What a difference a decade makes in India
- Asia Pacific
- Security Risk Management
- Ethics, Compliance and Governance
- Crisis Response
What a difference a decade makes in India
When Control Risks set up its office in Delhi 10 years ago, India was a different country. It had just started to shake off the inertia of slow growth that had hobbled it for decades. In 2007 it was the 12th largest economy in the world in nominal terms. Today it’s the seventh largest; third, if you count by purchasing power parity. In 2013 India joined a handful of nations that have mounted successful missions to Mars. By one count, the number of multinational companies in India quadrupled in just over a decade to 2012.
The changes of the decade are not only reflected in numbers. There have been profound shifts in politics and policy, in diplomacy and digitisation, in arts and sports. Well, perhaps not so much in sports – except that India won two more cricket world cups in this time.
What is certain is that India has changed remarkably in a number of ways in these 10 years. Some of these changes affect not just the country’s 1.3bn people – but the rest of the world too. On the occasion of 10 years of Control Risks in India, we have selected what we consider to be the 10 most significant changes of the decade.
- Emerging as one of the largest economies: India’s recent economic expansion has brought a record number of people out of poverty. A growing middle class has fuelled impressive consumer growth. It is today the world’s third largest market for smart phones and the sixth largest for cars. India’s software industry employs more than 4 million people directly and more than 10 million indirectly. The breadth and depth of this growth is reflected in the extraordinary range of projects Control Risks has engaged in during this period.
But India is not just one of the world’s largest economies; it is one of the youngest too. Almost half of India’s population today is under the age of 26. While this unique demographic holds the promise of making India a thrumming engine of the world economy, it also poses the staggering challenge of finding jobs for the million-odd Indians who enter the employment market every month, not to mention providing for the health and education of such a large nation.
- Gaining diplomatic clout: Economic heft has brought with it a greater strategic sway. Gone are the Nehruvian years of the Cold War era, when India led the global Non-Aligned Movement. In 2008, the then government staked its parliamentary majority to ratify the US-India Civil Nuclear Treaty. It heralded India into the global nuclear elite. For the last three years, India has given more aid than it has received, with neighbours Bhutan, Afghanistan and Nepal topping the list of recipients. All of this has added up to give India much more power in diplomatic negotiations. Ministers from the largest economies can be routinely seen making a beeline for Raisina Hill, the seat of power in the nation’s capital – including those from the UK keen on agreeing a post-Brexit trade deal.
India has reached out, too. This Indian government is the first one to consistently conduct diplomacy in the language of international business. Prime Minister Narendra Modi has undertaken more than 70 foreign trips since taking office in May 2014. He has been as at home on the campuses of Facebook and Google as at packed diaspora events at Madison Square Garden in New York and Wembley Stadium in London. Given his focus on trade and investment, Modi is widely promoting the fact that India jumped 30 places on the World Bank’s Ease of Doing Business list for 2018 to the 100th place.
- Evolving federalism: Ten years ago many of our multinational clients viewed India as a single, homogenous market, not the agglomeration of 29 states that it really is. Over this past decade, the federal structure has come into a sharper focus, with more policy-making powers and funds devolving to the states and village panchayats (local governments). The mantra of cooperative federalism has morphed into a competitive federalism in which states – many with the populations of large countries – vie with each other for investment. Our clients now need to assess the political and regulatory scenarios at both the federal and state levels and pay attention to the state-wise ease of doing business rankings that are published every year.
In the middle of 2017, India implemented perhaps the boldest tax reform in history. It replaced dozens of state and federal taxes with a national one, called the Goods and Services Tax or GST. The idea is to create a more unified national market and, despite its early teething troubles, we expect the new tax to lead to greater efficiencies and a more attractive business environment.
- Fighting corruption and black money: Another unprecedented policy move was announced on 8 November 2016. As the world woke up to hear the news of Donald Trump’s election victory, Prime Minister Modi announced the immediate withdrawal of two high-value currency notes. In one stunning move, 86% of the currency was sucked out of circulation, to be gradually replaced by new bills. The declared aim of the move was to fight black money and counterfeiting. While its success is still being debated, it made one thing clear: this government – elected on an anti-corruption manifesto – was willing to rip up the rulebook in order to drive home its agenda.
That resolve has been shown in other ways too. The Prevention of Money Laundering Act, which was implemented in 2005, has been given more teeth in recent years with an expanded Enforcement Directorate, the federal agency tasked with fighting money laundering. Between April and August of 2017, the Enforcement Directorate and the Securities and Exchange Board of India, the stock market regulator, acted against at least 331 shell companies and 100 brokerages charged with facilitating money laundering. This government has implemented Aadhaar, the world’s largest biometric identification system, which was initiated by the previous government to root out duplication of identities and safeguard welfare schemes from corruption-related leakages.
- Forging a stricter compliance regime: Control Risks has always worked with foreign and domestic Indian companies concerned about their exposure to extra-territorial anti-corruption legislation such as the US Foreign Corrupt Practices Act and the UK Bribery Act. However, today we are also seeing nervousness around the application of a more rigorous domestic compliance regime. The Companies Act of 2013 has brought clearer accountability to corporate anti-corruption and anti-fraud measures. The Reserve Bank of India, the country’s central bank, has been given more power in 2017 to act against loan defaulters. Our clients today do not just want to fix a problem; they are seeking to instil a preventive compliance culture right across their businesses.
The challenge here is to be able to disrupt previously entrenched relationships – such as those along the supply chain or with public officials – which might require companies to trade a short-term financial hit for long-term resilience. The good news is that this kind of approach, while always hard, is being increasingly adopted by Indian and multinational companies.
- Emergence of the modern Indian multinational: Those Indian groups that have extended their international footprint during the decade have changed in more significant ways. In January 2007, the salt-to-software conglomerate Tata Group bought Britain’s Corus Steel for $13bn. The next month, Hindalco, the aluminium company of the Aditya Birla Group, announced the acquisition of Canada’s Novelis for $6bn. The next year Tata Motors bought the Jaguar Land Rover car businesses from Ford Motor for $2.3bn. Some of the global growth has been organic too: Tata Consultancy Services, a $17bn software company that employs more than 370,000 people, operates in 46 countries now.
These acquisitions have helped change the culture of corporate India, embedding international best practices in some of India’s top companies. During the same period, Indians have been appointed to the top jobs in some of the world’s leading companies, particularly in Silicon Valley. However, family-run conglomerates still represent the largest part of the business environment in the country and acrimonious disputes that pit promoters against professional management still dominate the headlines – a trend that is likely to continue for some time.
- Tilting to the political right: Another dark shadow lengthened on India this September. Gauri Lankesh, an award-winning journalist whose work was critical of the ruling right-wing BJP, was shot and killed at point blank range in front of her Bengaluru home. It was a horrific reflection of a murder that in 2006 had rocked Russia, where I had worked for six years before coming to India. Like Gauri, Anna Politkovskaya, an award-winning journalist who often criticised the ruling regime, was shot and killed at point blank in her block of flats in Moscow. It’s an extreme example of the shift to the hard right and the intolerance that is becoming more visible in India.
Business leaders are certainly not immune from this growing right-wing nationalism. A few months ago, I had the opportunity to discuss the changing business climate with the heads of some of the largest multinational companies in India. If there was something in common that the leaders of these various industries faced, it was a sense of nationalism coming in the way of business decisions and policies. As the most populous democracy in the world heads towards another national election in the first half of 2019, this position is unlikely to soften anytime soon.
- Growing wealth of godmen: In an atmosphere filled with right-wing rhetoric, religion mixes better than ever with politics and business. And this can bestow superhuman powers to godmen of all hues.
Consider this: the fastest growing FMCG company in the country today is Patanjali, which was founded just a decade ago by Baba Ramdev, a yoga evangelist whose religious sermons on his own television channel are watched by tens of millions every day. His diet-biscuit-to-dish-washer company is now a $1.6bn behemoth whose success has forced several multinational giants to rethink their market strategies.
In August 2017, the police arrested a guitar-wielding ‘rockstar’ godman, Gurmeet Ram Rahim, in his sprawling compound 260 km outside Delhi. While the police scrambled to contain the tens of thousands of his followers running amuck after his arrest, our clients in the area found it impossible to ship their products, an operational challenge that befuddled and frustrated them in equal measure.
- Changing security challenges: Operational challenges have evolved over the decade. In November 2008, ten members of Lashkar-e-Taiba, an Islamic terrorist organisation based in Pakistan, launched coordinated attacks at various locations across India’s financial capital, Mumbai. The event, which lasted four days and cost 164 human lives, changed India’s approach to terrorism, instilling a resolve to fight terrorism in a more coordinated way. The other internal security threat at the time – extreme leftist Maoist insurgents – has subsided over the years, though bandhs (or shutdown strikes) do still occur frequently.
Clients today are looking at a broader range of security risks, such as those related to labour activism, restructuring and cyber extortion. Putting in place mitigation steps tailored to these scenarios is essential, not to mention the business continuity measures to navigate natural disasters such as the Chennai floods of 2015 or communal protests, such as when the ethnic Jat community paralysed the state of Haryana for more than a week in 2016 and cut off the main water supply to Delhi for days.
The terrible state of Delhi’s air is an existential challenge that – in contrast to other polluted cities like Beijing – has elicited little meaningful government action. The worsening pollution is setting off loud ‘duty of care’ alarm bells in embassies, multinationals and Indian companies across one of the world’s largest capital cities by population.
- Leaping into a digital future: One of the dividends of India’s young demographic is that a large number of Indians are quick adopters of new technologies. The country is supposed to have 62 internet connections per 100 people, though there is a sharp divide in the levels of access between urban and rural areas, and between men and women. The Modi government has launched Digital India, a campaign to improve the country’s digital infrastructure and offer more government services online.
This breakneck growth has come at a cost. Indian citizens are increasingly concerned about data privacy and censorship, and perhaps with good reason given the intention to link Aadhaar ID biometric details to transactions, such as opening bank accounts, obtaining a new phone and filing tax returns. The Supreme Court’s decision to affirm the inalienable right to privacy – or the right to be left alone – in September 2017 does not sit easily with the government’s digital mission, but the agenda is here to stay and many Indian companies are leveraging artificial intelligence, data analytics and machine learning to disrupt their markets and deliver competitive edge.
These 10 extraordinary changes remind us that, as Control Risks steps into its second decade in India, the challenges and opportunities in front of us are quite different from those that faced us a decade ago. We have a fantastic team to take on those challenges. What we can assure you is that we will keep a keen eye on the shape of things to come.