EUROPEAN COMPANIES IN INDIA Reigniting Economic Growth Foreign Direct Investment Adith Charlie EUROPEAN COMPANIES IN INDIA: REIGNITING ECONOMIC GROWTH 1 European companiesForeign Direct in India Investment1 AIM OF THE STUDY Bilateral relations between the European Union and India have evolved from aid to trade in the last two decades. We would go a step further and say that the EU and India are on course to become strategic partners. The proposed Bilateral Trade and Investment Agreement (BTIA), which has been in the works for several years, will further strengthen the relationship by en- trenching it in sound institutional framework. Research on the subject of European investments in India is important for policy-makers and social scientists given the present economic realities. Both the EU and India face strong eco- nomic headwinds. While investors in India are wading through what has been a tantalising period for doing business, the European Union has not fully recovered from the aftermath of the sovereign debt crisis. The current business environment in India has raised some difficult questions for policymakers and industry observers. Is India losing its place of prominence in the global order for Foreign Direct Investments (FDI)? Should European investors look beyond India due to the country’s recent tryst with slow growth rates and policy uncertainty? This study aims to answer some of these questions while highlighting Europe Inc’s economic con- tribution to India between 2004 and 2013. Our study finds that European firms encounter myriad complexities in India but the smarter ones learn to stay focused on the mushrooming opportunities. Tactical Greenfield investments, landmark acquisitions and steadfast dedication through uncertain economic cycles have been the key ingredients to success. The Indian economy has greatly benefited in the process. FDI from the EU has boosted India’s export competitiveness, generated employment, strength- ened the skills base, enhanced technological capabilities and increased financial resources for development. Official data from neither side is sufficient for comprehending the drivers and motives of this new investment boom. Our study, therefore, fills a major gap in EU-India FDI literature. We have measured the economic gains of European investments on India’s commercial landscape within a 10-year timeframe. The report contains concrete measures on how EU companies can make India a growth centre and avoid the common pitfalls of doing business in the country. We have also highlighted rec- ommendations for Indian policymakers to encourage large dollops of FDI from the continent. Our booklet would serve as a comprehensive guide for information, statistics, analysis and trends pertaining to European investments. The study required us to dip into an extensive body of relevant literature such as EU-India policy documents, structured databases and third-party research reports. Plus, we have devel- oped our own dataset by deploying a two-step methodology that analyzes both the reality and perception of FDI from the major EU economies. The strength of our hypothesis was tested against the experiences of a cross-section of Country Managers who deal with the opportuni- ties and challenges that this market presents every day. To our knowledge, this is the first work of its kind at the pan-European level. We are confident that this report would provide usable perspectives, real-world anecdotes, and practical take- aways for companies and policymakers. EUROPEAN COMPANIES IN INDIA: REIGNITING ECONOMIC GROWTH 2 Foreign Direct Investment European companies in India 3 FOREWORD TABLE OF CONTENTS It gives me great pleasure to present “European companies in India: Reigniting EXECUTIVE SUMMARY ....................................................................................................................... 4 economic growth,” a study report that underlines the role played by European multinational enterprises in India’s economic development. The report is not a 1) INDIA’S EMERGENCE AS A FAVOURED DESTINATION FOR FDI ......................................................... 7 mere research paper, but a valuable resource on how companies can succeed 1.1. Introduction ............................................................................................................................ 7 in what is arguably one of the most exciting destinations to do business. I 1.2. History of FDI in India ............................................................................................................. 8 congratulate the teams at the Europe India Chamber of Commerce and the 1.3. Why India ............................................................................................................................. 10 European Business & Technology Centre for putting together a comprehensive 1.4. Top Centres for Inward FDI .................................................................................................... 11 1.5. Role Played by the Diaspora ................................................................................................... 12 body of work that will serve as a solid knowledge tool for all stakeholders. 1.6. Recent Challenges ................................................................................................................. 12 1.7. The Way Forward .................................................................................................................. 14 The EU has a strong and deep relationship with India. This is not only based on our shared historic association but also through shared core values of democracy, enterprise 2) THE EUROPEAN UNION AND INDIA ............................................................................................. 16 and collaboration. Over the years, we have always managed to effectively adapt our cooperation 3) EUROPE INC IN INDIA ................................................................................................................. 19 to the emerging challenges and changing demands of our times. 3.1. Motives............................................................................................................................... ..19 3.2. Official Data & Our Dataset .................................................................................................... 22 This report provides the right economic framework by highlighting the participation of European 3.3. Overall Spend ....................................................................................................................... 24 enterprises in fresh capital generation and employment creation. While striving to create a better 3.4. Benefits of European Investments in India .............................................................................. 28 understanding of European enterprises in the Indian context, the report provides an overview of 3.5 Preferred / Potential Sectors.................................................................................................... 29 some of the key trends and challenges that companies ought to be prepared for. 4) KEY COUNTRIES AND INDIA ........................................................................................................ 33 4.1. United Kingdom .................................................................................................................... 33 The sheer scale, diversity, and regulatory and tax complexity of India can be overwhelming for a 4.2. Germany .............................................................................................................................. 35 foreign company. Companies have to be patient and committed to experience sustainable growth 4.3. France ................................................................................................................................ 38 in the country over the longer term. In any new market, sound ground knowledge is important 4.4. Belgium ................................................................................................................................ 42 for success and this is predominantly true for companies venturing into India. Getting to grips 4.5. Italy ..................................................................................................................................... 43 with a continent-sized market, even approaching it one state or city at a time calls for meticulous 4.6. Denmark .............................................................................................................................. 46 planning. The suggestions and recommendations contained in this report will help the first time 4.7. Spain .................................................................................................................................... 48 investor to understand the nuances of doing business in India. 4.8. Sweden ................................................................................................................................ 50 5) PROPOSED FREE TRADE AGREEMENT BETWEEN EU AND INDIA .................................................... 54 The European Union is committed to strengthen EU/India trade relations and we are confident that 6) CHALLENGES FOR EU COMPANIES IN INDIA ................................................................................. 56 the conclusion of the EU/India Broad-based Bilateral Trade and Investment agreement is possible 6.1. Trade Barriers ......................................................................................................................