Feature-Business in India can be difficult

SINGAPORE, Dec. 18 (UPI) -- Like China albeit on a much smaller scale, India is starting to attract strong interest from direct foreign investors. The economic and financial potential of a country, which is now the second fastest growing in Asia behind China, are obvious and investors are ready to take the plunge. However, established foreign players warned that if the rewards are great, there are still difficulties to conquer which can make doing business there painful and tedious.

A recent report by global consultancy firm A T Kearney listed bureaucracy, the ceiling on foreign ownership and the slowdown of reforms as the main problems impeding FDI growth.

"Recent delays in tax reform, protest against privatization of state-owned industries and the slowdown in privatization could limit India from achieving significant FDI increase," the report warned.

Poor infrastructure and political instabilities are other reasons cited by corporates for shying away from making investments there.

Chong Siak Cing, President and CEO of Singapore-based Ascendas, Asia's leading provider of business space solutions, likes to compared doing business in India as planting a coconut tree. This is for investors with a long-term view. When a young coconut tree is planted, rewards won't be reaped in for the first 7 years, but then every part of the tree can be put to use from the fruit to the trunk, she muses.

Ascendas has been investing in India since 1994 and has developed there IT parks in Bangalore, Hyderabad (Cyber Pearl), Gurgaon (Infocity) and Chennai.

Chong recalls her company had a difficult start in India, but that over the years the situation has improved.

Yet, she still points to the many pitfalls awaiting potential investors there. For example, although the country has a "sound legal system, justice take its times," she says. Apparently, the country has entered the Guinness Book of Record for the longest legal dispute.

And although the cost of borrowing has come down (now under 10 percent), it still remains quite high by international standards. Chong noted that for Ascendas' first project in Bangalore, the interest rate had been a staggering 21 percent with no possibly of raising funds abroad.

Asian businessmen also complain about the red tape and bureaucracy often encountered in the country, although as N. Kumar, vice-Chairman of the Indian Sanmar Group. a conglomerate encompassing chemicals, cement, shipping, engineering, and insurance notes: "roadblocks exist and can be irritating, but Indian red tape doesn't differentiate between foreign and domestic investors. If it's corruption, it's the same."

Local civil servants are perceived as "laid back" and need to be assiduously pursued for a project to move forward.

Many foreign companies also remain uncomfortable about the restrictive labor laws, which make it difficult to lay-off staff. Given the current economic environment, the ability to redeploy staff has become extremely important.

That said, the competitive landscape has been improving and the government has been dismantling some of the state-monopolies, while relaxing foreign ownership limits.

Only a couple of days ago, the government announced it would increase the foreign direct investment limit in banks to allow foreign banks to set up subsidiaries here. Early this month, HSBC picked up a 20 percent stake in UTI Bank and other foreign banks like DBS in Singapore, are believed to be eyeing other targets.

"I see great potential in India. The country has a lot of things going for it if the government continues with its reform program," Chong said.

She pointed to the high level of entrepreneurship, which has help companies like Infosys, Wipro and Ranbaxy to strive, and the pool of local worker is skilled with wages still low comparatively to the rest of the region.