Indian Political Landscape and its effect on doing business in India

Note: This is the 3rd post in the 30 part series that I am doing on Key success factors for doing business in India – A 30 part series !, that I plan to do over next month.

In 2004, after a long lay-off, Congress returned to power in India (after coalition with left parties)- when they were least expected to ! At that time BJP (Bharatiya Janata Party) was nearly sure of coming back to power on back of rising economy, opening of markets, liberal policies and popularity of Prime Minister Atal Behari Vajpayee. However, in a convincing verdict, the world’s largest electorate inflicted a massive defeat on the country’s longest-lasting coalition of disparate political parties, the National Democratic Alliance headed by the Bharatiya Janata Party. It was an outcome that upset all calculations of pollsters and media pundits and one that went beyond Congress’s own expectations.

What was the reason for this upset Victory – It were the same reasons why people expected them to win – most of the urban people that is, like us, thought that AB Vajpayee was was making “India Shining” a reality. What everyone of us forgot was the opinion of the rural people, who accounted for more than 70% of voters. These voters were in rage that BJP was only making urban people more rich, whereas the situation of rural villagers was getting progressively poor.

Long story short- In India, Politics is governed by rural population and the leaders like Lalu Prasad Yadav And Rabri Devi !

When it comes to effect of Politics on doing business in India – it is not all that rosy either..The two main factors are the corruption and Red tape/ bureaucracy both of which are attributed to the Political landscape in India. Everytime, you bribe a low level government officer, be sure that some part of that bribe goes to the local corporator and even the the ministers.
It may be a proprietary business, a partnership or a corporation, each of them have to tackle corruption and beurocracy to a large extent, especially when they are starting something afresh, involving government approvals and paperwork. They either survive or succumb.

For small businesses, they have to face local corporators and government officers, whereas for big corporations or multinationals, it is the leftist political parties and local lobbies.

Here are some facts about corruption in India:

• India ranks 70 in the corruption index 2006
• In all public services; police are perceived to be the worst, followed by judiciary
• Bribe Payer Worst performer among 30 countries in Bribe Payer Index

I will give you an example, my friend in Pune was planning to start a small 100% export oriented software unit. He and his friend financed this project through their years of savings. He being a Project Manager, planned out this whole thing quit well – on paper. Very soon he found a perfect place to set-up his business too. Everything looked great until he witnessed the insane amount of time it took for him to get his paperwork done. He literally made 100s of rounds to government offices, to get his 100% EOU (100% export oriented software units need to go through some special process) license. He like many others did not want to through the route of bribery, but finally he succumbed to the pressures and spent nearly Rs. 1,75,000/- ($4,500) and 60 days, when his work should have been done in only Rs. 25,000/-($550) and 15 days.

I am sure most of us have heard this kind of experience from our aquaintances in one form or the other.

If you are a corporation or a multinational the things just get better, now not only do you have to deal with corruption but also the politics. Recently there have been tons of examples of left parties putting hurdles on multinationals entering India. The one that immediately come to mind is the entry of WalMart in India. Walmart had to fight an uphill battle for nearly couple of years before it had a tie-up with Bharti to make an entry. But even after that left parties argued that Walmart had a “back door entry” in India. The left parties are not only opposed multinationals coming to India, but also strongly oppose Free Trade and privatization of public sector companies.

On this blog, I have mostly written about how India, as an economy is moving forward and the factors leading to it, however, corruption and negative political effect are the two major hurdles that need to be tackled.

Good resources for reading:
Another white paper by Joseph Christie that talks about:
Indian scenario – perceived as corrupt and factors which lead to this perception.
Ethical attitudes of business executives in India
Factors from external and internal environment
which influence their ethical attitudes.
Cultural values which affect their ethical attitudes
Comparison of cultures of India and the U.S.A. and relationship between culture and certain questionable business practices

A very good paper on “Corruption in India” by Vigilance Commissioner N. Vitthal delivered way back in 2002. A bit old but informative