The business traveler's initial reaction on arriving in India is often one of bewilderment: can this really be the world's second-fastest growing economy? Confusion is understandable in a country that seems at once familiar, exotic, and unnerving. India is an assault on anyone's senses. A traveler setting foot for the first time in New Delhi, Mumbai, or Kolkata will be struck by the chaos and apparent poverty. But beyond the chaos is a country that is catching up fast, and in many areas racing ahead.
Its basic infrastructure-roads, electricity and water supply, and public transportation-appears to be trapped in the 19th century, while its information technology and communications often leave the West trailing in its wake: in India can you receive emails in remote villages that are accessible only by mule train. India has placed enormous value, backed by practical resources, into knowledge and technology. Its heavy investment in training-the country produces more than three million university graduates a year-has transformed India into one of the world's leading growth centers for software development, IT outsourcing, biotechnology, and research and development.
Its skilled workforce has also led it to become the outsourcing hub of the world, particularly for customer services and design. India is many countries, with many languages and cultures, which were all thrown together by British colonial rule and later transformed into one national identity after Independence in 1947. Since then, and especially since 1991, when India began relaxing state control of industry and opening the country to foreign investors, its consumer market has grown exponentially. While the story of the last 20 years has been about India's integration into global supply chains, its new story is about huge domestic consumption and intra-regional Asian trade- particularly with China. This is a market that businesses cannot afford to ignore. India is-after China-the second most populous country in the world, and its largest democracy. A nuclear power with its own space program, India retains a huge, largely illiterate rural population. India is home to both the world's richest and poorest people. By 2008, India had 53 US$ billionaires-and more billionaires in the world's top 10 than any other country. However, it is also home to more than a quarter of the world's poor. While the middle class is becoming wealthier, 900 million people still live on US$2 a day, with 400 million survive on one dollar a day. The Indian government is aiming to make growth more inclusive, and to this end is focusing spending on education and health. The reasons for doing business in India are compelling: India has experienced extraordinary growth since 1985, doubling the average household disposable income and creating a new and huge middle class with considerable purchasing power.
It has a low-cost, competitive workforce and its government is actively pursuing a progressive reform process, with investment-friendly policies and a visible commitment to education and training. By 2025, India's population is expected to rise to around 1.4 billion; economists predict that average income will triple over this period. India's huge middle class, currently standing at around 50 million, will increase to around 600 million, triggering explosive growth and making India the fifth-largest consumer market in the world. The middle class will dominate spending, controlling around 59 percent of India's consumer market. While income growth has been- and will continue to be-fastest in urban areas, rural incomes are also set to grow. These traditionally poor rural households are likely to enjoy the same standard of living and rate of consumption as today's urban households by the year 2018. India has become the second most desirable target for overseas investors. Foreign Direct Investment (FDI) is allowed in all but the most sensitive of areas, such as defense, and totaled US$15.7 billion in 2007. Significantly, FDI will continue to play a key role in economic growth-the share of FDI in total investment more than doubled from 2.55 percent in 2003-2004 to 6.42 percent in 2006-2007. Shifting demographics during economic growth will bring unique challenges to businesses.
They will need to attract and retain new consumers in large numbers, and establish brand loyalty despite the changing tastes of increasingly wealthy customers. Managing this shifting market will require flexibility and vision, but the potential rewards are enormous. The people of the Indian subcontinent have been trading with Arabia and Greece for several millennia. Commerce flourished under Mughal rule, and by the 16th century India controlled more trade than the whole of Europe. In the 18th century India and China were the world's largest manufacturing economies, but by the time it gained its independence from the British Empire in 1947, India's share of world income had been reduced to just 3.8 percent. After Independence, India followed the socialist policies of its first prime minister, Jawaharlal Nehru. The main industries were state controlled, foreign investment was limited, and trading in shares heavily restricted.
The results were mixed. India developed powerful domestic industries and home-grown brands, protected from Western competitors, but their products were poorquality and the country's infrastructure suffered from low investment. In 1991 the Indian government took steps to liberalize its economy and to begin dismantling the so-called "License Raj"- the state control that gave civil servants and politicians the power to decide which companies would run which industries. The reforms amounted to an economic revolution. The prime minister of 1991, Narasimha Rao, relaxed state controls, opened up key sectors to foreign investment, and allowed international companies to hold controlling stakes in key joint ventures and 100-per-cent ownership in certain sectors. He introduced a privatization program, relaunched the country's capital markets, and allowed Indian companies to raise funds overseas. The impact of Rao's reforms was extraordinary: in just four years investment rose by US$5 billion. Since liberalization, Western brands from Pepsi to Nike have flooded into India, and Indians have shown an insatiable appetite for them.
But despite the allure of Western products, India has developed its own, new domestic brands that have become widely trusted. Tata and Mahindra SUVs dominate roads that were once hogged by the Hindustan Ambassador-the stately Indian-made car of the 1950s-and Indian brands such as Infosys and Hero Honda are beginning to appear on the international stage.
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