(London) Prime Minister Narendra Modi assumed office on 26 May 2014. He is India’s first Prime Minister to be born after independence. He is also the first sitting chief minister of a state (Gujarat) to have run for (and won) the highest office.
India’s constitutional set-up is federal, with a high degree of devolution to the states, including on key issues such as law & order, land acquisition and resource sharing. There are 29 States, one quasi state (Delhi) and 6 Union Territories (directly administered by the Centre).
The Congress Party and Bharatiya Janata Party (BJP) are the two largest forces in the current Indian political scene, and the only ones which can claim national reach. However, Indian politics has become highly fragmented in the last two decades, with a range of smaller regional and caste-based parties sharing power with national parties in Delhi.
That trend was reversed when the BJP led by Narendra Modi won an absolute majority (282 of 543 seats). This is the first time in 30 years a single party has won an outright majority. More remarkably, the BJP became the first non-Congress party to achieve this feat.
The BJP governs with a coalition of twelve parties – the National Democratic Alliance. The NDA has a total of 336 members in Lok Sabha, or Lower House of Parliament, commanding a simple majority. However, the BJP does not currently enjoy a majority in Rajya Sabha, the Upper House. PM Modi needs to work with state parties to pursue his legislative agenda. He has promised states a new model of “cooperative federalism”: he knows he needs buy-in from states for his governance agenda.
2. International Relations
India has a troubled relationship with its neighbour Pakistan, leading to at least three wars since the two countries achieved Independence in 1947.
Since 2004, India and Pakistan have had several rounds of negotiations and set up a ‘Composite Dialogue’ aimed at settling all bilateral issues, including Kashmir. The Composite Dialogue remains suspended following terrorist attacks in Mumbai in November 2008. Bilateral talks resumed in February 2010 but have made little progress.
India also has a complex relationship with China, with whom it shares a long, contested border. The two countries fought a short war in 1964 and have been unable to settle their respective territorial claims since then.
More information on political risk, including political demonstrations, is available in FCO Travel Advice where you will also find details of LOCATE, the FCO’s on-line registration service should you want the nearest High Commission to keep you informed of a crisis or similar emergency.
India recovered well from the global crisis but faces a challenging task to sustain growth, lower inflation, manage a wide current account deficit and pursue reforms to alleviate structural bottlenecks. In line with many other emerging economies, it has seen slowing growth. Even at the depth of the global crisis, India’s growth only fell to 6.7%, but in 2013-14 growth slowed 4.7%. The slowdown has been especially sharp in industry with few signs of a strong recovery.
The arrival of a new government under Prime Minister Modi has resulted in elevated expectations, a return of business confidence and optimism about the future. The Modi government has busied itself with incremental reforms. While some have complained of the absence of ‘big bang’ reform, others opine that Modi needs further time to build consensus.
The government has also put forward a number of ‘big ideas’ such as ‘Make in India’, creating 100 ‘Smart Cities’ and ‘Clean India’. These feed into the long term aim of inclusive prosperity, coming-of-age infrastructure and correcting India’s lopsided model of services-driven growth to an export oriented manufacturing hub. Modi is also actively seeking to use foreign policy to deliver his economic priorities as shown by his recent overtures to Japan, US, China and the BRICS. However, the government faces huge challenges in reviving growth.
Inflation remains a key concern. CPI Inflation had been ruling at 10% levels for most of 2013, although it has now moderated to 6-7% range. The Reserve Bank of India (RBI) has since January 2014 shifted to targeting inflation and aims to get inflation down to 6% by January 2016. Interest rates are at pre-crisis highs (8%), limiting the room for manoeuvre on monetary policy, especially given sluggish growth.
India’s vulnerability is accentuated by its current account deficit. India has a trade deficit of around 7% of GDP and is especially sensitive to oil prices, with energy related imports accounting for 7.5% of GDP. Crude oil and gold account for around 40% of imports. India has relied on service exports, remittances and foreign capital to plug the gap and build foreign exchange reserves. However, recently increased import duties on gold, depreciation of the rupee, and an improving global economy have helped ease concerns – the current account deficit fell from 4.7% of GDP in 2012-13 to 1.7% in 2013-14. Internationally, India has diversified its export markets through regional Free Trade Agreements. There are ongoing FTA negotiations with the European Union.
India will need to take further action to maximise its “demographic dividend” (half the population is under 25 years). These include raising public and private investment in infrastructure, and improving delivery of public services, including education, skills and health. This also requires India to make itself more attractive to investment. It is 142 out of 183 in the World Bank’s Ease of Doing Business index. Issues around taxation, corruption, infrastructure and bureaucracy are commonly raised by business.
The government has undertaken a number of reforms to further open up the economy through higher FDI limits in areas like retail, aviation and broadcasting services. It has also taken steps to speed clearances for stalled investment projects and increased retail prices of some fuel products in order to cap the subsidy bill. Prime Minister Modi has said he wants India in the top 50 in the world for Ease of Doing Business. This reform agenda should strengthen India’s long term economic potential as well as easing a number of pressing economic challenges.
4. Human Rights
India has a strong democratic framework, which guarantees human rights within its constitution. India also has a robust parliamentary tradition, an independent judiciary, professional and apolitical armed forces, a vibrant civil society, and a free and outspoken media.
However, India also faces numerous challenges relating to its size, social and economic development. The British Government is working with the Indian government to build capacity and share expertise to tackle those challenges, including the promotion and protection of human rights.
Business and Human Rights
Business and human rights is a key area of conflict in India. Land acquisition by companies and state governments for mining and infrastructure projects has been a contentious issue in several states, sparking frequent protests by indigenous groups and civil society actors.
In September 2013 the UK launched its action plan on business and human rights, becoming the first country to set out guidance to companies on integrating human rights into their operations.
India is a member of the International Labour Organisation. An important recent development for child rights has been the adoption of the 2009 Right to Education Act guaranteeing free, compulsory and quality education for children aged 6-14 years which came into effect on 1 April 2010. But implementation of legislation varies from state to state and awareness of human rights issues is inconsistent. There continue to be reports of the use of child labour, particularly in the textile industry.
The Department for International Development has a range of long term partnerships with children’s NGOs, including Save the Children, which focus on ending child labour and implementing India’s Right to Education Act. We note that the Indian government continues to take steps to promote the rights of children and hope they will continue their efforts in this regard.
Between 2011 and 2013, India improved its ranking from 113th to 101th in the World Economic Forum’s Global Gender Gap Report. However, inequality, discrimination and domestic violence are still pervasive, particularly in India’s poorest states.
Indian Labour Law specifically protects Indian workers against discrimination on the basis of ethnicity, gender or religion. There are no applicable provisions against discrimination on the basis of sexuality or gender identity. On 11 December 2013, the Indian Supreme Court set aside a 2009 ruling of the Delhi High Court that decriminalised homosexuality. Although prosecutions of gay people are rare, conviction for engaging in a homosexual act could lead to a prison sentence.
Rights of association (trade unions)
There are more than 14,000 registered trade unions in India. The steady growth of trade unions in India is due to political consciousness among the laborers as well as governmental measures to facilitate collective bargaining through appropriate legislation.
5. Bribery and Corruption
The UK Bribery Act
Bribery undermines democracy and the rule of law and poses very serious threats to sustained economic progress in developing and emerging economies and to the proper operation of free markets more generally. The United Kingdom Bribery Act 2010 was intended to respond to these threats and to the extremely broad range of ways that bribery can be committed. The Bribery Act applies to non-UK companies operating in the United Kingdom and to UK companies working overseas. It created four prime offences:
- two general offences covering the offering, promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage
- an offence of bribery of a foreign public official and
- a new offence of failure by a commercial organisation to prevent a bribe being paid to obtain or retain business or a business advantage (should an offence be committed, it will be a defence that the organisation has adequate procedures in place to prevent bribery).
The Act recognises that no bribery prevention regime will be capable of preventing bribery at all times. A company will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing. Companies must therefore make sure that they have strong, up-to-date and effective anti-bribery policies and systems in place to prevent bribery by persons associated with them.
Bribery and Corruption in India
Corruption is well entrenched in India and pervades many aspects of daily life. Corruption is often cited as a barrier to the effective development of the private sector and poses business risks that require pro-active management in the form of regular due diligence exercises and up-to-date risk strategies. Procurement practices often lack transparency and are usually coupled with a significant bureaucratic burden. These risks require careful management.
Politicians, bureaucrats and law enforcement officials often wield significant discretionary power and notable abuses have been brought to light. Several high-profile prosecutions in recent years have helped highlight that the legal framework for fighting corruption exists although enforcement is often weak and responses vary from State to State.
Public activism on corruption has spiked with the large scandals that were unearthed under the previous government’s watch.
The Indian Government regularly blacklists companies known to offer bribes from bidding for defence contracts. Many established companies in India aim to have robust checks and balances in their systems to ensure transparent dealings. A number of government departments and procurement teams of public sector companies are now migrating to online platforms to reduce the scope of corruption.
India has a number of robust laws to deal with corruption – the most publicised one being the Right to Information Act (RTI), which enables citizens the right to seek information from any government agency. Although the RTI has over the years ensured some degree of public probity, other anti-corruption laws have remained strong in theory but weak in implementation and practice.
In 2014, India was ranked 85 of 175 countries in Transparency International’s Corruption Perceptions Index.
Visit the Business Anti-Corruption portal providing advice and guidance about corruption in India and some basic effective procedures you can establish to protect your company from them.
Read the information provided on our Bribery and corruption page.
6. Terrorism threat
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
The threat posed by numerous domestic and international terrorist groups in India is substantial. Coordinated terrorist attacks in locations frequented by foreigners and expatriates in Mumbai in November 2008 highlighted the risk of collateral damage in India. Attack locations across major cities in India have included hotels, railway systems, hospitals, markets, cinemas, restaurants, mosques and other open public areas. It is possible that future attacks could target Western iconic locations and those places frequented by foreigners and expatriates.
There are a number of terrorist groups active and operational in India, with a substantial threat posed by Islamist extremist groups such as Lashkar-e-Tayyiba (LeT) and Jaish-e-Mohammed (JeM). Radical left-wing and Maoist groups such as the Naxalites originating in West Bengal also threaten the operation of business in India. These loosely united groups are engaged in what is described as the Naxalite-Maoist insurgency across numerous states of south, east and south-east India, and involving anywhere up to 20,000 individuals. Attacks have targeted India and Western commercial interests, and have disrupted business operations in affected regions.
Communal violence takes place in India but has tended to affect small businesses in residential areas rather than be targeted specifically at foreigners or foreign owned businesses.
Read the information provided on our Terrorism threat page.
7. Protective Security Advice
Read the information provided on our Protective security advice page.
British companies, whatever their size, may be subject to cyber attacks. This can impact on the bottom line thefts of money, customer data or IP – and associated damage to your reputation. As a deterrent we advise companies to get their cyber security right. This is a board-level issue that all businesses need to deal with, and the 10 Steps to Cyber Security guidance provides Government advice on how to protect your business.
Smaller firms starting out with implementing cyber security measures may find the related ‘Cyber Security: what small businesses need to know’ guidance more useful, as well as visiting the Government’s advisory website Cyber Streetwise.
Businesses wishing to implement the most important technical controls, and demonstrate that they take cyber security seriously can apply to be assessed under the Cyber Essentials Scheme, leading to the Cyber Essentials or Cyber Essentials PLUS badge. Companies may also wish to consider joining the Cyber Information Sharing Partnership, which shares real-time cyber threat information on cyber threats.
8. Intellectual Property
If you plan to do business in India, or if you are already trading there, it is essential to know how to use, guard and enforce the rights you have over the intellectual property (IP) that you or your business own.
Intellectual property (IP) is a term referring to a brand, invention, design or other kind of creation, which a person or business has legal rights over. Almost all businesses own some form of IP, which could be a business asset. The WTO requires all member nations to include some standard IP protection in their national laws. These standards have been incorporated in Indian IP law, which means there should be few major differences between India’s laws and those of other developed countries.
Common types of IP protected in India include:
- Copyright – this protects written or published works such as books, songs, films, web content and artistic works;
- Patents – this protects commercial inventions, eg a new business product or process;
- Designs – this protects designs, such as drawings or computer models;
- Trade marks – this protects signs, symbols, logos, words or sounds that distinguish your products and services from those of your competitors.
The regulations relating to all forms of IP have been amended or reissued in recent years, mainly in response to India’s accession to the World Trade Organisation in 1995.
Although Indian IP law is thorough and generally comparable with European IP laws, there are still significant concerns over IP enforcement. A major cause for concern in enforcement is bureaucratic delay, with a backlog of cases at both the civil and criminal courts. This means that cases can run for five years or more. There is also a lack of transparency, particularly at a local level.
An advantage for UK businesses operating in India is that the legal system is based on common law, as in the UK, so the fundamental processes are familiar.
Quick tips for businesses:
- IP protection is jurisdiction-specific, which means all IP rights (including copyright) must be registered in India for the owner to be able enforce them in India. You can visit the patent office, trade marks office, designs office or copyright office websites for more information.
- registration of IP could take several months or years in India owing to considerable backlogs and bureaucratic delays at the IP offices, so businesses should plan their registration well ahead.
- if faced with infringement or piracy, businesses should appoint a good legal practitioner who understands the local context and has the necessary experience to initiate civil or criminal proceedings.
- if in doubt seek professional help – UKTI/ FCO/ India IP attaché/ UK IBC
Read the information provided on our Intellectual Property page
9. Organised Crime
A number of British companies have been attracted by potentially lucrative business offers in India but there have been examples of fraud carried out using private data subsequently shared between the British and Indian companies.
There have also been some specific examples of rogue Call Centres in India inappropriately using financial data acquired legitimately from their UK business partner. We therefore always recommend you research the market as best you can to understand any differences to the business environment in the UK and conduct basic due diligence before making any financial commitments (eg. checking that your Indian counterpart is a properly registered business and has a good reputation).
When considering doing business with Indian firms unfamiliar to you, it is worth bearing in mind the following:
- an offer ‘too good to be true’ may, in fact, be just that.
- verify the data of your business partner, make appropriate due diligence checks.
- increase your vigilance when using e-commerce.
- when making purchases, use secure payment instruments. When selling, secure the payment before delivery of the products.
Read the information provided on our Organised crime page.
More information is available on overseas business risk in a range of markets.