Spotlight on India: red tape out, red carpet in

In January, India’s prime minister Narendra Modi stood on stage at the World Economic Forum in Davos and set out his stall. India is going through a period of radical change, a transformation that will make it easier to import, export, invest and work there. ‘Instead of red tape, we are laying the red carpet,’ he told the room of global CEOs.

Modi’s visit was a clear signal of India’s growing importance on the world stage – the last time the country’s prime minister appeared at Davos was 22 years. A lot has changed since then. India’s GDP has grown six-fold and the country is now on course to become the fifth largest economy later this year. By 2050, it is expected to move into poll position.

India’s government has also been busy remodelling a notoriously complex business environment. Modi said hundreds of reforms have taken place and up to 1,400 laws eliminated. Since he came to office in 2014, he has streamlined the indirect tax system, digitalised the country’s cash economy and made it easier to wind down and exit struggling ventures.

These sweeping reforms are helping make India an even hotter prospect for UK businesses. While the country still only ranks 100th on the World Bank’s ease of doing business list – behind China and nearly all ASEAN economies – it is on a clear upward trajectory. Over the past three years alone, it has jumped 44 places. Recent government action will fuel its journey north.

Competition creates opportunities

India is, of course, a diverse country. While first-tier cities like Mumbai and New Delhi march forward, others, tangled in local bureaucracy, lag behind. As a former local government chief minister, prime minister Modi is uniquely placed to understand the pullies and levers that will incentivise growth across second and third-tier cities.

In February, the government seized this opportunity. The recent budget set out 372 basic reform action points that all states must carry out. Tellingly, it revealed that states would ‘constructively compete’ with each other, with the government collecting feedback from the business community to track progress. Each is now jostling to become the frontrunner.

In recent months, there has been a flurry of trade missions and investor summits across the UK. State ministers have been quick to parade their wares – talks of tax holidays and other incentives dominate sales pitches. This is a golden era for UK investment in India. But businesses must make sure they are not blinded by the beauty contests that are taking place.

In these times more than ever, the fundamentals of overseas expansion still stand. Take a long-term view. Understand your rationale. Research all the options. And don’t forget your due diligence. India’s red carpet offers big opportunities for UK businesses. But if expansion is for the wrong reasons, you’re unlikely to find the results you are hoping for. 

For further information and help weighing up expansion options, please contact Suneel Gupta or your usual RSM contact.