Investing or not investing? Analyzing the risks of new India.


If you compare advantages and disadvantages of investing in India, it is a very difficult question to answer. It is a big risk – but it is worth taking. Many of them have gone ahead with huge committment to India, even though possibility of failing in India is equal to the success.

If you are a regular reader of this blog I have written a lot on why you should you invest in India. In this post, I will very briefly touch upon the challenges faced. This post is also part of the series that I have been running on “Key Success Factors of doing business in India”.

Indian economy at present is doing very well, infact in last quarter India registered a GDP growth of 9.2 one of the fastest in the world. However, with it, inflation has grown at equally fast pace hovering somewhere around 6% to 7%. In the space of two years India has swung from a current account surplus to a deficit equal to 3% of GDP, indicating a growing gap between demand and supply.

Investing in India

A cover story in The Economist in February 2007 examined the potential for overheating of India’s economy and presented the possibility of sustainable future growth, making the inevitable comparisons with China.

The Economist observed “Perhaps the only thing really growing faster in India than China, is hype.”

Even with a huge population, India is still facing a shortage of qualified employees due to inadequacies of the public educational system. This is pushing wage rates up and eroding the cost advantage that has driven much of the economic growth in India in the past decade.

The state of Infrastructure in India is bad, if not worst. If India has to reach its goal of becoming a super power, drastic improvements are essential in roads, seaports, airports, power grids, and communication systems, as well as improved education and health care.

There is a huge difference in culture when it comes to doing business in India. However, for a westerner it is masked initially as they are used to dealing with persons of Indian origin in business contexts in the U.S and UK. Business negotiations in India are often characterized by indirection, ambiguity and seemingly endless revisiting of settled issues, and in most cases agreement is just the starting point for the next negotiation.

Corruption in government and throughout the economy adds to the cost of doing business and presents legal and ethical challenges for U.S. companies. Indian courts are said to have a backlog of 27 million cases, and it can take decades for disputes to be resolved in the courts. Patent protection is granted grudgingly and slowly. Labor laws are not very friendly. What is put forth by government officials about trade liberalization and open markets is not always what is played in reality.

India is one tough place to do business.

The picture does look grim, however, despite its many challenges and uncertainties, India is and will continue to be one of the most important nations of the 21st century, both strategically and economically, and the potential for investment by foreign corporations in India is great. Moreover, it is one of the most fascinating places on the face of the earth in which to do business.

  1. Sushil says

    Never Criticize about your country and other country? second thing every country is not perfect so therefore you can’t discuss about the curruption in India? becasue we know that it’s everywhere in the world, whether it’s in less quantity or in much quantity…..but we are no fast track in developing. and we know that in next twenty year we will rise like a sun, like most of the countries are looking at us in the matter of economy, business, infrastructure and more….

  2. Dan says

    Reduce risk by doing research, research, research. I reccomend starting with this article.


  3. trakin says

    Yes, foreign investors are putting their money much more than most countries across the globe and it is not without a reason even with so many challenges. On my blog I have written several posts on why one should invest in India. However, this post is also an effort to sensitize readers that we do have our share of challenges and they need to be overcome to sustain the growth and incoming investment. I do believe that India is one of the best places to invest and more investment should come in…

  4. Shubham says

    Figures can be decieving, the tertiary sector in India where most foreign investors are putting their money is growing at a much much faster rate. Moreover infrastructure and many other problems don’t cause too much problem in tertiary sector. Inflation is a concern but overall the buying power of an average Indian is increasing and hence there is a huge market to tap. India definitely deserves more investment. The only problem in India is the political problems, where ruling parties change and suddenly the entire development plans change, except that India is a great place to put your money in.

  5. PlaySafe says

    Indian’s youth generation is now known for professionalism. Adaptability is one such big thing that indian can do hence, present world wide and only Indians dream to be all rounder. so, who can beat India.

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