For a long time, the issue with India has always been its infrastructure. Second, endemic corruption and third, bureaucracy. In fact, all of the problems associated with each of these exist. However the key to understanding India lies in the degree of the issue. In terms of infrastructure, it’s a no-brainer. India’s infrastructure needs, and is getting, a major overhaul. In terms of getting finance into the literally thousands of medium-big ticket projects that are going on, India’s Government is offering shares and financing in these projects to foreign investors. Often packaged under the term “Public-Private Partnerships”, these spell out how foreign investors can enter into these projects, obtain funding, and participate in the reconstruction of the country. We wrote about this extensively in this issue of India Briefing Magazine. In short, foreign investors involved in infrastructure development–engineers, contractors, architects, materials suppliers and so on–all need to get into the India Market much as they did in China. The opportunity is now.
Concerning corruption, in India, it is endemic. However much of the impact on foreign businesses exists with the “baksheesh” request–a small “bribe” more often akin to giving a tip for processing a document. Typically running at just a few hundred rupees (a matter of cents), it is annoying, yet all pervasive. Concerning large-scale corruption, there is of course collusion between government officials and businesses–as occurs in all governments. Yet, India does maintain press freedom, and if caught, such protagonists can expect a literal trial by public fire. By contrast, the Communist Party sweeps much of what goes on in China under the rug. India’s bureaucracy is also not as bad as it’s painted–we know this first-hand as we run five offices assisting foreign investors in the country. Filings for the establishment of foreign invested offices, factories and so on are a daily occurrence for our firm. Just as one example, compared to China, it takes one step less in India to set up a representative office. The bureaucratic difficulties associated with doing business in India are over-hyped.
India also has a number of other things going for it. Its working population is young and accordingly much less expensive than China, and add-on expenses such as social welfare payments are at just 20 percent of China’s levels. India’s reforms are also gathering pace–a reduction in both corporate income tax and individual income tax is expected this year–which is a move that will reduce the levels of both from 45 percent down to 30 percent. That makes India highly competitive to China in terms of both labor costs and income tax.
Finally, there’s the matter of India’s own middle class. India has a huge middle class and a taste for foreign goods. India’s population is quickly catching up with China’s, and whereas China’s myth of a billion consumers has been around for centuries, India’s close match to this market size, coupled with an economy that is becoming more open rather than closed, means foreign businesses in India have not just an opportunity to conduct cheap manufacturing, but also sell to the local market. In this regard, as export manufacturing costs make China prohibitive, India is now one of the few countries where both cheap labor and a wealthy consumer class go hand in hand. Our China-India 2011 comparison , which includes labor costs, taxes and so on can be downloaded for free and provides much additional data concerning these perspectives.
Read the rest of this story by Chris Devonshire-Ellis.