^ Offshore platform in the south of India. The country is highly dependent on crude oil and gas, being the third largest importer in 2018 (behind the USA and China).
Article By Shavikesh Goel
India is the world’s fifth largest economy by nominal GDP (USD 2.94 trillion) and the third largest by purchasing power parity (PPP) (USD 11.33 trillion). With GDP growth rate hovering around 6 to 7 per cent per annum for several years now, India is increasingly seen as an attractive investment destination by companies around the world. India has been rapidly climbing up the ladder of World Bank’s Ease Of Doing Business rankings (from 142nd rank in 2014 to 63rd rank in 2019).
Due to COVID-19, while the whole world is in a turmoil and businesses are recalibrating their global supply chains, India offers an exciting opportunity to companies to either relocate or collocate their businesses to India, especially for manufacturing.
The growth in India’s working age population is now more than the growth of the dependent population. This will last till 2055, making India the youngest nation in the world in terms of population.
Young and aspirational
Let us look at some of the advantages India offers to expand one’s business here. The language is the biggest advantage when trading with India. India has the second largest English-speaking population in the World. English is the business language so one can converse with almost everyone across India. This helps to break the ice. The contracts are also written in English and this brings about transparency into business dealings. Not only this, India is a thriving democracy (the world’s largest) and the rule of law is followed. Intellectual Property Rights are enforced and there is a developed legal system in place to address any potential breaches.
India also offers an affordable workforce, even as compared to China. The minimum wage for a skilled worker in India is ~USD 1.25/hour. Besides affordability, it is the availability of workforce which is a great attraction. Roughly 860 million people in India are aged between 15 and 64 years and roughly 630 million people between 25 and 64 years. That is a lot of people available in the active working age, especially when one is considering relocating manufacturing operations to India from other countries.
One of the most important business reforms in independent India’s history was the introduction of Goods & Services Tax a few years ago. This unified India into a single market, bringing in efficiencies and reducing bureaucracy. The size and demographics of India’s population make it an attractive market. The young and aspirational middle class (~300 million strong) is driving the demand for better- and high-quality products and services. In fact, the rising domestic consumption is one of the major factors which sets India apart from other emerging markets.
The recent disruption of global manufacturing supply chains due to the over dependence on China, has prompted the Federal and State governments in India to make investment and labour laws more attractive. A slew of tax incentives for setting up new manufacturing companies were also announced late last year. Companies setting up new factories in India after 1st October 2019 will have to pay income tax at 15%, which is one of the lowest rates of income tax across the world. Indian government also announced an economic stimulus package worth ~USD 280 billion to spur the economy. This is ~10% of India’s GDP and more such stimulus packages are expected in the near future.
Many international companies still prefer to start doing business in India through trading before beginning to manufacture. While selling to India, a few things need to be considered. Indian labelling and product registration requirements are the first place to start. The products need to be labelled either in English or in Hindi.
The weights should also be standard measurements. Product registrations are equally important. Several imported products need to meet the Indian quality standards and are required to have a quality certificate from the Bureau of Indian Standards (BIS). Failure to be certified by BIS could mean some products will not be allowed to be imported into India. It is advisable to use an experienced consultant specialising in BIS registrations for international companies’ products.
Another important factor to consider is the most suitable way to export to India. Customers’ inability / unwillingness to import directly could necessitate using agents or distributors who are well equipped to sell imported products.
Honouring commitments is not a given. It is advisable to take the support of a reputable consulting company having experience of helping international companies to enter India for conducting a thorough analysis of distribution partners and to appoint them after due diligence. The contracts should also be legally vetted by a lawyer experienced in these matters.
Another point to consider is that India is a very price competitive market. While people in India are willing to pay a premium for imported products (other than from China), one must be prepared to offer special prices when selling to India.
Often, the volumes in India offset the additional discounts offered. Once the customers gain confidence in the products and their availability, the prices can be revised upwards.
India is well poised in the post-COVID world to be the preferred destination for international companies not only to sell their goods, but also to make in India and export to other countries. It is also the right time for global companies to explore India’s potential, if they have not yet looked at India as a key growth market for the future. I can safely say that missing out on the India opportunity would be a great risk for any company, even if one considers the possible challenges India offers. More about this another time.