• Bookmark and Share

How to Capitalize on India's Growing Economy

© Mauricio Abreu / JAI / Corbis

This young, complex and highly regional country continues to offer opportunities for foreign investment.

India’s spectacular growth story could, in part, be attributed to one American man.

In the early ’90s, Jack Welch, the CEO of GE, arrived in India on the invitation of then Prime Minister Rajiv Gandhi. While in the country, his friend K. P. Singh (now a real estate mogul) convinced him of the potential of a sleepy little town on the outskirts of the capital city, New Delhi, known as Gurgaon. Singh planted a seed in Welch’s head, and Welch began contemplating ways to outsource to India and use the country’s large trained manpower. GE set up its first office in Gurgaon in 1997.

Where GE went, others were soon to follow. In less than five years, Gurgaon was transformed from a largely undeveloped town that no one wanted to visit to a commercial hub, home to some of the world’s top companies, dozens of shopping malls and high rises, and property prices that have shot through the roof.

Gurgaon’s rise to fame is impressive, but in a country of growth stories, it is not uncommon.

In May this year, the United States Commercial Service (USCS), the trade promotion agency of the International Trade Administration, U.S. Department of Commerce, partnered with the Vizagapatam Chamber of Commerce and Industry in India (VCCI) to open the first American Business Corner at Visakhapatnam in the state of Andhra Pradesh. With this, the USCS hopes to reach out to the business community in second- and third-tier cities in India, where the USCS did not yet have a physical presence.

“Through collaborations, such as the American Business Corner, we hope to strengthen our commercial connections, making it easier for businesses in India and the United States to connect,” said Katherine Dhanani, consul general of the U.S. Consulate General in Hyderabad, at the inauguration. “There has been incredible growth in India’s second- and third-tier cities, and an American Business Corner will make it easier for Indian companies to work with their counterparts in America.”

There has never been a better time to do business in India. With a population of 1.2 billion and a 7 percent growth rate that is predicted to remain pretty much constant over the next decade, India offers opportunity and growth at an unprecedented scale. Yet, it is important to understand the opportunities in their proper context and with careful research and planning. India is a complex country with regional strengths and massive diversification, so what works in one part of the country may not work in another, and even the industries and growth stories from city to city can vary substantially.

Take India’s second-tier cities, for instance. India has more than 53 cities with a population of 1 million or more, and the GDP for these cities, in some cases, may double the average GDP of the country itself. There are brilliant investment and business opportunities, if you know what industries these cities are primed for. The country’s capital, New Delhi, as well as Pune in Maharashtra and Bangalore in Karnataka are home to several creative and media companies. Mumbai, though prohibitively expensive, is the center of entertainment. Automotive and logistics industries thrive in the cities of Pune and Chennai, while Hyderabad and Bangalore are good choices for aerospace manufacturers.

What makes India particularly interesting for business is its current demographics. More than half of India’s population is under 24 years old. That’s 25 percent of the world’s under-25s in a single country. With more than 800 million mobile phone and 120 million Internet users nationwide, aspirational and luxury products tend to do quite well in this increasingly affluent segment. Fast-moving goods such as cars, mobile phones and apps, fashionable clothing and consumer gadgets are some of the areas that have seen rapid growth. Online retail, too, has picked up substantially in the last five years in product categories ranging from books to household products to even highly priced digital products like laptops and flat-screen televisions. Since Indians place a high premium on education and professional qualifications, this large youth segment is a very fertile market for new and innovative educational products, academic courses, skill-based training and e-education. Food and drink is also a sector that currently provides immense opportunity.

Infrastructure is where the country lets itself down. However, New Delhi intends to invest $1 trillion in infrastructure over the next five years, and half of that number is expected to come from the private sector. Foreign businesses can find several opportunities in infrastructure, which, in some cities, is practically being built from zero.

Two things currently hold India back: According to Transparency International, India is in the 95th position among 182 countries in the 2011 Corruption Perceptions Index, which looks at perceived levels of public sector corruption. It’s also at 132 in the World Bank’s ease of doing business rankings—up from 139 in 2011, but that still doesn’t inspire confidence. The second place where India’s politicians have failed to deliver is in foreign direct investment laws, especially in retail, which, despite measures by the current government, keep getting thrown out. The good news, however, is that 100 percent foreign direct investment is permitted in most sectors, not including retail, real estate, insurance, banking, defense and the legal sector. However, efforts are under way to relax some of these restrictions, especially in retail, aviation and financial services.

It should not be forgotten that, despite its recent successes and dreams of becoming a superpower, India is still inherently a poor country, home to a third of the world’s poor. According to World Bank estimates of 2011, 32.7 percent of India’s population fell below the international poverty line, and more than 50 percent live on less than $2 a day. Economists claim that what will alleviate this poverty is the trickle-down effect from the growing middle class, with an increased focus on education and empowerment of women. This can already be seen in rural and remote areas of the country, where despite lack of basic necessities, people are running businesses through their cell phones.

Mridu Khullar Relph is a freelance writer, based in Delhi. Her credits include Time magazine, The New York Times, the International Herald Tribune, GlobalPost, Elle (India edition), Ms. and The Christian Science Monitor.

Market Place