Investing in India
Top tips when entering the market
With an economy that is growing at a rate of five to six percent each year, India looks set to become the world’s fourth largest economy by 2025. Half of its 1.2 billion inhabitants are under 25, with a growing consumer appetite for all manner of goods and services.
Therefore, it is an attractive proposition for many overseas investors: in the year to July 2015, foreign direct investment (FDI) increased by 26 percent.
However, to succeed any would-be investor should be aware of the common pitfalls:
1. Remember India has 29 states
And that means 29 different markets, whose rules and cultures may vary. Take the Government’s FDI policy for retail. In 2012, it implemented market reforms to allow FDI for multi-brand retail, however the Government also made any decisions subject to approval by individual states. This means that each state must decide how the policy is implemented, so there’s no common approach. Investors entering this market should create a series of business plans, linked but tailored to the specific characteristics and regulations of each region. An inflexible country-wide approach won’t work here.
2. Speak the language
English is the business language, but just because you understand the words doesn’t mean you understand their meaning.
For instance, saying ‘yes’ may often be a sign of courtesy in India rather than the expression of a firm agreement. And there’s the added complication that the Western nod and shake, for yes and no, may be taken the opposite way. An appreciation for customs and values is vital. Do your research. Be prepared for a different approach to meetings, timescales and manners and don’t expect to impose your home country’s working practices.
3. Leave ample time for planning permissions
A suburban developer may have to make submissions to multiple departments including the local ward office, gardens, fire, hydraulic engineers, roads and traffic, development plans, assessment, storm water drain and tree authority. Make sure you leave enough time in your programme to get past these hurdles. A local compliances agency will have the right knowledge and relationships to process planning permissions and building control applications quickly and efficiently.
- 26% Increase in foreign direct investment from 2014 - 2015
- 5 - 6% GDP growth per year
- 50% Population under 25
4. Know your festivals
As a culturally diverse nation, India celebrates a broad range of public holidays and festivals. It is important to understand the make-up of your teams on site and the impact that might have on programme and practice. Keep in mind that because India is so diverse there will be regional and religious variations. Make sure you plan ahead so you know when there will be a lull in activities.
5. Don’t depend on lawyers
Or on a tightly-drafted contract. The FIDIC forms are well-recognised, although many clients use their own forms. Generally contracts are not well-enforced. No contractor ever expects to pay liquidated damages, for example.
The right approach is to ensure that contract conditions are fair and reasonable and that you’ve helped your contractor prepare for all possibilities. Work up front on scheduling the works and assessing materials and labour availability will pay dividends later.
6. Roll up your sleeves
Unless you are delivering a major project, you will not be able to attract one of India’s handful of Tier 1 contractors. Overseas contractors who have attempted to enter this market do not tend to survive long, so the best solution is to work with local Tier 2 or Tier 3 firms.
Smaller contractors require more support and supervision to ensure health and safety, quality, programme and budget are on track. So employ people on your team with the right supervision skills and experience to oversee the works.