Mark Nolan, Getty Images
Industryweek 8582 Modi 2

Perils of Doing Business in India Remain

April 9, 2015
Poor infrastructure, red tape and a dearth of skilled workers can often hinder development projects, warn companies already operating here.

NEW DELHI -- With its economy growing faster than China's and a business-friendly premier who has rolled out the welcome mat to foreign investors, India may appear an enticing prospect to European investors.

But as Narendra Modi heads to France and Germany, European firms already operating in India say no one should underestimate the challenges of doing business in the world's second largest country.

Prime Minister Modi is expected to use his visit to the eurozone's two largest economies to promote his "Make in India" campaign, designed to encourage greater foreign investment in Asia's third largest economy.

"I expect my visit to be helpful in advancing our Make in India initiative," Modi said in an interview published by The Hindustan Times ahead of his departure for Paris Thursday.

"France and Germany have the manufacturing and skill base that are useful to us," he added.

With a growth rate of 7.44% last year which is expected to rise to above eight percent this year, India is now the best performing of the world's major economies.

With hundreds of thousands of young people entering the jobs market every month, there is no shortage of workers whose labor costs represent just a fraction of the average wages in Europe.

But poor infrastructure, red tape and a dearth of skilled workers can often hinder development projects, warn companies already operating here.

India is currently ranked 142nd out of 189 countries in a World Bank "ease of doing business" global league table.

And despite Modi's vow that India will enter the top 50 on his watch, executives who spoke to AFP cautioned against expecting rapid change.

"The path is clear, the objective is clear but it takes time to turn things into reality," said Gilduin Blanchard, head of operations for the French engineering firm Egis, which has a 1,700-strong workforce in India.

"If you can't control the land, contracts will dry up and you will start to lose money," he said. 

Blanchard welcomed Modi's drive to tackle corruption but said that it had a knock-on effect of delaying decisions as people try to cover their backs.

"'Clean India' is a good thing but at a local level people are petrified and this adds to delays in decision-making," he said.

Not So Easy to do Business in India 

A recent survey by the Indo-German Chamber of Commerce found that most German companies operating in India "hold a positive long-term view of the Indian market" but also identified a number of common complaints.

"Ease of doing business is looked upon as the single biggest hindrance by German companies," the chamber said.

"The survey reveals that 58% of all respondents agreed on bureaucracy being the major obstacle followed by the lack of infrastructure at 52%, corruption 45%, lack of skilled people 35% and tax disputes at 32%.

"Only 7% of the interviewed executives could not identify any hindrances of doing business in India at all," it added.

Lumiplan, a French company which specializes in providing digital updates on public transport, acknowledges the challenges but is nevertheless bullish about prospects.

While the market for digital timetables has essentially matured in Europe, Lumiplan sees India as a new frontier as almost all transport information is currently in paper form.

After making its breakthrough in the southern city of Mysore, Lumiplan has now won contracts for the bus network in Bangalore, one of the country's largest metros.

The company is hoping to establish its business quickly and expects to turn a profit as early as next year.

"Delays in decision-making and problems of governance complicate things," David Moszkowicz, head of the company in India.

"But this is a potentially enormous market and despite all the lack of transparency, you've got to be in place for when things really explode.

"You've just got to have patience and prudence," he added.

- Etienne Fontaine, APF

Copyright Agence France-Presse, 2015

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!