Doing business in India

This seems to be a topic that I write often in this blog due to my personal experience of running a business in India. In the past I have detailed how difficult it is to setup a business in Tamil Nadu (valid for rest of India), how to run a software product business in India, my views on Foreign Investment in Retail industry in India and referenced Sadhguru Jaggi Vasudev’s listing of 3 main ailments of Indian businesses.

Over the last few quarters the Indian economy has slowed down, the euphoria over India by rest of the world has stopped, many businesses in India have turned inwards kind of rethinking their strategies & expansions. In this background I have been taking notes from many interviews & articles on the subject by industry veterans, in this blog post I would like to list them. The list based on materials I came across & I agree with overall theme of these materials. Its not meant to be an endorsement (as I don’t think I am qualified for doing anything like that)  and is aimed to serve as a reference for all interested.

Shriram Group chief and Padma Bhushan awardee, R. Thyagarajan talks to The Hindu (PDF version) earlier this year (February 2013). He says “The most painful experience is being in business in India. The ease of doing business is one of the worst in India. The difficulties and pains associated with doing business is probably the highest in India as opposed to most other countries. It’s like getting on to a tiger, and you can’t get off

I couldn’t agree more with Mr.Thyagarajan on this. He may have put it bluntly, but it’s the fact. The sad part is that, it need not be this way in India, the country has huge potential and resources to make the environment better for all.

Economist newspaper observes on how economic activity that should be within the country is shifting out of India. The article cites Cyrus Mistry (Tata Sons chairman) having an Irish passport, most of the Indian planes are being serviced not in India but in Dubai/Malaysia/Singapore, Indian owned companies being headquartered in Dubai or Singapore, Indian e-commerce firms having their datacenter in Singapore.

This has been something I have been thinking for sometime now. Doing a businesses in India from outside the country is lot easier than within. And the process of investing in to a company headquartered outside is doable with the liberal fund flow regime for Indian individuals, a policy reinforced (rightfully) by subsequent finance ministers for last 15 years. Once you have your company headquartered say in Singapore or Dubai, you can outsource all the operations to local firms in India. With the digital era, operating a business in India sitting anywhere in the world is easy and practical. Why would you want to do this?

First you get a a predictable tax regime, unlike India which passes Retrospective Income Tax act in 2012 dating back from 1962 after Vodafone’s Supreme court victory case. I am not highlighting here the lower tax rates (as eventually when you bring profits to India as individuals you will end up paying India tax rate) which at around 30% in India is not extreme. I do believe that future Indian Finance Ministers have good scope to bring it to attractive levels of 20%.

Second, you get a speedier resolution of legal issues, in Singapore (businesses) court cases are disposed of faster than in India.Adding to this you get advantage of simplified tax rules and business friendly interpretation of laws (when laws are ambiguous especially in areas where you are pushing the boundary through innovation)

Third, if you are generating even modest local employment in those countries the benefits start pilling up. There are concessions and credit available for Tiny & Micro businesses.

Mckinsey on the occasion of the release of “Reimagining India: The Book” having publishing a series of insightful interviews on Indian business environment. I liked three of those interviews.

1. Google Executive Chairman Eric Schmidt observing “So the problem is not the Indians, the problem is the country. And the country appears to be relatively dysfunctional politically, and has some corruption issues. You can see the potential when the Indians come here. Imagine if they were there and they were doing the same things with the same kind of structure. They’d change the world”

2. Coca-Cola chairman and CEO Muhtar Kent summary on how to succeed in India “The key to this success has been learning to see the Indian market as it is, not as we wished it to be

3. The dean of the Lee Kuan Yew Schoo,Singapore Kishore Mahbubani saying “More open the global competition is, the better the Indians will do”

Apart from the above resources, I am currently reading Microsoft India’s former Chairman Mr.Ravi Venkatesan’s book “Conquering the Chaos: Win in India, Win Everywhere” which puts forward a strong argument on why Multinationals can’t ignore India even if they don’t want to do business in India.

Reserve Bank of India Governor Mr.Raghuram Rajan has been making all the right noises on how to help Indian Small & Medium businesses. First it was his plan to offer credit to 3.6 crore Micro, Small & Medium enterprises for good that they sell to big industries in India and wait for 90 to 120 days for their payments. Second was his talk on making it easy to start a business in India. In a talk on 11th Dec, addressing Delhi Economic Conclave he noted that “Currently, about 40 permissions are required from various statutory authorities to open a business, We need to review our regulations and bring them in tune with current times”

I will just end this post by saying I hope and pray what Mr.Rajan says in public appearances gets implemented by the Government, which unfortunately is not in his hands but in the hands of India’s lawmakers and bureaucrats.

Update on 28th March 2014:

This article published today in Economic Times reports on how Technology firms are fast moving out of India to Singapore. Software & Internet sites are digital bits, for them national boundaries make no difference. Its NOT ABOUT AVOIDING TAX, that these firms are leaving India. Singapore is not a Tax-Free state, but it offers stability in Tax laws, hassle free bureaucracy, low corruption rates, faster arbitration rulings in their courts  – all of which India can only dream for next several decades.

If the incoming central government in May 2014, doesn’t solve these urgent issues, India will soon have millions of educated middle-class urban youth on streets without the jobs they aspire for. A situation no political party can enjoy happening on its watch.

Update on 5 December 2014:

Recently in this interview in Economic Times, Vishal Sikka (Infosys CEO) has said this quote that in my opinion captures perfectly the weakness of Indian IT Services Industry.

This is true for all Indian IT companies. The consistent feedback from customers is that though Infosys is without comparison in quality and delivery and we follow orders dutifully, we don’t speak up, we are not proactive. As an innovator, this made me very sad. We are trained to solve problems, not trained to find problems. We have this cultural thing — if I speak up, it is questioning of authority. This is totally counter to the Western mindset. We serve Western companies, and they expect us to speak up. John McCarthy, father of artificial intelligence and who was in my examination committee, once told me this unforgettable thing: Finding and articulating the problem is half the solution. The other half is to solve it.

 

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