Andrés Mauricio Caicedo
“I leave India with a profound admiration for the remarkable development gains this country has achieved in recent decades. India´s experience holds valuable lessons for the World Bank Group and for countries around the world.”
Jim Yong Kim,
World Bank Group president March 2013
India has the potential to become one of the strongest economies in the world. At the moment it belongs to the BRICS group, and is characterized by its huge population, vast territory and the fact that is one of the fastest and largest growing markets in the globe. “India´s GDP has increased from 33.5 % in 1950 to 56.3% in 2012”. The country is the largest economy in the world regarding to purchase parity power according to the World Bank. These statistics make India the country with the highest growth rates in the past decade becoming one of the fastest growing economies in the globe. Therefore, India has captured the attention from foreign investors due to its fountains of economic resources.
India has certain characteristics or key factors that make it an attractive market for investment. With a population of about 1.2 billion people and a shift from lower class to middle class due to the improvement of education levels, India is presenting a valuable pool of human labor at low costs. Furthermore, over the next two decades, the middle class population is expected to treble leading to an impact on the disposable income. It is forecasted that the domestic demand is going to increase by 9.2% per year between 2010 and 2030, creating opportunities for industries to develop the market . Another factor that makes governments and private sectors to consider India as an opportunity for investment is how well they are informed about the western society, mainly due to its history, and the fact that high skilled labor force can speak English. However, its population is not the only factor to consider India as an investing project but also the country`s location and its natural resources. The country is well located on the globe giving it geographical advantages among other Asian countries. The borders with the Bay of Bengal and the Arabian Sea make maritime transportation optimal for logistics purposes and cost optimization. Also, its location in South Asia allows India to act as a hub and make importing and exporting easier with other countries and continents (Australia, South Africa, China, Japan etc). Its large territory (the 7th largest country in the world) and its meridian location give them agricultural and natural advantages as a resource provider.
However, before investing in a new market there must be a clear panorama regarding to the country`s situation in different aspects. There are some constraints companies must have in mind before investing and expanding their businesses to Asia, especially India, to ensure a positive return of investment.
Market: India has a huge population and they are very diverse among themselves, mainly because of their history and religion. The religion is a fundamental aspect to have in mind when providing goods and services since their beliefs are not homogeneous and some products cannot be seen well for them, for example: meat which is a product that can be eaten in the south region of India (Christians) but not in the middle and Northern part (mostly Hindus and Buddhists). Furthermore, the most important factor to have in mind is the huge and dominant un-organized street markets which provide goods and services at very low costs making companies to change their approach or strategies if they want to compete in this specific market.
Economy: India´s foreign debt has increased by 53% in the past three years, causing falling in exchange reserves leading to a slowdown in the economy. During the last period 2013/2014 India recorded a government deficit equal to 4.5% of the country’s GDP. Therefore, India`s government is spending more than what they are receiving plus the unhedged of foreign exchange loans is a cause of worry. The Indian corporate sector is looking more vulnerable hindering the possibilities for further investments.
Government: As a developing nation India is not absent from high corruption levels inside and outside the government’s jurisdiction, this is a very important factor to have in mind. The government can promise it would develop infrastructure, health care and so on, but it is not sure when, or how and in which quality levels they are going to do it leaving options for corruption to happen.
Taxes are high and procedures are complex and take long, mainly because the central government sets some taxes but each state can set their own, making India´s legal system to be very distributed causing inefficiency concerning time. Paper work could take months. Therefore, the action of tipping must be used in order to speed out the needed service.
Bureaucracy, still been an issue, however, to enter the market a long term investment is needed and a clear benefit for the parties has to be set.