Things are looking up for those looking to do business in India. The country’s recent elections have boosted optimism, a result of the prospect of more economic reform and less political battle within the government, spurring growth and investments from both domestic and foreign interests.
    India’s new government offers a crucial difference from its last tenure. This time around, the Congress Party won the largest number of parliamentary seats, and was able to form a stable coalition without a supporting prop from leftist parties.
    Despite challenges, such as drought and the impact of the global recession, recent market indicators show positive growth. A number of companies that had frozen recruitment are now hiring again. In August, auto sales were up by 25 percent. GDP growth was 6.1 percent in April–June 2009. There are also positive signals for both Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDIs).

Making Foreign Investment Easier

    On September 10, the Government of India approved the proposal of the Department of Industrial Policy & Promotion (DIPP) for the formation of a not-for-profit company to promote FDI into the country. The proposed company, Invest India, will be a joint venture between the government of India, Federation of Indian Chambers of Commerce and Industry (FICCI) and state governments.
    Speaking to the press, Anand Sharma, Union Cabinet Minister of Commerce and Industry, said, “The proposed company will be responsible for promoting foreign investments into the country in a more focused, comprehensive and structured manner. It will assist the government in its efforts toward projecting India as an attractive investment destination for foreign investors, and facilitating them in identifying and realizing investment opportunities in India.”    Further, Sharma added, “The unique feature of this company is the partnership between the private sector organization and the Government of India and state governments. This is unlike anywhere else in the world, and seeks both to leverage the synergies of all three, as well as address their investment priorities.”
    For a foreign investor interested in India, the company will act as the first reference point. It will facilitate setting up business within the country by making sector-wise consultants available, and by coordinating with the state government on feasible measures. It will conduct capacity building exercises at the state government level to create an investor-friendly environment. The company will also undertake promotional work by expanding investor awareness beyond the metro cities.
    DIPP is the nodal department for all matters related with FDI promotion, and so far, has been actively engaged with major industry associations for that purpose. However, there was a need for a dedicated organization that would take more proactive and comprehensive measures, and sustain efforts to promote FDI in a more targeted manner with a country-specific, sector-specific and, most importantly, investor-specific focus in the long run. It is expected that Invest India will achieve this objective.
    The key areas for existing and emerging investment potential are healthcare, energy, financial services, pharmaceuticals, the auto industry and hospitality, to name a few.  

Healthcare

While the global average is four hospital beds for every 1,000 people, in India, the number is about 0.7 for every 1,000. The government of India aims to provide quality healthcare for all, and increase the expenditure on healthcare from 0.9 percent of GDP to two to three percent of GDP by 2012.
    The healthcare industry in India, which is worth roughly $35 billion, is expected to double by 2012, and quadruple by 2017, according to a report published by KPMG in July 2009. Emerging investment areas are in hospital infrastructure, medical equipment, clinical trials and diagnostic services. u
Auto Industry
    India is envisioned to emerge as the destination of choice for design and manufacture of automobiles and auto components, according to the government-launched Automotive Mission Plan 2006–2016. The output from the auto industry is likely to reach $145 billion.
    International auto manufacturers who have invested in India include GM, Mercedes-Benz, Toyota, Volvo, Hyundai and Renault, and it is likely that investments will continue in future. Auto component investments will likely reach $20.9 billion by 2015–16.

Financial Services

At $1.04 trillion, the Indian market capitalization is the ninth largest in the world. FIIs hold 16 percent of stocks in the top 500 Indian companies, and by the end of August this year, foreign investments in Indian equities crossed $8 billion.

MicroFinance

A coconut seller on the streets of Mumbai found a source for working capital from Swadhaar FinServe, a Non-banking Financial Company (NBFC) that provides him with microcredit. Now, he can successfully run his small business, provide for his children’s education, and improve his economic status. Providing small loans without collateral to the needy at 20–25 percent interest rates, microfinance is emerging as one of the investment opportunities in India with large untapped potential, especially in the western and northern states of India.

Meeting the Challenges

Unitus, a Seattle-based nonprofit, provides technical and financial solutions to accelerate the growth of high-potential Microfinance Institutions (MFIs) in high-need areas. In India, they have partnered with over a dozen MFIs in the last eight years.
Ed Bland, President of Unitus, says, “Since we started working in India eight years ago, we’ve seen the market for microfinance services mature very quickly, with sophisticated organizations doing highly technical work in some pockets, but also, we’ve seen places where there has been little progress in bringing life-changing microfinance, either to the rural or urban poor. The opinion we ultimately come to is that India is a wildly diverse business climate that requires a nuanced understanding of particular geographies and industries—something we addressed by staffing our office in Bangalore with 12 full-time employees.”
Reiterating the importance of having good people on the ground full-time, Bland adds, “The challenge is that India is such a complicated place, and to try to parachute in with ideas of process developed outside the country is a recipe for disaster. Our local staff do a wonderful job of identifying partner organizations that have the geographic, cultural and social know-how to best operate in some of the toughest or easily-overlooked places in the country.”

Investments and Mergers

India has recently seen wide-ranging investments, partnerships and mergers across industry and service sectors. The technology storage company EMC, announced its plans to invest $1.5 billion in India over the next five years. The company’s new center of excellence was inaugurated in Bangalore in the second week of September. Biocon Limited announced a partnership of undisclosed value with Amylin Pharmaceuticals, Inc. to develop, make and market a novel peptide drug to treat diabetes. Ratnagiri Gas and Power has signed an eight-year agreement with GE Energy to service and rehabilitate its power plant at Dabhol. The service and spare parts contracts combined are valued at $130 million. Toshiba and JSW Group have finalized plans for a turbine and generator manufacturing facility near Chennai, with an investment of $160 million. By 2012, Accor Hospitality plans to develop 50 hotels across India, a $130-million investment. The Cairn-ONGC oil consortium has invested $2 billion, and plans to invest $1.8 billion more by 2011.
While inaugurating the crude flow from the Rajasthan oil fields of Cairn India-ONGC, Prime Minister Manmohan Singh said, “Cairn’s efforts show that there is a good climate for bringing foreign investment into India, and I invite entrepreneurs to invest in India.” Take that as a sincere invitation from the harbinger of economic reforms in India.