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September 2024
India is the world’s largest democracy and one of the world’s fastest-growing economies, making it an attractive destination for Dutch entrepreneurs. With its young workforce, expanding middle class, and evolving business landscape, India offers significant opportunities. The Netherlands is already a key investor in India, and the relationship between the two countries is set to strengthen in the future.
While China remains a global manufacturing hub, rising geopolitical tensions and costs have led many companies to shift operations to India. India's vast market, particularly in rural areas and tier 2 cities, presents Dutch companies with opportunities to make a significant impact on millions of lives.
However, Dutch entrepreneurs face challenges in India, including navigating a complex political climate, language barriers, and significant cultural differences that affect business practices.
India’s efforts to attract foreign business
Doing business in India requires time and effort in order to understand its diverse and segmented market, which closely resembles Europe's variety of national markets, each with specific needs and regulations. By co-designing our services with Indian experts in the political, legal and economic realms, Dutch businesses can effectively tailor their offerings to local demands.
Indian politics and its challenges for foreign business
India's political environment presents a complex landscape for foreign businesses due to its multi-party system and the significant influence of state-level politics on business regulations. India’s federal structure of governance, where states have substantial autonomy over various sectors, contributes to the complex business environment. The success of foreign investments in sectors like renewable energy, agriculture, health, and water management depends heavily on understanding and adapting to these political and legislative dynamics.
Renewable Energy
In India, while sectors like Renewable Energy and Agriculture allow 100% Foreign Direct Investment (FDI), navigating the diverse regulatory landscape across states can be challenging. For example, states like Tamil Nadu and Gujarat offer different incentives for solar energy projects, leading to a lack of uniformity in approvals, land acquisition policies, and tariff structures. Political shifts and regional regulations often introduce additional layers of complexity.
Agriculture
In Agriculture, despite open FDI in areas like food processing, political opposition and public protests can disrupt operations and lead to policy reversals. One example is the extensive farmers protests that took place in 2020-2021 against agricultural reforms proposed by the national government. The months of negotiation caused uncertainty for foreign businesses looking to invest in the country. A good awareness of the political importance of agriculture is vital for those looking to invest in the sector.
Water Management
Water management in India is also influenced by political shifts, with states controlling water resources and varying regulations based on their focus (agriculture, industry, or urban development). State-level political parties often tailor their water management policies to the needs of their voter base, resulting in policy changes when power shifts occur. Similarly, sectors like Space Exploration and Defense require high-level government approvals for FDI, tying investments to the political climate and key political relationships. Recent relaxations in FDI rules, such as allowing up to 74% FDI in defense under the default route, reflect India's gradual openness but also emphasize alignment with government priorities.
India’s security challenges
As well as the constantly shifting policy in key sectors, there are also security concerns for doing business in India. With India being such a diverse country and a major player on the regional and global playing field, there are some security concerns that need to be considered when doing business there.
Political risk
Political risk is an ongoing concern in India In recent years the Indian political system has shown changes that are taking the country away from its democratic principles. Prime Minister Modi has, through his politics and decrees, shown that he wants the future of the country to be one with more emphasis on Hindu Nationalism. The BJP’s propaganda often blames economic or societal problems on minority religions, increasing repression of the Muslim community in particular. Taking into consideration the closely intertwined political-business fields, political developments are highly relevant for entrepreneurs in India.
Protests and activism are a common phenomenon in India, varying in degree of disruption and inconvenience. For example, protests across India began after a sexual violence crime in West Bengal on August 9, 2024. Health workers and politicians, some seeking political gain, have driven the demonstrations, which have been met with teargas and water cannons. Sexual violence remains a major issue in India, and the protests have disrupted healthcare services, affecting thousands of patients nationwide.
Espionage risk
Due to India’s economic and international political significance, corporate and other forms of espionage have become an additional risk for visiting businesspeople. Access to WiFi networks, spyware, phishing and other forms of electronic surveillance such as the Aadhaar biometric ID system, increase government tracking capabilities. India’s booming military industry has also become a target for foreign spy agencies to obtain blueprints and other information from businesses in the defense industry.
India and (inter)national tensions
India’s national security is also not a stranger to conflict. As a continent-sized country with a diverse population, there are several independence movements across the country. The BJP’s focus on Hindu nationalism further intensifies the decades long tension between India and Pakistan, both of which have large armies and nuclear capabilities. In the northern Kashmir region, forces are known to use violence against Indian government representatives and threaten national security. Additionally, India has accused Pakistan of actively recruiting local Kashmiris to act as militants, further escalating tensions in the region. These regions and their militias are not likely to soften, nor do they seem willing to sign cease fire or peace agreements with the Indian government.
India-China tensions
India and China also vie for dominance in South Asia and Southeast Asia, and their rivalry has led to military confrontations, most notably the Galwan Valley clash in June 2020. This violent skirmish, which occurred along the disputed Line of Actual Control (LAC) in the Himalayas, resulted in casualties on both sides—the first deadly conflict between India and China in over 40 years. The clash heightened tensions and led to a significant military buildup along the border. There is a rising risk of India being drawn into a conflict if China faces off with the Philippines, as India supports the Philippines against Chinese naval incursions. India is, in that sense, in a difficult political and geographical position, surrounded by potential escalating conflicts.
Cultural differences
To operate successfully in a new foreign environment requires appropriate preparation. Familiarizing yourself with local norms and values is a prerequisite for transitioning smoothly onto the foreign market you are trying to enter. Being prepared for India’s cultural diversity will lead to better decision making within the country.
Language
Not being able to read or understand Hindi can lead to risks that could be easily avoided if you work with somebody who can translate relevant information and interpret it in a way that applies to you. Although English is widely spoken in India and commonly accepted as a language for corporate communication, much of what goes on in daily life, the news and local events can be overlooked when you are not familiar with the local language.
Business culture
Learning about Indian cultural differences also plays a significant role in determining your future success in India. Understanding how a hierarchy works within your Indian partnering company team, for example, can minimize the possibility of unnecessary conflicts arising. Knowing the appropriate gestures (anjali mudra, putting your hands together to greet), forms of address (sir or ma’am) and key phrases (namaste or namaskār) on the other hand leave a positive impression, which is a critical factor for successful business interactions, gaining trust and building a reliable network.
Looking forward
It is essential that Dutch entrepreneurs wishing to enter the Indian market are thoroughly informed about the changing policy environment, security situation and cultural sensitivities in the region they are operating in. Taking proactive steps to protect their business and enforce CSR standards are necessary to minimize risks and maintain operational continuity. Dyami in partnership with Vyuh Consulting helps to identify these risks. With a good understanding of the opportunities and safety concerns, Dutch entrepreneurs can make the most of the opportunities of India while ensuring their operations remain secure.
About Vyuh Consulting
Inspired by the Sanskrit word "Vyuh," which signifies strategy, Vyuh Consulting is a dedicated team of professionals with over a decade of experience in election management, branding, and strategic advisory. The firm specializes in crafting custom campaigns, offering strategic insights, and delivering in-depth political intelligence. With a broad network across India, Vyuh Consulting leverages its deep understanding of the country's diverse political landscape to provide actionable solutions. The firm's mission is to guide clients through political challenges, helping shape a more informed and effective future for India.
