India’s Political Landscape and How Political Red-Tape Affects Business in India

Understanding Indian governance- a guide for Expats

India developed into one of the most promising economies in the world over the past few years. However, conducting business here can be impossible for expats without understanding the social and political dynamics of the country.

It is important to remember that the urban voter forms only a small minority in India, while rural areas account for nearly 70% of the population. In the general elections of 2004, the BJP-led coalition’s victory seemed assured. However, it soon became clear that India was only shining in the metros, while the villages had remained in the dark. The BJP had simply not paid enough attention to the rural voters and it was the UPA front with its ‘Aam Aadmi’ campaign that rose to ascendancy.

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Indian politicians come from a diverse set of backgrounds. You have a highly-educated Sikh prime minister, a female ruling party leader of foreign origin, and even a Dalit chief minister from very humble roots. In 2009, the country’s score on the Global Political Risk Index (GPRI) remains at 62 on a scale of 100, with a ranking of no.12.

When multinational corporations signal interest in investing in the country, one of the first roadblocks they face is caste-based and regional politics that claim to fight for the interests of the people. One example is the case of Wal-Mart. Even after a tie-up with the Indian major Bharti, the political clout wielded by local parties posed significant problems for their entry. There is also the case of the Tata Nano plant in Singur, which was shut down owing to protests from political parties fighting for the locals who were being displaced. Other examples include the 1977 exit of big multinationals such as Coca Cola and IBM due to the government’s insistence of them enlisting on the country’s stock exchanges to carry on operations.

The bane of Indian politics is the relationship shared by the state and central governments. Since some states are ruled by parties other than the ones at the center, they have the ability to hold the government hostage to their demands. There have been numerous instances of regional parties calling for a statewide strike, or bandh, when they oppose the stand taken by the center. This political arm-wringing has an adverse effect on development and business in the country.

In terms of ease of doing business, India ranks a lowly 133 amongst 183 countries. It was also ranked 70 in the corruption index of 2006 and the Worst Performer out of 30 countries in the Bribe Payer Index. Government approvals involve red-tape at almost every level, and it hardly comes as a surprise that most small businesses fail to survive in the ruthless landscape they operate in.
Most expatriates wanting to set up shop in the country find adjusting to the political and bureaucratic pressures, corruption, unstructured approval processes, and decision-making delays from administrators not worth the returns that they can expect on their investment. While there is no doubt that India is fast ascending the ladder to superpower status in the world, its ascension is sure to hit a stumbling block unless corruption and red-tapism are tackled head on.

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