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The general consensus in the investment world today is that India will be one of the world's great economic powerhouses of the 21st century. With the stock exchange in Bombay reaching new highs virtually every day, and companies continuing to increase the amount of offshore work being done in India, it is little wonder why India's reputation as a sleeping giant is so pervasive. Underlying all the positives however, are an increasing number of very discouraging signs that may eventually put a damper on India's investment environment. Notoriously one of the most corrupt countries in the world, India's reform process started in the early 1980's when the BJP took control of the political landscape. Prior to this, export and import licenses were very difficult to obtain and virtually all business was conducted under the table. This made India a haven for shady business dealers. In 1983, when the BJP came to power, liberalization of laws began to occur and legitimate businesses became more common. However, one of the great myths of the Indian economic environment is that government started privatizing industry. Although bureaucracy was reduced, leading to a better environment for new entrepreneurs, only one government owned business was privatized. While educated, hard-working people are the norm throughout the country, over half the population still lives in poverty. These people were the catalyst behind the BJP's loss in last year's election, ending over 20 years of political progress. The election returned power to the Congress
party, which has historically been on the side of protectionism, socialism, and government programs. Red tape has been a large part of this party's legacy, and any return to this type of legislation is a signal to all investors to get their money out of the country. The chief factor in the growth of India has been the ability of western companies to outsource services to an educated, English speaking population for far less than they could in their home countries. While India has done a marvelous job of taking advantage of their cheap labor in the services industry, the barriers to entry for such jobs are low. Already, companies are looking at places such as Vietnam, China, and Eastern Europe to relocate call center locations and computer programming positions. Unlike China, which has based its economy off of manufacturing, the movement of service sector jobs can happen relatively cheap and in a relatively short amount of time. Any change in strategy by a large multinational corporation could seriously hurt India's competitiveness. In addition, a recession in places like Britain and the United States could cause large job losses to some of the highest paid people in the country. The protectionist laws meant to help workers keep their jobs may be India's greatest obstacle over the next 5 years. Currently, the ability to fire employees is one of the hardest tasks in India. The proven irony of such a situation is that countries where it is easy to fire an employee are those countries with the lowest unemployment rates - i.e. Singapore. A recession in India leave many entrepreneurs holding the bag, and paying dearly for it. Such ramifications will make future entrepreneurship a dicey task and will certainly stifle innovation. Companies may pull out of the country and relocate to places where corruption and red tape are at a minimal. Unless India can continue to change towards a more free market economy, the underlying issues may soon put the genie back in the bottle. |
