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Doing business in India: Entering the market

The workforce, funding, tax and contracts

Entering the market

Foreign firms are seen both as partners and as competition, with overseas firms seen as having more expertise and cash. Local firms which are now international include engineering and construction firm L&T, Tata Power, Reliance, energy firm Suzlon and infrastructure group GMR. SMEs include construction and engineering firms KMC, Nagarjuna, IVRCL and Gammon.

Workforce

There has been a substantial drop in the number of qualified engineers – between 1995 and 2005 numbers reduced from 4.7 per cent to 2.7 per cent. The skilled workforce also reduced from 15.3 per cent to 10.6 per cent but the unskilled workforce rose from 73.1 per cent to 84.3 per cent of the total population. So there is a clear need for more skilled people into the country and the development of the existing workforce. The Plan says: “The construction industry, particularly at the road and highway sectors is facing acute shortages of contracting agencies.”

Funding, tax and contracts

Many projects are now allowed 100 per cent Foreign Direct Investment (FDI) funding without prior permission and the government is simplifying the approvals process all the time. These include Greenfield airports, infrastructure, power and housing. India has about US$21 billion of FDI a year which is below a target of £20 billion.

Taxes can be quite high but the government has brought in incentives for infrastructure, such as tax holidays of 10 years. Income tax is 33.99 per cent.

Most contracts are Engineering, Procurement and Construction (EPC) which might include supply of equipment, installation, services and software transfer which covers onshore and offshore activities.

Sahara City Homes

Cost consultant Gleeds is project managing the development of over 200 new towns in India, worth up to £100 billion and taking about 25 years to build (Construction News 29 January). Construction has started on the first 80 ha town expected to house around 10,000 residents, situated outside Lucknow in Northern India. It includes a health club, a community centre, a swimming pool, spa and fitness centre, a shopping mall and a 150-room hotel.

Local contractors are being used at the moment but there may be opportunities for UK firms. Stuart Senior, managing partner of Gleeds Nottingham, who is running the project, says: “It’s very labour intensive and there is a lot of modular and prefabricated building. The use of mechanical equipment is increasing too.” But the process is still very labour-intensive.

Mr Senior says that like the rest of the world, the market has quietened recently but will recover in the next 6 to 12 months.

In terms of opportunities for UK firms, he says it may be difficult to compete for shell or envelope contracts but there are opportunities for fit-out contractors.

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