Market Entry to India

Venturing Renewable Energy

By: Muhammad Fahim Bin Haja Hamid

(SCKL00040244)
Contents
1. Introduction
2. Country Profile
2.1 Demographic, Geographic, Climate
2.2 Language & Religion
2.3 Government
2.4 Doing Business in India
2.5 Current Situation
2.6 Business Culture
3. The Energy Market in India
4. SWOT Analysis
5. Conclusion
6. Reference
1. INTRODUCTION

In recent days, the word climate change and global warming are arising almost everywhere. The
world is going through desperation for renewable, eco-friendly, and cost efficient energy source
since the CO2 emission index had gone beyond its limit. India had taken various initiative to
reduce CO2 emission, there had many planning for energy sector to transform to renewable energy
since Prime Minister Nerendara Modi was elected (Jyoti Parikh 2009). According to Indias Prime
Minister Nerendra Modi during his last trip to US, More than 300 million of its population are
lacking of electricity due to reducing source of traditional energy and increasing cost of production
(India Newsletter n.d). India is in great need for renewable energy by 2030 to tackle their energy
issue.

It is an excellent opportunity for foreign green tech companies to venture in India, as India lacks
of technology to produce the renewable energy equipments on its own. Its clear that there is a
huge demand for renewable energy business in India. This paper closely studies the market entry
to India from international business perspective for venturing renewable energy business in India.

2. COUNTRY PROFILE

2.1 Demographic, Geographic, Climate

India has the second largest population of 1.24 billion people in 2011 (WDI, 2012). India is located
in southern part of Asia, and the total Landmass covers more than 3.3 million km2 making India
7th largest landmass(IEA 2011) in the world and the largest peninsula in the world, consisting 28
states and 7 union territories (FOA n.d). India is one of the biggest country in terms natural
resources (CIA World Factbook n.d), making India is an excellent place to do business with
because of its vast amount of minerals and land space.
 Below just to show where India Is Located:

Figure 1 (Geology n.d)

Climate in India can be described as a tropical monsoon country. The country has 4 seasons namely
summer during March to June, monsoon during June to September, post-monsoon during October
to November, and winter during December to February. However it can rain heavily sometimes,
causing floods in many parts of India due to lack of urban planning. (FOA nd)

2.2 Language & Religion

India if one the most diverse nation in terms of its cultural and religious aspect. India has
approximately 415 active language which have been spoken in many parts of India and practices
6 different religions namely Hinduism (78.35%), Islam (14.88%), Christianity (2.5%), Sikhism
(1.9%), Buddhism (0.8%), and Jainism (0.4%) (trekkingagencynepal n.d). English and Hindi are
the two most widely spoken and official language of India which the whole nation able to converse
and compulsory to be thought in all school in India (voyagesphotosmanu n.d.). Furthermore, India
is the birthplace of some major religion in the world namely Hinduism, Sikhism, Buddhism and
Jainism.
2.3 Government

India is the largest democratic country in the world. The head government offices and central
government is located in New Delhi, where all the decision made from there. The president is the
head of country and the prime minister is the head of the government. India practices bicameral
parliament system where it was adapted from British since they ruled India once, the parliament
consist lower house (Lok sabha), and upper house (Rajya Sabha). The president hold the major
power in India, whereby the president is the commander of the army, full power on judicial and
Legislative system of India. Meanwhile, the policy making is carried out by the prime minister.
(VSALR n.d.)

2.4 Doing Business in India

India is one of the best and exciting places to do business with, it is being one of the developed
countries in Asia makes it a very good place for business. With the right business it is easy to turn
a profit as it not an easy place to make an honest living or buck (Rissik 1994.). Furthermore, India
rank 130 out 194 accordingly to the survey that was done in 2016 for ease of doing business.

There are quite a lot of benefits of doing business in India for example labor costs extremely lower
than other emerging markets. It is also quite favorable when it comes to corporate tax rate
compared to other emerging markets. Other costs such as rent, cost of labor, land, human resources,
transportation and general living expenses do vary from province to provinces. (Why invest in
India 2011.)

2.5 Current Situation

India's economy flexibility ranked at 54.6, making its economy the 128th flexible in the 2015
Index. Its score is around 1.1 focuses from a year ago, with humble upgrades in business
opportunity, property rights, and flexibility from debasement balance by decreases in labor
flexibility and exchange opportunity. India is positioned 26th out of 41 nations in the Asia Pacific
region, and its general score keeps on being below the regional and world averages.
Indias state of economic freedom were unmodified more than five years. The states presence in
the economy remains extensive through state-owned enterprises and failure subsidy programs that
cause frequently high budget shortfalls. In the absence of a well-functioning legal and regulatory
framework, a weak rule of law exacerbated by corruption in many areas of economic activity
undermines the emergence of a more vibrant private sector. India remains a mostly unfree
economy.

Under the reform minded Prime Minister Modi administration has carried out some essential
organizational alterations with a focus on reforming the ineffective and bloated government sector,
improving managing public finance, and improving the business and investment environments.

In recent article published by the World Bank, India has promised to become as the worlds super
growing economy by the year 2015. During the fiscal year between 2015 and 2016 India has set
their expectation on growth of Indias Gross Domestic Product (GDP) by 7.5 per cent as reported
by the World Bank. (World Bank 2015)

Since Prime Minister Narendra Modi elected in 2014 India has witnessed robust reformation in
the government systems that greatly enhanced the economic fundamental of India, The Reserve
Bank of India have been ordered to strongly monitor the inflation of global commodity material
prices so that prices of raw mater doesnt hike up fast. (RBI 2015)

Market Overview

In the recent report by International Monetary Fund (IMF) Outlook April 2015, India was ranked
as 7th in terms of the Gross Domestic Product (GDP) at the current value and is set to grow by 7.5
% by the year 2016. (IMF2015)

There was significant changes in the dimension of Indias economy is valued to be at Rs129.57
trillion (2.01 trillion USD) for the year 2014 as compared to Rs 118.23 trillion (1.84 trillion USD)
in 2013. Over the past years India has seen multiple changes on the economic growth in financial
year 2015 at 7.3 per cent compared to financial year of 2014 valued at 6.9 percent. (IMF 2015)

Investments & developments in India

India has emerged one of the strongest performers with relevance deals across the globe in terms
of mergers and acquisitions (M&A). M&A activity raised in 2014 with contracts value US$ 38.1
billion being all over, compared to US$ 28.2 billion in 2013 and US$ 35.4 billion in 2012. The
overall contacts price for the month of July 2015 was US$ 6.7 billion involving a complete of 156
contacts, that were higher in terms of volume (47 per cent) and price (17 per cent) compared with
constant amount last year. Within the M&A area, Energy and natural resources was the dominant
sector, amounting to 38 per cent of the full dealings price. Also, personal equity (PE) investments
enhanced 16 per cent y-o-y to US$ 2.2 billion, marking the very best activity in 2015. (Grant
Thornton Group India 2015)

Indias Current Projects

Numerous foreign firms were putting in their facilities in Indias goal of various government
initiatives like made in India and Digital India. Mr. Narendra Modi, Prime Minister of India, has
launched the made in India initiative with Associate in Attention aim to boost up the producing
sector of Indian economy. This initiative is predicted to extend the buying power of a mean Indian
consumer, which might boost the demand, and therefore spur development, additionally for
benefiting investors. Besides, the govt. has additionally come back up with Digital India initiative
that focuses on 3 core components: creation of digital infrastructure, delivering services digitally
and to extend the digital skill. Minister of finance mister Arun Jaitley expressed that the govt. is
gazing variety of reforms and backbone of unfinished tax disputes to draw in investments.

Currently, the producing sector in India contributes over fifteen per cent of the gross domestic
product. the govt. of India, under the made in India initiative, is attempting to convey boost to the
contribution created by the producing sector and aims to lift it up to twenty five per cent of the
value. (Press Information Bureau 2015)

Future of India

The International fund (IMF) and also the Moodys Investors Service have forecasted that India
can witness a GDP rate of growth of 7.5 per cent in 2016, thanks to improved investment
confidence, lower food costs and higher policy reforms. Besides, in step with mid-year update of
UN World Economic scenario and Prospects, India is predicted to grow at 7.6 per cent in 2015 and
at 7.7 per cent in 2016.
As per the newest world Economic Prospects (GEP) report by World Bank, India is leading the
countries Banks growth chart for major economies. The Bank believes India to become the
quickest growing major economy by 2015, growing at seven.5 per cent.

According to mister Jayant Sinha, Minister of State for Finance, Indian economy would still grow
at 7 to 9 per cent and would double in size to US$ 45 trillion in an exceedingly decade, turning
into the third largest economy in absolute terms.

Furthermore, various initiatives like made in India and Digital India can play an important role
within the driving the Indian economy.

Exchange rate: INR 1 = US$ 0.015 as on Dec 1st, 2015 (Reserve Bank of India 2015)

Challenges

India have experienced extraordinary economic development since its reforms in 1991. Since that
time, the country has seen a significant reduction in poverty and huge improvements in the standard
of living. India now has an economy with a vibrant private sector and a mushrooming middle class,
however, faces increasing challenges to maintain its economic growth. In the first quarter of 2012,
the Indian economy raised by 5.3%, the lowest in almost a decade. With rushing trade and budget
deficits, and a depreciating currency, widespread concern exists over whether India could see the
return of a 1991-like crisis (FT, 2012). To revive the vibrancy of its economy, a well-functioning
and financially-sound energy sector is critical to allow India to sustain further economic growth
and reduce negative impacts on its public finance. This will require an accelerated transition to an
energy sector based on market economy.

Setting up business in India

Setting up a Company in India requires long admin process that will lead to communicate various
authorities. All business must first get approval from the reserve bank of India to check whether
the business proposal is allowed or not. It is vital to get a consultant before making any action that
will lead to expansive process.

In India most of the foreign investors prefers Private Limited Companies (PLC) business model.
The PLC model allows the investor to choose various forms ownerships such as joint venture
partnership with an Indian partner or with public offering, or fully own the company by 100 %
with foreign ownership model. It takes roughly 6 to 8 weeks to establish a PLC in India.

Once done setting up the company, all companies must be applied for a Permanent Account
Number (PAN) for taxation process. This unique number will enable the government of India
communicate the company.

Additionally, the company must get approval from the government for license registration
regarding pollution control, investment value and location approval. Furthermore, the company
must also get approval from state government concerning the land, water, energy, and further
registration.

In India there are three forms of tax that impacts the foreign investors, namely corporate income
tax (30% - 40%), Standard tax on dividend (15%), Value-added tax (12.%) since September 2012.
Over the days, there was many tax reform planning to decrease burden for companies and
individual income tax. However, there were numerous conflicts and misunderstanding within the
government regarding the rates implementation of VAT and GST which is expected to be
implement by somewhere around end of 2017. (Dezan Shira & Associates 2015)

Transport and Logistic Infrastructure

Indias transport sector is huge and diverse, it provides to the needs of 1.1 billion individuals. In
2007, the sector backed about 5.5 percent to the nations GDP, with highway transportation
contributing the biggest share. The infrastructure consists railways, roads, ports, and aviation. This
makes India ideal place for business due its efficient transportation infrastructure. (Indian Brand
Equity Foundation 2015)

Indias Wages

India wages have increased in the second quarter of 2015 from what it was in the first quarter of
2015. Table Below shows the minimum standard wages which set by the government. (Database
of Indian Economy 2015)
 Statutory Minimum Wage
Living Wage
Low Skilled Wage
Medium Skilled Wage
High Skilled Wage
4160 INR (USD 62.61)
7470 INR (USD 112.43)
9000 INR (USD 135.46)
20500 INR (USD 308.55)
43000 INR (USD 647.20)

2.6 Business Culture

Business Customs of India In such a richly diverse and multifaceted country as India it's tough to
convey general conclusions which will be employed by those doing business there. Regionalism,
religion, language and caste is main factors that require to be taken into consideration once doing
business in India. Behavior, rule and approach are all differentiated depends on whom you're
directing to and the context within which they're being addressed.

However, most of them venturing business in India can do as in major cities like Delhi, Mumbai,
Chennai and Hyderabad and with a selected class. Before setting up business in India one must
explore some cultural facts and their influence on business culture and rule.

Language

In India people use different language in different states. The government of India only recognizes
the Hindi language as the official language of India. If one cannot converse in Hindi, English
language can help one to communicate to the local because English language is majorly in many
parts of India.

Hierarchy

Hierarchy plays the major roles in the business culture of India, with various different culture,
religion, cast, etc. the society strictly follows the framework of status and social order. For instance
all the reputation effecting tasks are done by one person who called a `Peon. The peon is
responsible from serving drinks to attending visitors in the office, this system usually cost lots of
time wastage for the company because all depend on one person.

Meetings & Greetings

In India greetings plays a major role in the business culture, in all meetings protocol required to
give a handshake or Namaste. However, Most of the Indian prefers to use to Namaste as sigh of
understanding. Its not just performed by saying, its recommended by placing your hand on the
chest and slightly bow the head. (Kwintessential 2014)

3. THE ENERGY MARKET IN INDIA

In India energy sector traditionally have been operated by the government owned monopolies due
its full capability to operate and provide decent service to its sector. India controlled the power
sector ever since the day of independence of India, the state and central government are the main
bodies that responsible for the energy sector with the primary motive of providing energy available
to everyone. Since the economy boom in 1990s the demand for energy has been rapidly increased
due to its large scale of liberalization, urbanization and industrialization. Since the energy demand
increased the government alone is incapable to meet its demand. This resulted the government of
India to open license to private companies to venture in the renewable energy sector.
(PricewaterhouseCoopers 2015)

The energy sector in India have been traditionally using coal as the major source of energy, since
the cost of using coal increased the government finally decided to find other renewable energy
source. The government of India is currently in need of private companies to come up with new
ideas, the government expects and supports to come up with national level plan. At least 70% of
energy must be generated from renewable energy project, as demand increases annually. There
have been numerous projects of renewable energy that have been offered by the government
namely the solar energy, wind energy, and hydropower. (Financial Times 2015)

Coal, biomass, fuel, oil, gas, nuclear, hydroelectric, other renewables

44% of India`s energy need comes though coal, this is quite a lot of coal been used to generate
electricity while another comes from fuel, biomass, and so on. 28% of coal is exported (Financial
Times 2013).
Figure 2

Above figure 2 shows the total primary energy supply in India 2012, these are the Indian source
of energy. (Eia-gov 2012)

ENERGY CONSUMPTION SECTORS

Figure 3 (Ministry of Environment, Forest and Climate Change of India 2013)

As show above in figure 3 their energy consumption in different areas

Energy consumed by Residents

The more rising residence the more energy consumption, energy consumed by residence is
forecasted at 10%. Most of the energy to residences are coming from Coal due to its consistent
supply, especially in remote areas. (MOEF 2015)

Industries Energy Efficiency

Since the government of India accepted the reality of growing energy demand, the country came
up with various plans to reduce the demand. The initial aim is to cut the demand by 15% by end
of 2015. Its main target of energy efficiency plans are the industry, transportation, and so on.
(MOEF 2015)

Wind Energy in India

The capability of wind energy in India are exceptionally tremendous, contingent upon diverse
desires of proficiency, turbine statures, measure and land use. The latest authority gauges by the
National Institute of Wind Energy, which look into just land regarded suitable for wind turbine
installations, put add up to coastal wind power potential with a center point stature of 100 meters
at 302 GW. The most encouraging locations are in the west and south, with around 90% of the
potential in the conditions of Tamil Nadu, Andhra Pradesh, Madhya Pradesh, Karnataka,
Maharashtra and Gujarat. Wind power era is anticipated to increment unequivocally, with
introduced limit ascending from 23 GW to 142 GW in 2030. Further advancement is not compelled
by absence of wind assets, but rather by various difficulties, running from area procurement and
endorsement procedures, to make agreements on a suitable structure for force buys by dispersion
utilities. Rival with solar power is another element constraining further development in wind
power: notwithstanding multiplying unequivocally, introduced wind limit develops at not as much
as a large portion of the pace of solar PV, to some extent because of the narrowing hole in the
expense of sunlight based contrasted and wind (and its full coverage by the late 2020s), and the
far reaching nature of solar powered assets that makes it workable for expansive utility-scale solar
based activities to be assembled closer to request focuses. Costal wind ranches bypass land
obtaining issues, however their viewpoint is hosted by higher speculation prerequisites and costs.
Another approach to overcome issues connected with area buys is to construct wind towers on
existing farmland, permitting agriculturists to raise extra salary from charges to the administrators,
without prejudicing their capacity to cultivate the area. (National Institute for Wind Energy, 2015)

4. SWOT Analysis

This SWOT analysis is for the renewable energy companies that are interested in Entering the
South India Market.

Strengths
Efficient workflow
Enormous Engineering skills
Good quality
Ordered workflow
Highly Experienced
Good customer relationship
Reliable people
 Weaknesses
Lack of in depth knowledge of Indian market
Less culture knowledge
Less acquaintances
Different places with totally different culture
Language differences
Funding risks

Opportunities
Government stability
Strong legislative framework
Solid financial network
Availability labor force
Up-to-date and broad infrastructure
Satisfactory tax rates
low labor costs
Suitable climate
Cheap rental cost
 Threat
High crime rate
Traffic jams and pollution in some major cities
High corruption level
Lack of knowledged workers
Laws of employment
Government policy
Unstable currency rate

In conclusion based on the SWOT analysis there are many opportunity there are all can be applied
in the target market. Even there are some challenges and threats in the analysis, these things cannot
be avoided instead we should use it in our process of increasing our opportunity.

5. Conclusion

In conclusion India is one of the best and beneficial place to do business. It being one of the well
developed nations in Asia which makes it a decent place for business. Moreover, there are a
considerable amount of advantages of venturing in India contrasted with other developing
countries. India's Economic dependability level that has been accomplished has not been found in
the country for a long time. Due to this a lot of opportunities has been given for real increase in
expenditure, social services and reduce of costs and risks for investors, making the foundation for
increased investments. Indias infrastructure is one of the best in the whole of Asia. I hope by using
this market entry strategy research any foreign renewable company can penetrate the market
effectively into India.
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