India: Untapped potential?

India's economy is growing fast, on course to overtake Britain's within years and predicted to be second only to China by 2050. Is your company missing out on this enormous country's potential?
Published —
Writer —
Theme —

SINCE the Brexit vote prompted a fresh analysis of the UK’s future trade, many have viewed India with fresh eyes.

Commonwealth research heightened expectation last year by suggesting a free trade agreement could yield a 25% increase in trade between the nations, with British exports increasing by half.

“If India has an FTA with the UK post-Brexit they are both going to gain – it’s going to be a win-win situation,” declared the Commonwealth Secretariat’s head of trade competitiveness Dr Rashmi Banga.

Despite the lapsing of a bilateral investment treaty since then, India’s high commissioner to the UK, YK Sinha, declared the prospects of a free trade deal with the UK to be “very bright, particularly since there is political will on both sides”.

This has been demonstrated by Theresa May choosing India for her first non-EU bilateral trip after becoming prime minister, and Chancellor Philip Hammond leading a fintech delegation to Mumbai.

As home to 1.3bn people, India is the world’s second most populous nation. While growth slowed during the first six months of this year, at 5.7% it remains one of the world’s fastest-growing economies.

A motorized rickshaw zips through the streets of Delhi, India.
READ: Avoiding India's cultural pitfalls

It’s also estimated to have the world’s second-largest English speaking population after the US, accounting for roughly 10% of the population, while it shares common legal and administrative frameworks with the UK.

According to the Department for International Trade (DIT), the UK exported £6.35bn in goods and £2.24bn in services to India in 2014. British companies employ some 700,000 people in India, raking in an estimated total revenue of US$54bn.

Are we missing out?

But Kevin McCole, of the UK India Business Council (UKIBC), reckons many British SMEs are failing to explore its opportunities. He points out that Britain is only India’s 12th largest trading partner, behind Indonesia, Germany and Japan. And while UK-India bilateral trade grew 170% in the decade to 2014, India’s overall trade grew eightfold.

“Too many British companies think of India as a low-cost outsourcing destination and don’t realise that there’s an export market of hundreds of millions of affluent middle-class people who see British food, drink, fashion and beauty products, and other goods, as highly desirable,” he says.

A membership organisation, the UKIBC offers consultancy and research to companies preparing for market entry, and can source information about the types of goods and services Indian businesses need.

Mumbai skyline at night

McCole says the business environment is improving all the time.

“People might have looked five years ago and thought it wouldn’t work but that situation is changing.

“The Indian retail sector was largely unorganised. It was corner shops… but now wholesalers are expanding and supermarkets are being set up. They want a better range of products so they are investing in the back-end supply chain and logistics,” he says.

Earlier this year, India introduced a VAT-style nationwide Goods and Services Tax to replace the fragmented regime that had existed across the country’s 29 states.

“It wasn’t worth investing in supply chain or transport and logistics because you got hit in the pocket every time you crossed a state border,” says McCole. “Now bigger companies can operate across India.”

A swathe of other reforms – delivering improvements such as faster access to credit and delivery of construction permits – has seen India shoot up the World Bank’s Ease of Doing Business rankings. The time taken to obtain an electricity connection was slashed from 138 to 45 days within four years, while it’s earned praise for its advanced corporate law and securities regulations.

Generic image of a city in Japan at night
India not right for your business? Read our market profile of Japan

Still, the country sits in 100th place, retaining many cumbersome processes. No fewer than 12 procedures are required before you can set up business and it takes nearly four years (1,445 days) to enforce a contract.

Announcing the rankings, World Bank country director Junaid Ahmad argued: “To secure changes in the remaining areas will require not just new laws and online systems but deepening the ongoing investment in the capacity of states and their institutions to implement change and transform the framework of incentives and regulation facing the private sector.”

So, where do the opportunities lie?

The DIT lists the top ten industries importing into India as:

  • mineral fuels & oils
  • gems & precious metals
  • electrical machinery, and equipment & parts
  • machinery, mechanical appliances, reactors & boilers
  • organic chemicals
  • iron & steel
  • plastics
  • animal or vegetable fats & oils
  • fertilisers
  • medical, optical, photographic, measuring, precision, medical or surgical equipment

McCole says UK firms have profited from recent liberalisation of rules on foreign direct investment, particularly in insurance, defence and retail.

And the Commonwealth report foresaw the removal of tariffs creating huge opportunities to increase British exports, with carmakers and distilleries among the top beneficiaries.

Ian McCarthy, director of the International Business Festival, is expecting to welcome a number of Indian delegations following a five-day mission to the country. It took in meetings with the Federation of Indian Chambers of Commerce and Industry, the Bombay and SME chambers, the Confederation of Indian Industry, and Indian Food Processors Association.

“They’re hugely enthusiastic about the prospect of hearing about best practice from the biggest names in industry and making connections in key businesses,” he says. “And we’re keen to give India a high-profile throughout the three weeks of the Festival.”

The Festival takes place between June 12 and 28 next year. Each of its nine days is themed around an area of potential for high growth among SMEs, such as Global Economics, Health and Life Sciences, Global Logistics and Shipping, Creative Industries, and Sport, Culture and Travel.

What do Indian businesses want?

McCarthy says the Indian groups showed particular interest in Manufacturing day (June 20) thanks to the New Delhi government’s Make in India campaign, which is set on bringing about best-in-class infrastructure by encouraging innovation and foreign direct investment.

Likewise, India’s growing population – some 59 of its city agglomerations are home to more than a million people – ensured keen interest in the Festival’s Urbanisation and Cities, Sustainable Energy and Future Transport day themes.

“The country has to both manage the challenges that come with a growing urban population and seize the business opportunities involved in managing waste, public transport, traffic, sustainable lighting and energy.

“We have a strong history in civil engineering, water management, urban regeneration and so the Indian delegations will be keen to hear from businesses who can provide that expertise.

“But India is executing a plan to develop 100 smart cities, so it’s also an area of real expertise for many of its own companies. We heard from a number of businesses that are interested in working here in the UK to help upgrade and modernise some of the UK urban infrastructure.”

What challenges does trading in India present?

Along with negotiating the cultural pitfalls presented by overseas trade, those doing business in India should expect customers to drive a hard bargain in what is a highly competitive market, warns the Institute of Export. Meanwhile, exporters should watch out for duties on goods, which are likely to be a minimum of 35%.

The UK government warns visitors to be mindful of multiple religious, ethnic and annual variations in holiday timings, requiring careful planning for business trips.

Along with infrastructure weaknesses posing a challenge for distribution and logistics, there can be difficulties in acquiring land, accessing people with the right skills and coping with extremely hot or wet weather, the DIT adds.

“People find it can be difficult to get food and drink to India because of labelling requirements, experience of customs procedures at the docks that aren’t slick, and there haven’t been enough cold storage transport facilities in India to get perishable goods to where they need to reach,” says McCole.

“But all these things are changing.”

Sign up for Business Tribune news and details of the 2018 International Business Festival here

Produced by the 2018 International Business Festival, in partnership with Wordscapes.