India offers exciting trade opportunities for UK companies but social, cultural and business issues must also be navigated. Anuj Chande, Head of Grant Thornton’s South Asia Group, outlines India’s business landscape
There is no doubt that India offers UK companies a terrific market opportunity, given the size and demographics of the country. More than 50% of the population is under 26, there’s a burgeoning middle class of 300 million and a huge infrastructure requirement – all this makes India an attractive place to do business in and with.
However, UK companies would be well advised to consider a number of issues that make India different and challenging in terms of doing business.
1 Relationships are very important
While all business can be said to be relationship driven, Indian business dynamics and society are very relationship focused. This means that, in practice, a particular business transaction may take much longer than in the UK. Time has to be spent getting to know the people you are doing business with and, in turn, this requires patience and understanding to build up the trust and the confidence. It is about not what you know, or what you are selling or buying, but ‘who do you know, and how well?’.
Personal and business work lives are very much intertwined and there is not the distinction you have in the UK. To get what you want you may have to have countless dinners at home or attend functions. The Indian business community is very interconnected, and contacts and referrals can help shortcut the process.
2 Hierarchy is respected
Another aspect of the business environment to be aware of is that it is much more hierarchical, structurally and culturally, than the UK. Great importance is placed on the position you hold and where you are in the hierarchy.
A significant proportion of Indian companies are family promoted and controlled. This applies to even some of the biggest Indian companies with market capitalisations in billions. Family members in the business are key individuals who effectively take the ultimate decisions, and it is important to focus on them if you want to achieve your objectives. It is also important to understand that family values have an important influence in Indian business.
3 Religion has a role to play
Religion and spiritualism can also play a big part. For example, contracts may not get signed on a particular day because it is an inauspicious day – and that should be no cause for alarm.
4 Access to the market is generally open and easy
While there is still a certain degree of red tape and bureaucracy in India, there is generally open and easy access to trade and/or ability to invest in India. Trade is relatively easy, although one needs to watch duties and withholding taxes.
Setting up in India is also quite straightforward and most sectors are open to investment. All investments have to be approved by either the Reserve Bank of India (RBI) or the Foreign Investment Promotion Board (FIPB) but the process is streamlined in most sectors. The restricted sectors where 100% FDI (Foreign Direct Investment) is not available include banking, insurance, media, retail and aviation, but there have been recent measures by the government in the aviation and retail sectors to open up these areas.
Investors have two broad choices in setting up in India that need to be carefully evaluated. They can either set up as a foreign entity through a branch or project or liaison office, or as an Indian entity that is either wholly owned or a joint venture with a local partner.
5 Foreign exchange restrictions exist
One needs to be aware also that India does have foreign exchange restrictions that are governed by the Foreign Exchange Management Act (FEMA). Broadly there is full convertibility of the Indian rupee on the revenue account and limited convertibility on the capital account.
6 There are extremes of infrastructure
India is a country of extremes and one needs to be prepared for the poor infrastructure, and often poor working and living conditions for the majority of the people, sitting uncomfortably alongside the glamour and opulence of the hotels and homes you are likely to visit.
7 Local state laws exist alongside federal law
Finally, another aspect to watch out for is that India is a federal country and it is important to ensure you understand and take into account local state laws – duties and taxes. While overall taxation rates are not excessive there are a number of local taxes, including duties, to watch out for.
India offers immense market opportunities for both trade and investment and it’s a great place to do business with. One just needs to bear in mind some of the cultural and regulatory differences and challenges that you will encounter.
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