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Countries and markets review 2/2023: India - The world's largest democracy is now also the world's most populous country

Mumbai is the center of India's financial world. Despite of the long-continued high economic growth poverty is still a serious social problem in India.
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According to UN estimates, India surpassed China as the world's most populous country at the end of April with its 1.428 billion inhabitants. India's economic growth in recent decades has been a success story, and the country has benefited greatly from globalisation and opened to foreign investment. Fast economic growth, a large consumer market, technological development and a growing middle class attract the international companies around the world to India. The country also offers huge business opportunities for Finnish export companies in many different industries. However, companies also have to take into account challenges and risks, such as bureaucracy and corruption. Team Finland has an even stronger presence in India when a new general consulate was opened in Mumbai, which is the center of India's financial world. Finnvera has good tools to guarantee the political and commercial risk of Finnish exports in India.

India's business environment is diverse, but at the same time challenging. Corruption, bureaucratic obstacles and legislative issues must still be carefully taken into account, even though deregulation has been a trend since the 1990s. The country has a huge domestic market. However, the states are in many ways different from each other. The long-continued high economic growth has not reached all citizens, and therefore poverty is still a serious social problem.

The rise of information technology, software and service industries has been particularly significant. India has become known as a center for outsourcing software and IT services, which has attracted numerous international companies to the country. At the same time, the country's strong industrial base, such as the automotive, the textile, the chemical and the pharmaceutical industry, continue to act as significant engines of the economy.

The technological development and digitalisation open up opportunities for Finnish companies in India. The country has an extensive mobile network and a growing population of internet users, which creates a favorable environment for digital services such as online shopping, digital payment solutions and cloud services. India also has a significant amount of technology know-how and startup companies that attract foreign investors and partners.

The renewable energy market is growing

The energy and environmental sector also offer promising opportunities. India has a great need to increase its energy production and reduce dependence on fossil fuels. The market for renewable energy, such as solar and wind power, has grown significantly in India over the past few years.

The technological development and digitalisation open up opportunities for Finnish companies in India. The energy and environmental sector also offer promising opportunities.

There is also a huge need for infrastructure development in India, and several massive infrastructure projects are under way in the country. Improving the road, rail and air traffic networks is essential to the sustainable growth of the country's economy. The government has invested considerable sums in metro systems, ports and roads. This provides opportunities for international companies to provide technical expertise, equipment and services for these projects.

Liberalisation of regulation and trade as a trend, political risks still exist

India's regulatory environment has traditionally been characterised by state control and regulatory complexity. However, since the 1990s, India has implemented a series of reforms aimed at liberalising the economy and attracting investment. The reforms include the liberalisation of trade, the deregulation of industry and allowing the growth of foreign investments in various sectors.

Bharatiya Janata Party (BJP) Prime Minister Narendra Modi has led India since 2014, and his policies have influenced the country's development in many areas. The BJP is a Hindu nationalist party that emphasises preserving India's Hindu identity. In economic policy, BJP emphasises market orientation and the promotion of business life, and under Modi's leadership, India has sought to implement extensive economic reforms. An example is the Goods and Services Tax (GST), launched in 2017, which combined the different taxes previously applied in different states of the country into a unified system.

BJP's and Prime Minister Modi’s position in the Indian political field have strengthened in recent years. Concentration of power can always be considered a political risk. During Modi's reign, it has been observed that the country's state of democracy has deteriorated. The party's administrative reforms and legislative changes have raised questions about their impact on fundamental rights and citizens' freedoms. The party has also been accused of religious intolerance and promoting Hindu nationalism at the expense of other religions.

Despite Modi's widespread popularity, the BJP lost the Karnataka state election in May 2023. Karnataka is one of India's most prosperous states and the defeat means that the BJP will lose the only state it controls in the southern part of the country. India’s next parliamentary elections will take place in 2024.

Also, India has not condemned Russia’s aggression in Ukraine, which has raised criticism towards India. On the other hand, trade relations have continued, and the EU is also continuing negotiations to create a new trade agreement.

Finnvera can guarantee exports to India with many instruments - Team Finland is present in India

Finnvera's exposure in India has varied over the years, and at the end of 2022 the country was not among Finnvera's ten largest country exposures. Finnvera applies a flexible country policy to India, which means that it is possible to use various Finnvera's export financing instruments to India, as long as the buyer's credit risk and financial structure are in order.

Competition in the Indian market is fierce, as in many other markets. India's Team Finland network serves all companies and industries throughout the country. Finland's representative offices help companies make contacts, offer market information and support with challenges related to market access.

The Author:

Jere Nieminen, Senior Adviser, tel. +358 29 460 2936, [email protected]

Jere Nieminen is Senior Adviser in Finnvera's country risk management team and specialises in monitoring the development of the MENA and South Asian countries, including India.

Read also:

Take a look at Finnvera's country risk classification map to see under what conditions Finnvera can guarantee or finance exports to different countries. The map also shows countries where export guarantees cannot be granted.

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