Strongly increasing growth rates, an ever-growing middle class willing to consume and numerous government investment incentives. India is becoming increasingly attractive as a location for German and European companies. If companies like Bosch, Siemens, VW and Daimler can look back on a long history in India, the subcontinent is also becoming increasingly interesting for medium-sized businesses.
What makes entering the market easier: Products 'Made in Germany' traditionally enjoy an excellent reputation locally, despite often higher prices. What are the strengths and opportunities of the world's sixth largest economy? India as a beacon of hope for medium-sized companies?
Challenges in India
Economic framework conditions
Experts consider India's weaknesses to be bureaucratic hurdles, the sometimes lengthy enforcement of the law, the inadequate infrastructure, the dependence on imports of raw materials and intermediate products, and the low productivity in industry. They cite the growing national debt as a risk, which reached around 2020 percent of GDP in the 21/31 financial year (as of March 90). For comparison: In Germany this was a good 2020 percent in 69. Inflation is another risk. The sharp rise in energy prices is also likely to have a negative impact in India, which is dependent on raw materials.
Business relationships
Intercultural differences and numerous peculiarities characterize everyday Indian business life. One example is dealing with Indian banks. To avoid money laundering, business customers are bound to very strict recurring authentication checks ('KYC processes'), which can quickly lead to an account being blocked as soon as the slightest discrepancy occurs. A hint that the entire Indian business could be at stake will hardly impress the local bank. The Indian Central Bank (RBI), with its enormous influence, is responsible for the sometimes excessive bureaucracy.
Taxes and customs duties
In an international comparison, India, with a maximum corporate tax rate (for local companies) of 30 percent*, is in second place after Japan and on a par with Germany. Statisticians worldwide have calculated an average of 23,64 percent for 2021. India also offers tax incentives, especially for manufacturing and newly founded companies. For example, 100 percent manufacturing companies are subject to a reduced corporate tax rate of just 15 percent*. This temporary fiscal stimulus was extended again at the beginning of February 2022 for another year until the end of March 2024. Newly founded companies can benefit from a reduced tax rate of 22 percent* (*basic tax rate plus surcharges).
For intercompany import transactions into India, foreign companies require a type of 'permanent import price approval' from Indian customs, which is usually granted for an initial period of three years. However, if customs cannot be convinced that the declared intercompany prices are correct, this may lead to surcharges on the import prices (so-called 'loading') and thus to effectively increased import duties. In the worst case scenario, this can undermine a proven and promising business model.
Corruption
In once a year from Transparency International According to the Corruption Perception Index, India ranked 2022th out of 85 states and territories at the beginning of 180. For comparison: Germany is in 10th place and China is in 66th place.
Transparency
The German parent company and the Indian subsidiary are at least 6.000 kilometers apart. What happens on site is not always transparent. From the outside, the branch may appear to be working successfully and meeting all of its goals. In reality, this is not always the case. Close-meshed controlling therefore pays off, especially since Indians – and this is where the intercultural differences come into play again – are extremely reluctant to say: “It won’t work, we can’t manage it!” Instead, they often wag their heads meaningfully and leave the other person in the dark about what exactly they mean.
Labor market
Unlike in Germany, employers in India can choose from a wide range of skilled workers. The required qualifications are stated as existing on CVs, but are often not sufficient. This often leads to a misunderstanding: Since many publications repeatedly talk about India's attractive "human capital" with its young population and "huge number" of potential workers, many foreign investors misjudge India's labor market: there is good stuff in India Staff are rare and therefore difficult to find. The selection is made difficult by a large number of manipulated CVs and false references. Likewise, the serious applicants must be separated from the large group of pure opportunists, job hoppers and candidates who have no serious interest in your company through appropriate interviews and assessment tests. The recruiting process in India is correspondingly more complex and lengthy than in Europe. On the one hand, you have to manage quantity, but on the other hand, you have to look for quality like a needle in a haystack.
Good advice pays off
Around 1.700 German companies are already active in India. But in order to be “really” successful, they need above all patience and good nerves. Many people underestimate the challenges even before entering the market and focus (perhaps too much) on the opportunities.
If entrepreneurs first want to find out more about India and the economic and cultural conditions there, 18 chambers of industry and commerce with an India Desk offer a first point of contact. The India Desks work intensively with the Indian Chamber of Commerce (AHK).
If it becomes more specific, you will need specialized support for detailed planning and the implementation of your business plans. Consulting companies specializing in India such as Dr. Wamser + Batra GmbH, with locations in India, Germany, Switzerland, Austria, the Netherlands and Spain, supports corporations and medium-sized companies in the detailed planning, implementation, control and optimization of business activities and projects on the subcontinent. Thanks to twenty years of experience, the experts can support companies in all situations in India - not only in the "euphoric" initial phase, but also when the problems of everyday business, restructuring, possibly even crises or company closures arise.
Conclusion
They were seen as the ultimate hope. Experts predicted a rosy future for them as investment locations: the BRIC countries, Brazil, Russia, India and China. Jim O'Neill, chief economist at Goldman Sachs, coined the term in 2001. Today, a good 20 years later, Russia has found itself in an outsider position for a long time following the war of aggression in Ukraine. China is making everyday business difficult for its trading partners with trade barriers and ever new restrictions. And Brazil is loud IMF forecast among the countries that will have the lowest economic growth worldwide in 2022 and 2023.
That leaves India, the largest democracy in the world, which was far from able to meet all expectations under Prime Minister Modi, who has been in power since 2014 and was widely praised at the time. For example, bureaucracy and corruption are still top annoyances for domestic and foreign companies. And yet: According to economic researchers, the world's sixth largest economy will grow significantly faster than China in the coming years. India also offers investors a huge sales market, which is continuing to grow thanks to an ever-growing, consumer-friendly middle class. In terms of population, India will soon replace China as the largest country in the world. Unlike Germany, India benefits from its demographic dividend. Well-trained IT specialists support domestic and foreign investors on all topics related to digitalization. More and more German companies are relocating entire IT and/or (software) development departments to the subcontinent.
Last but not least, German companies benefit from the fact that India needs exactly the products that Germany can supply or produce locally: vehicles, vehicle parts, machines, chemicals and electrical engineering.
The member companies of Schwarzwald AG can also benefit from these opportunities. Or as KPMG board member Andreas Glunz put it in a nutshell when presenting the 'German Indian Business Outlook': “A large part of the German economy is in danger of missing out on the future market of India. Anyone who waits for India to become a modern industrial country will come too late. Then the market will have long since been divided.”
