Press room

Why should European investors see India as a priority for their business expansion?
 

We are living in a competitive world and if you are able to derive either a value advantage or a cost advantage it improves the market position of your product. If you look at India, there is a pool of highly skilled manpower available. Processes which are being done abroad can be done at a fraction of the cost in India. This value and cost advantage opens out a whole set of opportunities in various sectors like, BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing), e-learning, medical tourism, telemedicine, legal assistance, research , etc. Also if you look at manufacturing, the variable costs and the fixed costs will be much cheaper than what you find in many other countries and the quality will be as good (if not better). The cost of starting up an operation, the labour, raw materials - all these things will be economically favourable compared with other countries. Indian labour, which is now used to international practices, will be able to deliver products of high quality, at a much cheaper cost. All these trends will influence European investors to invest and expand their operations into the Indian market.

The rapid economic growth in India (on average between 7 and 8% over the last decade) is well known. What have been the key elements in this process?

With the liberalisation of the Indian economy in the 1990s, global trade with India started growing. Some of the sectors, like the technology sector moved forward very quickly. Many companies internationally realised that outsourcing to India would be a good option because they would get superior value for the money that they would invest. International companies also started favouring India as a manufacturing hub. These developments boosted the overall economic environment of the country. The IT/ITES sector brought in significant revenue for Indian companies, the technology sector moved from just IT/ITES to a higher end where IT products started getting developed here, research and operations in many industries moved into India in a significant way, manufacturing caught up. All these moves happened in an accelerated manner between the 1990s and the 2000s and established India’s place in the global economy.

Analysts wonder whether India will be able to keep on growing at this rate while facing the various challenges to the global economy, such as climate change.

The facts as of now lie very favourably for India. Some time back, the requirement for energy in the developed countries became very high. For example the need for oil became very high and these countries had to look to other areas, like the Middle East, to get oil.
Today, the world is moving towards a knowledge economy. Knowledge workers are the drivers of the economy. In most of these advanced countries (as in Spain) the birth rate has gone down, the population is aging because the longevity of the people has increased and the average age of the workforce has gone quite high. Suppose you take a medium-term, 2020 benchmark, countries like the US, Japan, Spain or most of Europe, are going to have a need for skilled manpower. Deficiencies could be 1.5 to 3 million people in the case of Spain. India will be one of the few countries which will have a large surplus of educated manpower and this will place India in a very strong position.
 

I guess that the Indian political economy should also focus on the need to balance the wealth of the high-tech urban centres, such as Bangalore or Mumbai, with the poverty of the rural areas.
 

As sectors open up (manufacturing, tourism, etc.), giving more people better livelihoods, as India develops as a market, higher overall growth rates would be possible. Growth will drive jobs to rural India as well as leading to the overall development of the country. Infrastructure, which has been a bottleneck, will become stronger and the overall income levels will grow.

What sociocultural factors should European entrepreneurs take into account when doing business in India?

First of all they have to understand the socioeconomic sequence in India - they have to understand India as a country, the way business is done. They have to form partnerships with Indian companies and understand the needs and aspirations of the people of India. Most of the large European and American brands are now available in India. They are all coming on with partnerships and understanding of the markets. To enter and succeed in the Indian market, the basic laws of marketing do not change. If you are able to provide a good product at a competitive price to a segment that is appropriate, you will do well.
 

The Grameen and BRAC banks have shown the world a more ethical way of fund-raising than that offered by regular banks. What is the potential for the social economy in India?
 

This is a very large activity which has gained ground rapidly in India over the last 2 or 3 years. There are many of these microfinance organisations that reach out to the bottom of the pyramid of population (lowest income population, about 25%). There is this whole sector that is getting into rural areas and to the smallest of villages and financing very small amounts at very reasonable rates.

Are they not affected by the global financial crisis?

This is a very interesting phenomenon. Non-compliance, ie bad debts, etc., for them is lower than the other banks. Very high percentage of their loans is good and paid back on time. This person, who has already paid back the loan, takes another loan, and so on. So a very large volume of people who are taking very small loans is creating an economy by itself, completely outside the typical corporate banking system. It has nothing to do with the banking sector or regulation. It is purely supply and demand. Some companies feel that the buying power of the Indian people is low and hence they have only very limited access to goods and services. But the fact is that here, it is a game of volumes – low price, but very large markets. Companies that understand this game have done extremely well. In this sense, the microfinance sector is growing bigger every day. It’s a great structure.

It seems as though the increasing power of emerging economies, like India or China, is finally being reflected in multilateral international bodies (G20, International Monetary Fund, World Bank). Is this the chance for these two giants to lead the world towards a more equitable globalisation?

I would very much like it to happen. Right now, whether we like it or not, we are living in a market-driven economy. So, the market primarily decides where the economic power will go and this economic power decides which countries are going to be stronger or weaker.

But markets are not perfect and certain IMF prescriptions have failed in the past in south-east Asia.

Markets drive economies and they are growing in China and India. Legislation follows markets, making it easier to do business, because it’s in the interest of everyone. Structures then develop. My belief is that markets are fair. As long as there’s no heavy regulation, economics will decide equitable flow.