India is on the move

French President Charles de Gaulle famously wondered how he could run a country that made 246 different cheeses. He would have found India much harder to run. It has 22 national languages, 844 dialects, six major ethnic/religious groupings and a population of 1.2 billion.

The national election in May saw the BJ party under Hindu nationalist Narendra Modi oust the rather tired Congress party with a promise to get the economy moving again.

It badly needs to happen. An impressive boom followed the 1991 deregulation, and although India weathered the 2008 financial crisis fairly well, growth has slipped recently bottoming out at 4.5%.

Asia’s third largest economy has the potential to grow much more rapidly. Recent optimistic government forecasts pre-suppose that the country will be able to rise to its many challenges, not the least of which is the upgrading of its infrastructure, encouraging more foreign investment and above all, providing job opportunities for the 50% of the population under 35, despite a sclerotic bureaucracy and the ever-present impact of corruption.

India is a land of sharp contrasts: massive wealth next to extreme poverty, highly modern industrial operations next to medieval agriculture, great opportunities alongside major challenges. While not for the faint-hearted, the market is hugely worthwhile for Canadian businesses to explore.

Drive in any major town and traffic congestion overwhelms – there are bottlenecks everywhere (Google Indian traffic). That’s why India is investing between $500 billion and $750 billion over the next five years in essential infrastructure: roads, railways, seaports, electricity generation (natural gas rather than coal or imported oil), and metro systems in major towns. Twenty five per cent of urban residents live in slums and they desperately need water treatment technology with improved sanitation. Canadians have the technology for all this, and for oil and gas exploration, which India has yet to widely develop.
The Indian rupee slipped badly earlier this year, but has recovered somewhat and is expected to be stronger moving into 2015. Inflation is on the high side at 9.48% (2013), and while India’s overall GDP is greater than Canada’s at $1,925 billion, on a per capita basis it’s only $1,548 ($53,518 in Canada).

Reciprocal trade is roughly equal at $2.8 billion each way, but foreign direct investment (FDI) is very much in India’s favour with $3.7 billion invested in Canada. Canadian investment in India is $600 million.

Part of that discrepancy is no doubt due to the challenges of starting up a business in that country. The World Bank ranks India only 134 out of 189 countries in “ease of doing business.” When it comes to starting up operations, it’s at 179 and in dealing with construction permits it’s way down the list at 182.

Open for FDI
Transparency International’s Bribery Perceptions Index puts India at # 94/177 with a score of 36 (0 is very corrupt and 100 is clean).

It’s not all bad, though. Most industrial sectors are open to foreign investment. There are special economic zones (SEZ) with tax and other advantages. Canada and India have negotiated a taxation treaty (to avoid double taxation) and the country is considered “reasonably safe” for intellectual property protection. There are many Canadian companies with operations in India (see www.international.gc.ca). Options for start-ups include the subsidiary company, registered office, branch office, project office or a joint venture, with different rules for each. Local legal advice is recommended, and above all, choose a local partner carefully.

There have so far been eight rounds of negotiations on a Canada-India Comprehensive Economic Partnership Agreement (CEPA,) and the Canadian government suggests that the following sectors present opportunities: automobiles (particularly components); telecommunications (especially wireless, with 10 million new users signing up each month); oil and gas exploration (India currently imports 40% of its needs); transport (rail, metro); energy; medical devices and services; environment related technologies; ICT; education; and business services.

For a detailed view of the challenges and opportunities, take a look at Export Development Canada’s 58-page publication, Doing Business in India. Listed in the appendices are Canadian contact points in India, useful organizations such as the Canada India Business Association (www.canada-indiabusiness.ca) and the Confederation of Indian Industry.

Some cultural points to remember: the “Namaste” greeting, with hands pressed together below the chin is safer than an initial handshake, especially with ladies.

Indians want to build trust with you before doing business. As with most Asian countries, patience is counselled, and gift giving should be restricted to flowers, chocolates or Indian sweets to avoid giving accidental offence.

Let’s hope the new prime minister can handle the challenge that is India! Just imagine what the country would achieve if it gets its act together.

Mark Drake is the former president of Electrovert Ltd. and the Canadian Exporters’ Association.

This article appears in the September 2014 issue of PLANT.

Comments? E-mail jterrett@plant.ca.