India: Is it time to embrace the world’s second-biggest workforce?

India has emerged in recent years as a preferred destination for global investors. Even in the midst of a global economic slowdown, India attracted a record US$84 billion of foreign direct investment (FDI) in the 2021-22 financial year. That’s $1.6 billion more than the previous year, according to an EY report.

It looks as though the country will continue to attract the interest of overseas businesses and investors. As companies seek to diversify their supply chains and production activities away from China in response to rising labour costs and ongoing US-China trade tensions, many are seeing India, with its strong economy and large skilled workforce, as a good alternative.

So, is it time your company started exploring opportunities in the Indian market?

A nation brimming with potential

India has a lot to offer overseas companies, not least a stable economy. While global powerhouses, including China, are facing significant headwinds, India’s gross domestic product (GDP) is projected to grow 7% in the 2022-23 fiscal year. That makes it the second-fastest growing major economy after Saudi Arabia.

The country’s technology sector, in particular, is enjoying robust growth. Its revenue increased 15.5% to $227 billion in fiscal year 2022, according to the National Association of Software and Services Companies (NASSCOM). Over 2,250 tech startups were founded in 2021, NASSCOM said, bringing the total to more than 25,000. And a record $24 billion in funding was raised.

The tech sector also has a number of established players, including TATA Consultancy Services, Infosys, and Wipro. This makes it easier for foreign companies to establish their presence in India and find local partners.

National initiatives

For a number of years, the Indian government has been taking steps to boost domestic industries and entice foreign companies to invest in the country.

In 2014, it launched the Make in India initiative, which aims to turn the country into a global design and manufacturing hub. This involves creating jobs, protecting intellectual property, and promoting innovation and skill development. The initiative focuses on 25 sectors, including IT and business process management, automobiles, biotechnology, aviation, oil and gas, tourism and hospitality, and textiles and garments.

As part of the initiative, the government has introduced regulatory reforms, tax incentives and other measures intended to attract investment and make it easier to do business in the country. As a result of these measures, the country advanced 79 places in the World Bank’s Ease of Doing Business Ranking to reach 63^rd place out of 190 nations in 2019, the last year for which data is available.

Demographic dividend

India is also seeking to capitalise on its “demographic dividend” — that is, the economic growth potential that comes from having more people of working age (15-64) than non-working age.

It is set to become the most populous country on the planet this year. Indeed, by some estimates it has already achieved this distinction, with the total number of people reaching 1.417 billion. Its working-age population, which accounted for 67.5% of the total in 2021, is on track to overtake China’s within the next few decades.

Apart from its sheer size, India’s workforce boasts many highly skilled workers including talented engineers and IT professionals, leading a number of global tech companies to establish a presence in the country. Many of these workers are fluent in English, which makes communication and collaboration with international partners smoother.

The tech advantage

Tech companies also benefit from India’s large consumer market. With a median age under 29 years, the country’s population is very tech savvy. India is expected to have more than 900 million internet users by 2025, according to a report from the Internet and Mobile Association of India (IAMAI) and Kantar.

In cities such as Mumbai, people have been using mobile apps to order food and hail cabs for a number of years. Now there is seemingly no service that isn’t accessible via a smartphone, from virtual doctor consultations to banking to appliance repairs, pest control, and even home-based spa treatments.

Digital payments are also widespread. Even cab drivers and street vendors accept payments via apps such as Google Pay and India’s own PayTM.

The challenges

As we have seen, there are good reasons for companies around the world, especially those operating in the tech sector, to start investing in India. However, it’s important to take into account the challenges of doing business in the country.

Bureaucracy

Despite improvements made in ease of doing business, companies in India need to navigate a complicated bureaucracy. The country still lags behind others in areas such as enforcing contracts and registering property.

As of 2019, “it takes 58 days and costs on average 7.8 percent of a property’s value to register it, longer and at greater cost than among OECD high-income economies. And it takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD high-income economies,” the World Bank said.

Corruption

Companies doing business in India also have to contend with a significant amount of corruption. In particular, bribe-taking is all too rife in the public services sector.

While the government has taken steps to reign in corruption, Transparency International found that the country has the highest bribery rate in Asia (39%) as well as the highest rate of citizens using personal connections to access a service (46%).

Infrastructure

Moreover, infrastructure in India doesn’t always meet the needs of the country’s vast population, despite some progress in this area. Many places still lack basic amenities such as reliable electricity and clean water, and traffic congestion is a major problem in big cities. This can make it difficult for companies to operate effectively, and may require significant investments to overcome.

Time to embrace India?

Despite these challenges, many companies are finding that the benefits of expanding into India outweigh the risks. For example, many companies are outsourcing various business functions to India, such as customer service, accounting and software development. This allows them to take advantage of India’s talented workforce and lower labour costs, while still being able to focus on their core competencies.

Ultimately, India is increasingly being seen as a land of opportunity by businesses around the globe, and for good reason.

To fully benefit from its vast talent pool and economic potential, however, your company will need to ensure it has a comprehensive understanding of the country’s rules and regulations. It will also need to build relationships with local partners and suppliers and become embedded in the local community.

By doing so, it will gain a better understanding of the local market and culture, and will be able to more effectively navigate the challenges that it may encounter.