Whereas China was once a pool of cheap and reliable labour, it costs roughly two-thirds less to employ a worker in India, according to Roberto Ferranti, principal of portfolio operations at private equity firm Baird Capital.
“Not only is a significant proportion of India’s workforce university-educated and highly skilled, the country also has the advantage of the English language – an essential tool in the global economy,” he said.
Lure food and drink manufacturers
India’s government was trying to lure western food and drink manufacturers to operate there, as it realised the country had not taken advantage of its workforce like China had, said Anuj Chande, partner and head of the South Asia group at the financial advisor Grant Thornton.
“Food manufacturing is seen as a priority by the Indian government and they are very much keen on foreign companies going there,” he said.
“UK manufacturers could go there to process products for export back home, but they would be better off selling locally to the 300M consumers in India’s middle-class bracket, because there’s so much demand for food.”
Existing manufacturers in India already understood and operated best practices for lean operations, were able to adapt their existing processes and could continuously improve their skills, which was backed by performance data, added Ferranti.
Although there were many upsides, access to working capital, poor infrastructure and a high level of bureaucracy were likely to have a negative impact on any manufacturer operating in India.
‘Significant challenge’
“These inefficiencies could present a significant challenge to new business and foreign investment,” said Ferranti.
However, India’s government was aware that its red tape was off-putting and had worked to reduce the burden, claimed Chande. For instance, in the past, foreign companies could not repatriate their profits. However, this restriction had now been lifted.
“They can do it now. There are various taxes, which are nearly up to 20%, but repatriating profits is no longer an issue,” said Chande.