit in Manchester for 600 businesses from across the UK and India. This government is hell-bent on increasing exports to kick start an economy saddled with debt and facing the deepest spending cuts since World War II.

So, should you, running your ten-man business in Bradford, give two hoots? The Indians have welcomed the big British brands such as Marks & Spencer, The Body Shop and Mothercare with open arms. But what of the smaller businesses hoping to benefit from the Indian growth story? Those wary of red tape, corruption, bribery, flaky tax laws, and the financial vagaries of setting up shop in a country that loves cricket but can’t quite get the hang of pavements?

What should they expect to find in one of the world’s fastest growing major economies with a population of 1.2 billion?

First up, expect a young and vibrant workforce. While China’s workforce is already growing old, India’s gets younger (median age is 25.3 years versus 40.2 in Britain) and better educated every year and is one of the cheapest pools of labour on the planet.

It’s hard to imagine a better market for hiring willing young engineers and salespeople. “The country’s young demographic profile helps it provide an increasingly well-educated and cost-competitive labour force,” says Sunil Shirole, chief executive of Mumbai-based Yen Management Consultants.

Then there is the shared history. British business owners are embraced as reliable and forward thinking (and as people who usually like a beer and a curry). Don’t underestimate the power of this shared culture. Shirole notes: “Strong historical ties with Britain remain intact and Brits are still by far the most welcome foreign visitors and business travellers.”

In every industry, the market potential is – for the time being – virtually limitless. Much is made of the urban rich; less is written about the increasingly wealthy hinterland. Divia Thani, editor of Condé Nast Traveller India, comments: “You have pockets of fabulous wealth in places such as the Punjab in northwestern India, so British entrepreneurs are seeing the sense of having a presence in places like Ludhiana (Punjab’s biggest city).”

Behind this lies India’s robust economy. Gross domestic product (GDP) is on track to hit nine per cent this year and remain in the high single digits for at least the next decade. Business is increasingly welcome here. Historical limitations on foreign direct investment, notes Bhanu Choudhrie, founder of London-based venture capital outfit C&C Alpha Group, have “all but disappeared”, with the repatriation of capital investment and profit of capital investment now permitted.

Meanwhile, high corporate taxes are slowly being tackled by the Indian government, notably through the advent of Special Economic Zones (600 SEZs, based on the Chinese model, have been created since 2005). Benefits to investors include 100 per cent exemption on export income during the first five years, and 50 per cent over the next five. Other tax exemptions include discount rates on central and state-level sales taxes.

But we’re not going to lie. This being India, problems persist. Take the cost and quality of office space, for example: Mumbai is one of the most expensive places to rent an office and housing, with a three-bed apartment costing up to £10,000 a month.

Another barrier is the quality of retail space. “Some of the malls and other retail projects are poorly designed and constructed,” says Eddie Malone, deputy head of UKTI, Western India. “The use of the space will be limited and may not work well for a particular type of operator – stairs in a supermarket is one example.”

Land acquisitions are also a headache. Buying land is cumbersome and time consuming – it can take an agonising two years to receive approval. Then there’s the issue of endemic corruption. A series of major corruption investigations are underway, including several in the telecommunications industry.

India’s entire economy operates because business owners are forced to pay backhanders to secure licenses to buy land, to hire labourers, to import and export goods, and to manufacture onshore. With this in mind, it’s worthwhile reading up on the long-delayed UK Bribery Act 2010. Greasing the palm of an official in India directly or through a local business partner might lead to the British chief executive paying a fine, and even doing time.

Take time, as well, to adapt to the regulatory environment. Laws in India are omnipresent and bafflingly complex. First-time business visitors will find the complexity of doing business “hard to negotiate at first”, believes C&C Alpha’s Choudhrie.

Retailers also face a heavily regulated and controlled market. Companies such as Tesco are severely restricted as they are in the multi-brand space, forcing them into tie-ups with local companies. India’s government has long sought to open this market more to foreign retailers but powerful local interests have lobbied successfully (so far) against any rule changes.

A lot of newcomers make the mistake of assuming that India is just like China. Well, it’s not. In fact, the two nations (GDP growth apart) couldn’t be any different. One way the two countries diverge hugely is in infrastructure. China’s roads, airports and rail networks mostly work like a Swiss watch. India, on the other hand, is a nightmare to travel in (even though the UKTI’s Malone insists the country is making “slow but steady improvements”). The Bandra-Worli Sea Link was finally completed (by Chinese labourers) in 2009, massively over budget and five years late. For any British company looking to manufacture as well as transport goods within India, this is a serious issue.

British firms take note: looking and learning is vital when entering India’s vast, baffling market for the first time. But having done that, leap in. It’s a great place to be and, with GDP at record-high levels in a country that loves Britain and everything British, not being there makes little sense for any budding entrepreneur.

What are you waiting for?

Read the full article online at: http://realbusiness.co.uk/advice_and_guides/should-you-bother-with-india

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