Investors haven’t been this bullish on India since 2003. But all of that took a turn for the worse with the financial market crash of 2008. While other countries in the emerging markets recovered quite well starting in 2010, thanks to stimulus packages and robust China demand for commodities, India became a “gasping elephant” as an HSBC analyst famously called it in 2012. GDP growth went from 10% in 2010 to 5% in 2013. Foreign direct investment in the country declined by 30% from its 2008 levels.
Two years later, the pendulum has swung.
Optimism for doing business in India is rising. Sentiment improved whenNarendra Modi was elected prime minister on a business-friendly reform agenda in May 2014, though positive signs were evident before the election. Even under the ruling Indian National Congress at the time, mired in a political quagmire that made the last two years of its rule hobbled by policy paralysis, the INC managed to permit greater foreign investment in airlines. United Arab Emirates’ Etihad Airwas was the first to bite, acquiring a stake in Jet Airways. Other policies were hamstrung by politics, primarily retail ownership by foreigners.
A model of the C-130 Hercules engineered by Lockheed Martin. India’s Tata Advanced Systems builds the Hercules wings. (Photo by Jackie O. Cruz/FORBES)
A survey conducted last summer by Ernst & Young found that 53% of more than 500 business leaders around the world planned to enter or expand their operations in India within the following 12 months. The list of multinationals that are making long-term investments in India includes U.K. liquor company Diageo , which acquired majority ownership of United Breweries, once run by Indian billionaire Vijay Mallya; French energy company GDF SUEZ; pharmaceutical giant GlaxoSmithKline; Sweden’s IKEA; Singapore Airlines; Starbucks, which partner with the Tata Group; U.K. retailer Tesco; Unilever, Vodafone and Volkswagen all upped the ante on Modi.
India is loved for its domestic market. Young, relatively poor, and with a long way to grow. GDP per capital is under $2,000 annually and expected to double by 2021 to $2,700.
Still, the challenge of doing business in India is greater than any of the big emerging markets. The World Bank ranks India last in terms of ability to enforce contracts and in ease of doing business, which includes regulatory approval and permits.
Persistent corruption also compounds the challenges. Sixty-nine percent of respondents to the 2013 Ernst & Young survey said fraud is an inevitable cost of doing business in India. Many foreign investors may be motivated as much by fear as by optimism—compelled by the belief that they must invest in India to achieve their ambitions, even though they know the risks are great and the outcome is highly uncertain, said White & Case corporate lawyers in a 14 page white paper titled “Navigating India: Lessons for Foreign Investors”.
White & Case said companies investing in India need to understand the regulatory rules governing their sector, interpret regulations conservatively and build in commercial protections. ”All companies that operate in India face unique challenges, and there are no easy rules for success. But every company can benefit from the experience of others,” report writers said.
Over the last year, 67.4% of foreign direct investment in India has gone go the services sector, with 18.7% going to industry. The remaining 13.9% has gone to agribusiness investments, according to the Reserve Bank of India.
FDI in India is capped in a number of key sectors. Foreign ownership cannot exceed 49% in Indian defense contractors, or 74% in private banking.
Most large multinationals are partnering with well known Indian companies. U.S. helicopter manufacturer Sikorsky and defense giant Lockheed Martin both partner with Tata Advanced Systems in Hyderabad. Not all partnerships have gone as smoothly. Walmart left India’s joint venture with Bharti Enterprises last year when it became apparent it would not be able to open retail stores in the country anytime soon. Current rules allow for big retailers to enter cities with over one million inhabitants, and subjects them to the whims of local law makers who can decide whether or not an investment can go through, even after deals have already been inked.
“We are optimistic about (India’s) future,” wrote the White & Case report authors, led by the head of India’s practice Nandan Nelivigi. “Even if Prime Minister Modi is wildly successful in his reform efforts, change will take time. Many companies can’t afford to wait for improved conditions before developing a stronger presence in India. Competition for the best opportunities is already fierce and will only intensify as the business climate improves. Fortunately, investing in India today is no longer a step into the dark.”
U.S. Leads Top 15 Countries Investing In India - Forbes
Two years later, the pendulum has swung.
Optimism for doing business in India is rising. Sentiment improved whenNarendra Modi was elected prime minister on a business-friendly reform agenda in May 2014, though positive signs were evident before the election. Even under the ruling Indian National Congress at the time, mired in a political quagmire that made the last two years of its rule hobbled by policy paralysis, the INC managed to permit greater foreign investment in airlines. United Arab Emirates’ Etihad Airwas was the first to bite, acquiring a stake in Jet Airways. Other policies were hamstrung by politics, primarily retail ownership by foreigners.
A model of the C-130 Hercules engineered by Lockheed Martin. India’s Tata Advanced Systems builds the Hercules wings. (Photo by Jackie O. Cruz/FORBES)
A survey conducted last summer by Ernst & Young found that 53% of more than 500 business leaders around the world planned to enter or expand their operations in India within the following 12 months. The list of multinationals that are making long-term investments in India includes U.K. liquor company Diageo , which acquired majority ownership of United Breweries, once run by Indian billionaire Vijay Mallya; French energy company GDF SUEZ; pharmaceutical giant GlaxoSmithKline; Sweden’s IKEA; Singapore Airlines; Starbucks, which partner with the Tata Group; U.K. retailer Tesco; Unilever, Vodafone and Volkswagen all upped the ante on Modi.
India is loved for its domestic market. Young, relatively poor, and with a long way to grow. GDP per capital is under $2,000 annually and expected to double by 2021 to $2,700.
Still, the challenge of doing business in India is greater than any of the big emerging markets. The World Bank ranks India last in terms of ability to enforce contracts and in ease of doing business, which includes regulatory approval and permits.
Persistent corruption also compounds the challenges. Sixty-nine percent of respondents to the 2013 Ernst & Young survey said fraud is an inevitable cost of doing business in India. Many foreign investors may be motivated as much by fear as by optimism—compelled by the belief that they must invest in India to achieve their ambitions, even though they know the risks are great and the outcome is highly uncertain, said White & Case corporate lawyers in a 14 page white paper titled “Navigating India: Lessons for Foreign Investors”.
White & Case said companies investing in India need to understand the regulatory rules governing their sector, interpret regulations conservatively and build in commercial protections. ”All companies that operate in India face unique challenges, and there are no easy rules for success. But every company can benefit from the experience of others,” report writers said.
Over the last year, 67.4% of foreign direct investment in India has gone go the services sector, with 18.7% going to industry. The remaining 13.9% has gone to agribusiness investments, according to the Reserve Bank of India.
FDI in India is capped in a number of key sectors. Foreign ownership cannot exceed 49% in Indian defense contractors, or 74% in private banking.
Most large multinationals are partnering with well known Indian companies. U.S. helicopter manufacturer Sikorsky and defense giant Lockheed Martin both partner with Tata Advanced Systems in Hyderabad. Not all partnerships have gone as smoothly. Walmart left India’s joint venture with Bharti Enterprises last year when it became apparent it would not be able to open retail stores in the country anytime soon. Current rules allow for big retailers to enter cities with over one million inhabitants, and subjects them to the whims of local law makers who can decide whether or not an investment can go through, even after deals have already been inked.
“We are optimistic about (India’s) future,” wrote the White & Case report authors, led by the head of India’s practice Nandan Nelivigi. “Even if Prime Minister Modi is wildly successful in his reform efforts, change will take time. Many companies can’t afford to wait for improved conditions before developing a stronger presence in India. Competition for the best opportunities is already fierce and will only intensify as the business climate improves. Fortunately, investing in India today is no longer a step into the dark.”
U.S. Leads Top 15 Countries Investing In India - Forbes
