Opportunity Zone:

What Business Needs to Know about India Today

Emerging markets are a moving target. Best-loved business destinations a decade ago have today shed shed much of their allure. The disillusionment came when the global economic downturn shook up local economies and brought to the surface their deep-rooted, but until then dormant deficiencies. Suddenly, the landscape of emerging markets became increasingly indecipherable – no more univocal decisions or clear-cut choices. The challenge, however, does not mean the absence of opportunity. It is just that the navigation maps need to be changed. With no ready-to-serve offers on the table anymore, companies need to choose markets for their long-term potential rather than immediate gains and be ready to commit before ripping benefits.

India has every opportunity to fit well into the preferred candidate profile. In fact, few countries can boast as much momentum as India does today. The populous nation and its vast market have long tickled investors’ curiosity but have never really been capitalized on due to fundamental issues in the country, such as infrastructural gaps, social disparity, and a complicated business environment. Yet, today, there is more to India than we commonly know. The window of opportunity has only recently started to open. The sweeping reforms got a strong boost in 2014 when the landslide victory of the National Democratic Alliance in the general election brought to power the new government led by Narendra Modi. Under the new leadership, the country is rapidly opening to the world and undergoing major social and regulatory changes.

India is on the brink of a major transformation which that will change how the country lives, buys, and operates. For companies and investors alike, being in the right place at the right time has probably never been as accurate as it is in India today. In the myriad of opportunities rising, we concentrate on the three main areas, which, in our opinion, deserve business leaders’ attention as they explore the global marketspace and decide where to place their bets.

Unfolding Market

The Indian market is big, but it is not only that characteristic that should be making headlines. The change that is happening on many levels, starting from new lifestyle and consumption patterns to nation-wide infrastructural projects, directly impacts consumer and industrial markets and warrants much more attention.

With ongoing demographic boom India will become the world’s largest nation by 2022. India’s economy has already bypassed China in terms of growth rates and is forecast to flourish further. Purchasing power is also on the rise, thanks to the consistently growing middle class and urban population, which are projected to approach half a billion by 2030.

Urban markets stir demand both, in basic as well as higher-end goods and services. Interestingly, some of the segments where the extra disposable income is going to flow diverge from global patterns. For instance, scooter producers providing a more affordable ground transportation option are expected to see a bigger share of new customers than car manufacturers. Another and very India-specific consumer trend is the wedding-related market where Indians traditionally splurge. As the peak numbers of births in the country were registered over 20 years ago, the wedding-stimulated industries, such as jewelry and baby care products, are set to expand in the coming few years.


Online business is expected to benefit most from the Indian urban trend and will accumulate a significant share of spending, in particular with the new generation of customers. Not only Western companies like Uber but also firms from other emerging countries seek to profit from India’s online prospects. Jack Ma, Alibaba’s founder, recently said to investors: “We need another at least 1.2 billion population outside China.” Undoubtedly, the only market that could offer that in one strike is India. Ma’s words have already been taken into action as Alibaba invested about $1 billion in India just in the past two years. Among recent huge Chinese-Indian partnerships are the co-investment in Indian company OLA by China’s on demand transportation app Didi Kuaidid, and also the alliance signed between Chinese APUS, an Android software developer, and InMobi, an Indian mobile advertising firm. These joint efforts between emerging market businesses are increasingly taking place in attempts to stave off global competition.

Besides consumer markets, India’s economy is being propelled by growing infrastructure development. As the government is taking robust measures to overhaul the infrastructure setup and move the country ahead with numerous developmental initiatives, untapped demand is bursting across industrial markets, in particular in construction, energy, transportation, telecommunications, and urban infrastructure. India is already witnessing significant interest from international investors, which is likely to increase as the government pushes forward with its Make in India campaign.

Manufacturing Integration

The Make in India program is set to transform the country into a global production hub. However, the initiative is only a part of the big picture. The decisive efforts undertaken by Prime Minister Modi’s government to transform India affect the entire business landscape, extending from liberalization of foreign direct investment (FDI) to long-mulled major reconstruction of tax system. The Incredible India motto that for years maintained the country’s image as an exotic tourist destination is today being shaped into ‘Credible India’, as business itself says, to be understandable for investors and easy for doing business in.

Indeed, after decades of the closed-door policy of protectionism, international business feels much more welcome now. India has widely opened gates for FDI across its economy, having announced two major liberalizing reforms, within a year. New manufacturing opportunities are arising today in many industries of Indian economy, including those considered most prospective by the Indian government: energy, telecommunications, space industry, pharmaceuticals, and nanotechnology. With an amazing speed, the country became the No. 1 FDI destination in 2015 with $63 billion worth of projects, according to fDi Intelligence, a division of The Financial Times Ltd.

On the speedway to international manufacturing integration, the country is busy introducing stimulating policies and alleviating barriers to doing business. The latest landmark tax reform passed in July 2016 (a decade after it was first proposed), is to completely overhaul India’s cumbersome indirect tax environment and is already rightfully considered Prime Minister Modi’s biggest win in office with broad, far-reaching economic effects. When implemented as expected in April 2017, the new Goods and Services Tax (GST) on consumption will replace at least 17 levies, thus creating a single national market with 1.3 billion consumers, easing the operational burden on business and eliminating the cascading effect of levies on the product cost.

The new government is also skillfully leveraging India’s key asset – the nation’s human capital – and is already collecting the demographic dividend. Admittedly, cost competitiveness is one of the core factors that form India’s appeal to global business. The increased pay levels in China, the renowned world’s workshop, have prompted business to eye other countries for cheaper capacities. India is well-positioned on the world’s labor market given that it is one one of the world’s youngest nations. (The average age is 26.7 compared to the world’s average of 29.4 and Germany’s of 45.7.) India supplies the workforce’s largest number of educated English-speakers. Being the third-largest scientific and technical manpower in the world, the country not only yields opportunities to international companies looking to work in India, but also has the foundation for its own innovative ecosystem.

Transforming Innovations

In the early rise of civilization, India was home to the world’s first universities, including the university Takshashila, started around 700 B.C., and Nalanda in about 500 A.D., where students arrived from far beyond India’s borders. Today, India remains a learning destination from, becoming the global innovation hub to which business strategists are turning for ideas and solutions.

The booming market and vast manufacturing opportunities in India go hand-in-hand with challenges that all require non-standard approaches, both from business and the government. India’s developmental needs are increasingly addressed with innovative solutions, among which are alternative energy sources and digital and mobile technology. The Smart Cities program is one of the country’s major missions to bring a meaningful change. Over 100 smart cities are planned to be built across the country. While international partnerships are encouraged, the government also extensively encourages Indian research centers and companies to participate in the project. Extending the effort, India became the first country to also initiate the rurban mission. In Prime Minister Modi’s words: “Rurban is when the city meets the village. Development should be such which has the soul of the village, but the facilities of an urban city.”

Along with the government, business is also forced to innovate in order to be on the edge in the environment where company success is strongly interlinked with society’s prosperity. The trend of recent years is that it is not only Western multinational companies coming up with new-age technologies to cater to the bottom-of-the-pyramid market, but it is also Indian firms that develop innovative solutions to serve underprivileged populations.

The Hindi word ‘jugaad’, which represents an innovative fix or a simple work-around, essentially embodies Indian resourcefulness. Called frugal innovation, adaption of existing products to meet the needs of the poor has engendered a host of technological breakthroughs. Godrej’s refrigerator ChotuKool is just one of numerous examples. Simplified from its standard 200 parts to only 20, stripped of irrelevant functions, and backed-up by a built-in battery, the refrigerator is affordable to the masses and suitable in instances of irregular power supply in a country where only eight percent of households own a conventional fridge.

India is also known for its diverse landscape of social entrepreneurship, the emergence of which is attributed to, among other factors, the country’s long-standing traditions of philanthropy and Hindu service. Yeshasvini, a health insurance scheme for farmers, and iKure, a social enterprise aimed at bringing access to health services to rural populations, are examples from health care. Many more solutions can be found in other industries seeking to bring social good.

***

The excitement about India is clear. The country is vibrating with positive change at it turns its face to the world. The Indian story is unfolding as a blend of its exploding market, open-door manufacturing policy, and a transformative innovation environment. Yet, the challenges of doing business in a country with mind-boggling diversity, infrastructural gaps, and a traditional business culture should not be underestimated. India is in no way an easy market – but it is definitely a very promising one. “Intuitively, I feel we are sitting at the cusp of one of the biggest changes since 1850.” said R. Gopalakrishnan, Director of Tata.

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