In the year 2014, ‘Doing Business’ ranked India 134th on ‘Ease of Doing Business’. In this age of globalization, it’s definitely not something to be proud of. Standing at 179th position, India ranks even more poorly when it comes to ‘setting up a new business’.
In spite of these figures, India continues to be perceived as a lucrative investment destination across the globe. All the key business players and multinationals see India as a huge market and for the right reasons. After all, it is 4th largest economy in the world and is growing at an unprecedented rate, surpassing every economy in the world except China. Being the second most populous nation in the world, Indian market is full of potential and offers amazing opportunities for international business firms to achieve new heights.
So, to shy away from stringent business regulations is just not an option. MNCs need to understand, analyse and tackle on the key challenges; they are likely face while doing business in India.
1. Competition with Local Players
Until recently, the foreign investment was restricted in many sectors. So, indigenous players ruled the market, at large. But post 2013, the limits on foreign direct investments were taken off for most of the sectors, inspiring MNCs to make India their next abode. At present, India is heading towards economic liberation.
Market analysts believe that local players have also geared up to lock horns with their foreign counterparts. In such a scenario, it seems the competition is going to get stiffer.
2. Unfriendly Government Policies
It’s an irony that despite being the biggest democratic nation in the world, India is a victim of ill-governance. There’s an immense concentration of power within political parties. Communalism and corruption has infested its every corner, affecting corporate sector as well. India ranked 94 in Corruption Perceptions Index in the year 2013.
There has been a growing discontent among MNCs for many issues such as lack of corporate friendly policies, lack of transparency, stagnant governance with no room for reforms and slow and biased legal proceedings.
3. Market is Fragmented
The national market is huge but is highly fragmented due to regional cultural influences. The implications are staggering. Regional customer preferences change rapidly within narrow territories. One single product has to be designed and marketed in many different ways, to cater to specific regions, increasing the operational cost and time. What makes it even more chaotic is the fact that business regulations in India vary across state borders.
4. Stringent Tax Authorities
In 2013, tax disputations between tax authorities and MNCs took an ugly turn. Most of the disputations were concerned with transfer pricing. I-T department put a leash on financial transactions across border and imposed hefty penalties on corporate giants like Shell, Vodafone and IBM. Many market analysts fear that such regressive decisions might turn off investors, leading them to hunt for more favorable investment destinations.
In spite of all the adversities, India continues to captivate multinational companies. But to be able to tap on the opportunities, the companies need to plan a strategy for entering and thriving in the Indian business environment. They should perform a thorough risk analysis and revamp their policies to fit into the local business environment.
From the government perspective, India needs to have strong laws against corruption and bring clarity to the taxation system especially transfer pricing rules. Government should understand that to enable international trade and investment, they need to bring assurance and accountability to the current business regulations.