India has been taking the global centrestage in economic developments and is part of global strategies of MNCs, big or small, with a USP for the Indian market. India has been on a steady growth trajectory despite the slowdown and has the advantage of ranking third after the US and China, in terms of GDP (PPP basis) and also the demographic dividend advantage in sharp contrast to an ageing western world. So it was inevitable for the global economies to sit and take note of the robust growth rates of various sectors in India.
However, global events have taken their toll on the high growth rates of the emerging economies like China which has experienced huge inflationary pressures. It is also undeniable that the hype around India has also been a little tempered in the recent past given the policy paralysis of the past two years. Thus in the current global business climate, India increasingly competes as an investment destination from multi-national companies with other investment destinations.
From my experience, insights that I have gathered through interactions and discussions with CEOs, CXOs, senior executives responsible for M&As, international business considers some of the following key parameters on how MNCs evaluate India as an investment destination.
Market Size & Growth is one of the most dominant factors that govern the inflow of investments. For example, P&G is committing investments of around $300 million in India, the largest since it entered India two decades ago. Coca Cola has a plan to invest $5 billion in India by 2020, an increase of $3 billion from its previously committed figure of $2 billion.
Parameters like political institutions, cultural values, ease of communication help companies in deciding the ease of doing business. During both one-on-one discussions as well as on different forums, several American CEOs/CXOs have shared their views on their natural affinity with India in terms of democratic institutions, values and thus feel more at ease in India compared to other emerging markets like China. This looks contrarian to what one observes on the ground but my feeling is that India has not really leveraged its goodwill.
Institutional robustness (rule of law, IPR regime, infrastructure etc) are issues that are increasingly relevant in today’s world. Anecdotal evidence among different companies that I have dealt in the past few years, suggests that IPR considerations across different industry groupings are pushing companies towards India ahead of China. While China still leads the pack in terms of the investments in Infrastructure, other emerging economies like India are catching up at a very fast pace.
Indices also play a role during analysis for International Entry Strategies. Companies utilise tools like GDP ranking, per-capita GDP, World Economic Forum’s Global Competitive Index and World Bank indicators to gauge the potential of a destination. Now here, the key is to look at the right context, as India is a vast country with 40 plus cities having a million plus people, where-in a parameter like per-capita GDP does not do justice to the potential that the country has to offer. India presents a great opportunity to MNCs and continues to see investments from global players but will need to keep the pedal on the current reform measures, improving the infrastructure and governance while strengthening its democratic institutions. These will go a long way in securing necessary investments needed to fuel its economy with regards to both capital and technology.
The writer is Partner & Vice President of consulting firm Tecnova