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A Reinvigorated India — An Excellent Opportunity for Franchise Investment

India has seen massive growth and has emerged as one of the most important markets for foreign investors.

By Patrick Hayden

 

 

 

In April and May of 2014, more than 550 million people voted in India’s general election, the largest democratic turnout in history.  A total of 8,251 candidates contested for the 543 seats in the Lok Sabha, India’s lower house of parliament. When all the votes were counted, the victorious Bharatiya Janata Party, and its prime minister candidate, Narendra Modi, were handed a massive mandate that has excited the business community and made investment in India more attractive than it has been in years.

During the recent election, Modi and the BJP ran on a platform of economic reform, improved infrastructure, and anti-corruption. The BJP faced off against the Indian National Congress, the party of Gandhi and Nehru which has controlled India for most of its history since independence from Britain in 1947.  The BJP’s 282 seats victory was historic.  Not only was this the first time since 1984 that a single Indian political party had won a majority of seats outright without the need of a coalition, the INC won so few seats that it is not even able to be recognized as the chief opposition party. Modi was given a solid mandate to implement his pro-growth, pro-foreign investment economic policies and to trim the bureaucracy that has made doing business in India difficult.

Since he took office, Modi has consolidated the number of cabinet ministers and begun to implement reforms designed to make the bureaucracy more efficient and accountable. There are stories told in New Delhi of the prime minister randomly phoning bureaucrats at their homes on weeknights to make sure they are not staying out too late and calling their desks at 9 a.m. each morning to ensure they have arrived to work on time. The local joke is that you can finally get an early tee time at Delhi golf courses on weekdays. Modi has made it clear to his ministers that he wants them to clear up as many bureaucratic obstacles to investment in his country as they can.

India’s Economic Ascendance

The U.S.-India Business Council hopes that such a mandate may be just what India needs to continue the country’s economic ascendance.  In the two decades since the opening of its economy, India has seen massive growth and has emerged as one of the most important markets for foreign investors. With a current population of 1.2 billion people, India is expected to hit the 1.5 billion mark and surpass China by 2030 as the most populous nation in the world. Currently the fourth-largest economy in the world, and third biggest in terms of purchasing power parity, India is experiencing a middle-class explosion that has increased demand for consumer products in all sectors and made India a natural market for new investment.

Youth is the key to India’s potential.  More than 50 percent of the Indian population is under 25 years of age, with 65 percent under 35. By 2020, the average age in India will be just 29, compared to 37 in China. While the majority of the population still lives in rural areas, India is the fastest-urbanizing country in the world.  Recent estimates put India’s middle class around 250 million to 300 million people and Deutsche Bank estimates that number should be around 600 million by 2030, as more Indians move from rural to urban areas.

Conducting Business a Sometimes Daunting Task

While India already hosts 3,000 brands via the franchise model, doing business with the country can sometimes seem like a daunting task. Despite the massive growth the country has seen over the past decade, there are some serious issues that any investor must deal with when looking to work in India. The country has a large, sometimes byzantine bureaucracy and corruption persists despite many efforts to keep it in check. The legal system moves at a snail’s pace; in 2013, the World Bank ranked India as 184 out of 185 countries in terms of countries in which it is easiest to enforce a contract. India needs stronger investment in its infrastructure, as power and other utilities are not always reliable and the quality of India’s roads varies widely. Finally, state control in everyday business can make India seem less than friendly at first glance.  The number of permits and licenses required to do business can vary drastically between states and may seem overwhelming to a franchisor looking to enter the Indian market.

Despite these drawbacks, the recent election has renewed the business community’s interest and excitement towards India.  This is due to the expectations for economic and political reform brought in with Prime Minister Modi. While he was chief minister of the Indian State of Gujarat, Modi developed a reputation as a strong administrator, determined to reform the overgrown bureaucracies and attract foreign investment in his state.  In his 12 years as Gujarat’s chief minister, the state saw a tripling of its per-capita income and became one of the key manufacturing centers in India.

At the U.S-India Business Council, we will be working to ensure this opportunity for both the U.S. and Indian business communities does not go to waste.  Since Modi was inaugurated in May, we have been interacting with his government at the highest levels and what we have seen is a renewed interest in the U.S.-India business partnership, as well as a sincere effort to repair past issues between our two countries. We see ourselves not as an advocate for just U.S. or Indian interests, but for the business relationship as a whole. Our work to improve this relationship has led USIBC to partner with the International Franchise Association through a memorandum of understanding that will allow our organizations to work together to help interested franchisors get started in India and once established, help both franchisor and franchisee get the most out of the relationship.

Patrick Hayden is the director of policy advocacy for food and agriculture and retail trade at the U.S.-India Business Council.  Formed in 1975 at the request of the U.S. and Indian governments, USIBC is the premier business advocacy organization advancing U.S.-India commercial ties.

 

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